The Life Insurance Corporation (LIC) of India came into existence with the objectives of : i. ii. iii.

Assurance of family protection Tax concession Housing loans

iv. Loans for educational purposes v. Provision for old age

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Basic elements and features of Plans of Life Insurance

A pure term plan Effectively, the premiums paid towards this plan are completely written off if no eventuality occurs during the tenure of the plan only the administration expenses and the mortality charges are covered in the term plans premium; there is no savings element in the premium charged to the insured.

Example
Age (Yrs) Sum Assured (Rs)

Details of Term Plan from ABC insurance company

Annual Premium (Rs) Tenure (Yrs) Total Premium* (Rs) Maturity mount on survival (Rs)

30

1,000,000

3,430

30

102,900
Cont.

Nil

The Life Insurance Policies can be divided on the basis of: 1. 2. 3. 4. 5. Duration of Policy. Methods of Premium Payments. Participation in Profit. Number of Lives Covered. Method of Payment of Sum Assured.

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Riders
RIDERS are add-ons to the basic insurance policy to supplement the cover

provided. One can also combine a set of riders and add it to the main policy.
The most commonly used riders in life insurance policies are: 1. Waiver of Premium.

2.
3. 4.

Accidental Death and Dismemberment.

Guaranteed Purchase Option. Accelerated Benefits Rider.

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Nature of Group Insurance The contract is with the employer or with the group or association. A single master policy is issued covering all the members, as per the terms agreed upon. The amount and terms of insurance are negotiated by the employer or head of the group, and apply equally to all members. Group insurance benefits are provided at a relatively low cost.

The premiums charged on a group policy vary from year to year. This is because of the new entrants into the scheme as well as exits due to retirement, death, etc. Social Security Schemes Social security is a concern in all countries throughout the world. In some advanced countries, the entire living expenses of elderly persons are borne by the state as a social measure. In some countries, unemployment benefits are more than salaries of the employed. In some countries, medical care is free.
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Unit Linked Insurance Plans (ULIP) Unit linked insurance plan (ULIP) is life insurance solution that provides for the benefits of protection and flexibility in investment. Key-Person / Keyman Insurance Insurance designed to protect a business firm against the loss of income resulting from the death or disability of a key employee. Assignment and Nomination Assignment: Assignment can be of two types: Conditional and Absolute. Nomination: An act by which the policyholder authorizes another person to receive the policy money. The person so authorized is called a Nominee.
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Paid Up Value In the case of With Profit or Participating Policy, the bonus or profits upto the period for which premium has been paid will be added to the paid up value. Loans and Surrenders Surrender Surrender is voluntary termination of the contract by the policyholder. A life insurance policy can be surrendered at any time before it becomes a claim. The amount payable on surrender is called the surrender value. Loans Loans are generally granted upto 90% of the surrender value for policies in force and 85% of the surrender value for paid up policies. Insurers charge a rate of interest on the loan sanctioned and do not insist on repayment. Such loans may be repaid, in full or in part, during the currency of the policy or may remain as a debt on the policy monies until the claim arises.
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Foreclosure Foreclosure means closure or writing off the policy before its actual maturity. Foreclosure action is taken when two or more half yearly installments of loan interest are in arrears and a period of ten months has elapsed from the due date of the first unpaid half yearly interest.

Days of Grace
A life insurance policy creates a continuing risk and it merely lapses if the premium is not paid. If the policyholder dies during the currency of days of grace,

the life insurance company will still be liable to pay the claim.

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Suicide
Suicide is a willful and intentional act on the part of the person who opts for self destruction. Life insurance policies contain conditions by which the liability of the insurer is modified and limited in case of suicide by the assured. Under some specified circumstances the insurance company can even avoid paying the policy claim. The burden to prove suicide is upon the insurer. If the cause of death is not known, it cannot be presumed that suicide has

been committed and thus policy cannot be avoided.

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Revival (or) Discontinuation (or) Lapsed Policies When the premium is not paid within the days of grace, the policy lapses. It may be revived during the life time of the policyholder. Normally, it can be revived within a period of five years from the due date of the first unpaid premium and before the date of maturity.

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Difference Between Surrender Value vs. Paid Up Value Surrender Value 1) Surrender Value is the amount which the insurer is prepared to pay on a policy before the date of Maturity. Surrender of policy is expression of desire of non-continuance of the policy by the assured. Surrender value represents the present cash value of a policy. Surrender value is calculated separately for each class of policy, premium paid and years for which policy has been in force. Surrender value increases with each payment of premium. 1) Paid up Value Paid up value is nothing but an entitlement of the policyholder regarding portion of policy amount that bears to the premium paid till date. If a policyholder discontinues the payment of premium, the policy does not become void but continues to have a paid up value. Paid up value represents the value payable on assureds death or at the maturity of the policy. Paid up value is calculated on the basis of number of years premium paid, number of years premium payable and sum assured with accrued profits. Paid up value is always higher than the surrender value since it is not required to be paid immediately.

2)

2)

3)

3)

4)

4)

5)

5)

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Need of Annuity Contracts

The purpose of the annuity is protection against outliving ones income earning age. Now-a- days annuities are becoming very popular. This is due to many reasons like: increasing life expectancies need to maintain same life standard after retirement meeting the medical needs in old age etc.

Four ways are suggested for providing the required support for persons after they cross the stage of active life but in present times annuities are the best tool to manage old age requirements. Lets Examine:

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Joint Family System

Superannuation Schemes Social Security Schemes
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Annuity Contracts

Difference between Annuity Contract and Life Insurance Policies

There are some differences in life assurance and annuity contracts. Some people even call annuity as the reverse application of the life insurance principle.
1. Annuity is protection against living too long whereas the life insurance contract is protection against living too short.

2.
3.

The annuity contract liquidates gradually the accumulated funds whereas the life insurance contract gradually accumulates funds.
Payment generally stops at death in case of annuity contracts whereas in life insurance the payment is usually given at death.

4.

The premium in annuity contract is calculated on the basis of longevity of the annuitant whereas in life insurance the premium is based on the policyholders mortality estimate.
The annuity contract is taken for ones own benefit whereas the life assurance is generally for benefits of the dependents.
Cont.

5.

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Classification of Annuities Different types of annuities were developed due to the variety of needs, interests and convenience, of the annuitants. Annuities are even classified on the basis of benefits payable, and premium payment. Classification 1. By commencement of income

2.
3. 4.

By Mode of premium
By number of lives covered By disposition of proceeds

Classification according to commencement of income

1.
2. 3.
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Immediate Annuity/Straight Life Annuity

Annuity Due Deferred Annuity
Cont.

Classification according to the mode of premium 1. 2. Level Premium Annuities Single Premium Annuities

Classification according to the numbers of lives covered 1. 2. Single Life Annuity Multiple Life Annuities

Classification according to the disposition of proceeds

1.
2.

Life Annuity
Guaranteed Minimum Annuity
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