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Life insurance is a contract in which the insurer, in consideration of certain payment
to be made to it (called the premium), either in a lump sum or in any other periodical
payments, agrees to pay the assured, his nominee or any person for whose benefit
the policy is taken, a stated sum of money on the happening of a particular event
contingent on the duration of human life. |
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Uncertainty of death is inherent in human life. It is this risk, which gives rise
to the necessity for some form of protection against the financial loss arising
from death. Insurance attempts to alleviate this uncertainty by providing financial
security should such an event happen and therefore provides for
a. family protection and/ or
b. provision for old age and/orc. Investment options, depending on the nature of
the insurance product |
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Life insurance plan is said to be superior to an ordinary savings plan. Unlike many
other savings or investment plans, life insurance offers a combination of three
benefits viz., income protection, savings and investment options, depending on the
policy chosen. In the event of death, a life insurance policy offers the full sum
assured, whereas other savings/ investment plans would make available only the accumulated
savings with interests/ returns. Insurance encourages and forces thrift: A savings
deposit can be too easily withdrawn. Many may not be able to resist the temptation
of using the balance for some less worthy purpose. On the other hand the payment
of life insurance premiums becomes a habit and comes to be viewed with the same
seriousness as the payment of interest on a mortgage. Thus, insurance in effect
brings about compulsory savings.
Ready marketability and suitability for quick borrowing: After the specified initial
period, if the policyholder finds himself unable to continue payment of premiums
he can surrender the policy for a cash sum, alternatively, he can tide over a temporary
difficulty by taking a loan on the sole security of the policy without delay. Further,
a life insurance policy is sometimes accepted as a security for a commercial loan.
Tax relief: Subject to certain limits and conditions prescribed by the Income Tax
Act, 1961 (the “Income Tax Act”), a life insurance plan offers tax benefits
in the form of deductions from income/ rebate on income tax and also exempt from
tax the amounts received under a life insurance policy. When the tax relief is taken
into account it will be found that the assured is in effect paying a lower premium
for his insurance. |
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Answer to this question depends on various factors including (i) the reasons for
seeking insurance viz., as an income-protection, savings or investment tool, (ii)
income sources and amounts other than salary/earnings; (iii) whether or not the
individual is married and, if so, what is the spouse earning capacity; (iv) the
number of individuals who are financially dependent on the life to be insured; (v)
benefits to accrue from an employer-sponsored life insurance plan if available;
(vi) whether any special life insurance needs exist (e.g., mortgage repayment, education
fund, estate planning need); (vii) whether the life to be insured has any other
old-age or super-annuation benefits etc. Rough estimates suggest an amount of life
insurance equal to four to five times of ones annual earnings. |
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Coverage under a life insurance policy begins once the proposal made to the life
insurance company is accepted and communicated and the person making the proposal
has paid the first premium. Most companies provide some temporary conditional coverage
during the application process assuming certain conditions are met. This temporary
coverage is limited in time and amount. The availability, amount and conditions
are described in the application and vary from company to company. If you are replacing
existing coverage, you should never drop your existing coverage until your new policy
has been approved, and your first premium has been paid. |
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There is no single guidance or rule for this. Initially, life insurance for appropriate
amounts should be effected on the family breadwinner(s). It is of utmost importance
that the income earning capacity of the primary breadwinner be fully protected,
if possible, through the purchase of the required amount of life insurance before
contemplating the purchase of life insurance on children or on a non-wage earning
spouse. In a dual-earning household, it is important to protect the income earning
capacity of both spouses. Life insurance on a non-wage earning spouse is often recommended
for the purpose of paying for household services lost at this individuals death. |
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First, if permanent insurance (i.e. whole life or universal life) is purchased at
a very young age, the insurance company will often guarantee the child the right
to buy more insurance later in its life at regular intervals without providing any
evidence of insurability. In other words, if you buy a little now, you are guaranteeing
your child's right to buy more coverage later, without having to submit to a medical
examination, and without having to answer any health questions.
Second, insurance premiums are significantly lower for children, than for adults.
And, although you'll be paying for a longer period of time, the earlier you start
a plan of permanent insurance, the lower the total of the payments will be over
one's lifetime.
Third, if permanent policies are started early, there is more time to build cash
values, which can be used to help fund college expenses, or provide cash for other
purposes, including retirement, or a down payment on a house, etc. Some companies
offer term life insurance for children. Many of these policies include a conversion
privilege, which allows exchange of such coverage for permanent insurance. |
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Premium is the consideration (price) payable periodically to the life insurance
company for the risk undertaken by it under the insurance policy. |
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The person who proposes to enter into a contract of insurance with a life insurance
company to insure himself or another life on whose life he has insurable interest. |
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The person whose life is covered under the contract of insurance. |
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Demand presented for payment of the benefit due under the terms of an insurance
policy. |
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The termination of policy caused by the policyholders failure to pay the premiums
within the stipulated period. |
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The date on which the policy comes to on end and on which the survival benefits
are payable. |
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The amount payable under a life insurance policy on its maturity date. |
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A written document issued by a life insurance company to a policyholder, which expresses
the insurance contract between the company and the policyholder. |
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A person that has entered into a contract of insurance with the insurance company. |
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Yes. When one is purchasing an insurance policy to cover the entire risk, it might
be prudent to break the policy into smaller units. Though this increases the cost
of insurance, as the discount in premium for larger sum assured may not be available,
the benefit may offset this cost. Having multiple policies allows you to discontinue
some policies while continuing the others, in case there is a financial crisis because
of which you suddenly find yourself in a tight spot. After the financial crisis
is over, you may reactivate the other discontinued policies, subject to the terms
of those policies. |
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Section 60(1)(kb) of the Code of Civil Procedure, 1908 states that all moneys payable
under a policy of insurance on the life of the judgment debtor will be free from
attachment. This places an assigned policy outside the reach of the creditors. |
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Underwriting is the process through which a life insurance company takes a decision
whether to accept the risk and if so at what rate of premium, after considering
relevant facts disclosed to it. |
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An insurance policy that provides coverage for a number of people under one contract,
called a master contract. In a Group insurance policy, the policy holder is usually
the employer who contributes premium which is a certain percentage of the salary
of the employees in the Employers organization. However, the employees are the beneficiary
in such Group insurance policies. In general, in a group insurance policy the insurance
company ordinarily cannot turn down any applicant that is a member of the defined
group. |
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Policies, where the policyholders receive bonuses, upon the insurance company generating
surplus and declaring them to the policyholder. Only a "with profit" policy
is eligible to bonus. The bonus that may be receivable may vary year to year according
to the surplus generated by the insurance company. ‘With profit’ policies
are more popular because of the possibility of getting increasing bonus every year
even though the premium payable is higher than the premium paid in ‘without
profit’ policies. |
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Once the premium on a life insurance policy for a specified period is paid in full,
the policy may not lapse even if no subsequent premiums are paid. Such policies
are known as paid-up policies. In such cases, the sum originally assured is reduced
to a sum bearing the same ratio to the sum originally assured as the number of premiums
actually paid to total number of premiums originally stipulated as payable under
the policy.
By way of example, if 6 out of the originally stipulated 30 premiums are paid, the
sum assured under a paid-up policy could still be 20 percent of the original sum
assured by the policy. |
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The practice of insurance companies insuring the risk insured by them is called
reinsurance. |
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- Facts, which show that the particular risk represents a greater exposure than normal.
By way of example, Someone working at heights or underground would be required to
disclose this information, as it will add to the risk undertaken
- External factors, those situations, which make the risk greater than would normally
be expected. For e.g. a person with a dangerous hobby
- Any refusal (declinature) or special terms imposed on previous proposals by other
life insurers;
- The existence of other life insurance policies on the life of the life to be insured
- Full facts relating to the health of the life to be insured
- Generally, to disclose fully and completely all information as required in the proposal
form
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The areas concerned could be:
- Facts of law. The insurer is deemed to know the law of the land
- Facts of common knowledge. An insurer is deemed to know about such things as normal
processes within a particular trade. For example, the work done by a military personnel
- Facts, which lessen the risk. The fact that the proposer undergoes regular health
checks
- Facts, which could be discovered by reasonable diligence. This occurs where an insurer
has been put on inquiry by a statement on a proposal form. The most common example
of this would be where a proposer inserts a phrase see your records instead of completing
fully the previous claims history
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By way of example, |
- Every person has unlimited insurable interest in his own life. It must be noted
that life insurance contracts are not contracts of indemnity
- Husband and wife have unlimited insurable interest in each others life
- A creditor has insurable interest in the life of a debtor to the extent of the amount
involved plus a reasonable amount of interest
- Surety has insurable interest in the life of the principal to the extent of the
surety amount involved
- Partners in a business have insurable interest in the lives of their co-partners
- A company has insurable interest in the lives of the key employees of the company
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