|Personal Finance||Saturday, March 10, 2001|
|LIFE INSURANCE POLICIES|
What is life Insurance?
Life insurance is a contract for payment of money to the person assured or to the person entitled to receive the same on the occurrence of the event insured against. Usually the contract provides for -
What is a life insurance policy?
What is a life insurance contract?
When does the insurance company pay the money to the insured?
What is "Insurable Interest"?
The proposer must have an insurable Interest in the life to be insured. This means that
the proposer stands in such relation to the person being insured that he suffers loss by
his/her damage and is benefited by his/her safety or existence. In every life insurance
contract it is a pre-requisite to have Insurable Interest in the life that is being
Who is the beneficiary?
Who is the proposer?
What is the insured amount?
What does life proposed mean?
What does life assured mean?
What is a Whole Life Policy?
When most people think of life insurance, they think of a traditional whole life policy. These are the simplest policies to understand: You pay a fixed premium every year based on your age and other factors, you earn interest on the policy's cash value as the years roll by, and your beneficiaries get a fixed benefit after you die. The policy takes you into old age for the same premium you started out with. Whole life insurance policies are valuable because they provide permanent protection and accumulate cash values that can be used for emergencies or to meet specific objectives. The surrender value gives you an extra source of retirement money if you need it.
What is an Endowment policy?
Unlike whole life, an endowment life insurance policy is designed primarily to provide a living benefit and only secondarily to provide life insurance protection. Therefore, it is more of an investment than a whole life policy. Endowment life insurance pays the face value of the policy either at the insured's death or at a certain age or after a number of years of premium payment.
Endowment life insurance is a method of accumulating capital for a specific purpose and protecting this savings program against the saver's premature death. Many investors use endowment life insurance to fund anticipated financial needs, such as college education or retirement.
Premium for an endowment life policy is much higher than those for a whole life policy.
What is a Money Back policy?
This is basically an endowment policy for which a part of the sum assured is paid to the policyholder in the form of survival benefits, at fixed intervals, before the maturity date. The risk cover on the life continues for the full sum assured even after payment of survival benefits and bonus is also calculated on the full sum assured. If the policyholder survives till the end of the policy term, the survival benefits are deducted from the maturity value.
What is a paid-up policy?
According to LIC rules and regulations, once you pay the premiums on a life insurance
policy for 3 full years, the policy does not become wholly void 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 full sum assured as
the number of premiums actually paid to total number of premiums originally stipulated as
payable under the policy.
Annuity schemes are those wherein your regular contributions over a period of time (or a one-time contribution) accumulate to form a corpus with the LIC. This corpus is used to yield you a regular income that is paid to you until death starting from your desired retirement age. Some annuity schemes have the option to pay your survivors a lump sum amount upon your death in addition to the regular income you receive while you are alive.
What are With Profit and Without Profit Plans?
LIC distributes its profits among it policyholders every year in the form of a bonus/ profit share. An insurance policy can be "with" or "without" profit. In the former, any bonus declared is allotted to the policy and is paid at the time of maturity/ death (with the contracted amount). In a "without" profit plan, the contracted amount is paid without any profit share. The premium rate charged for a "with" profit policy is therefore higher than for a "without" profit policy.
What is Bonus?
LIC distributes its profits among it policyholders every year in the form of a bonus. Bonuses are credited to the account of the policyholder and paid at the time of maturity. Bonus is declared as a certain amount per thousand of sum assured.
result into claim during the currency of a financial year. Final bonus is declared only at the end of the financial year when the final accounts of LIC are made up. Therefore, the policies maturing during the year are paid proportionate interim bonus for the period from the immediately preceding March 31 till the date of maturity or claim of the policy. This bonus is generally paid at the same rate as the last bonus declared by LIC on the policy.
What are Guaranteed Additions?
In some policies, LIC guarantees the bonus/ profit declared as a certain amount per thousand of sum assured. This assured bonus will be credited to the policyholder irrespective of the performance of LIC and is known as Guaranteed Additions. Guaranteed Additions will be payable at the end of the term of the policy or early death of the policyholders.
What are Loyalty Additions?
In some policies, over and above Guaranteed Additions, LIC will declare and credit to the policyholder, an additional amount per thousand of sum assured every 5 years, depending on its performance. This additional amount is known as Loyalty Addition.
What are Survival Benefits?
In some policies, a part of the sum assured is paid to the policyholder in the form of Survival Benefits, at fixed intervals before the maturity date. The risk cover for life continues for the full sum assured even after payment of survival benefits and bonus is also calculated on the full sum assured. If the policyholder survives till the end of the term, the survival benefits will be deducted from maturity value.
What are Accident Benefits?
On payment of an additional premium of Re1 per Rs 1, 000 of sum assured per year, the assured is entitled to the following benefits: -
What are Disability Benefits?
If the assured becomes totally and permanently disabled due to any accident, he need not pay future premiums and his policy shall remain in force for the full sum assured.
What are the various modes of payment for premium?
Premiums, other than single premiums, can be paid by the policyholders to LIC in yearly, half-yearly, quarterly or monthly installments or through a Salary Savings Scheme. If the mode of payment is yearly or half-yearly, LIC gives a rebate of 3% and 1.5% respectively on the premium. If the mode of payment is monthly, LIC charges an additional 5% (this additional charge is waived for the Salary Saving Scheme).
What is Salary Savings Scheme?
Salary Savings Scheme provides for payment of premiums through monthly deductions by the employer from the salary of employees. For this scheme, the additional charge of 5% of the premium usually added for the monthly mode of payments will be waived.
What are Medical and Non-Medical Schemes?
Life insurance is normally offered after a medical examination of the life to be assured. However, to facilitate greater spread of insurance and also as a measure of relaxation, LIC has been extending insurance cover without any medical examination, subject to certain conditions.
What loans are available against life insurance policies?
At present loans are granted on unencumbered polices as follows -
up to 90% of the Surrender Value for policies, where the premium due is fully paid-up, and
up to 85% of the Surrender Value for policies where the premium due is partly paid-up.
The minimum amount for which a loan can be granted under a policy is Rs150. The rate of interest charged is 10.5% p.a., payable half-yearly. Loans are not granted for a period shorter than six months, or on the security of lost policies (the assured must have the duplicate policies) or on policies issued under certain plans. Certain types of policies are, however, without loan facility.
What is Surrender Value?
The cash value payable by LIC on termination of the policy contract at the desire of the policyholder before the expiry of policy term is known as the surrender value of the policy. A policy can be surrendered provided the policy is kept in force for atleast 3 years. The bonus is also added to the surrender value if the policy has been in force for atleast 5 years.
What is a Death Claim?
The claim is usually payable to the nominee/assignee or the legal successor, as the case may be. However, if the deceased policyholder has not nominated/assigned the policy or not made a will, the claim is payable to the holder of a Succession Certificate or such evidence of title from a Court of Law.
How do you effect a Change of Address and Transfer of Policy Records?
When a policyholder wants to change his address in LICs records, notice of such change should be given to the Branch office servicing his policy. Policy records can be transferred from the Branch Office that services the policy to any other Branch Office nearest to the policyholders place of residence. The correct address facilitates better services and quicker settlement of claims.
When does a policy lapse?
When the premium is not paid within the days of grace provided after the due date, the policy lapses. The grace period in case of yearly, half-yearly and quarterly modes of payment is one month and in case of the monthly mode of payment, it is 15 days.
How can a lapsed policy be revived?
A lapsed policy may be revived during the lifetime of the assured, but within a period of 5 years from the due date of the first unpaid premium and before the date of maturity. Revival of a lapsed policy is considered either on non-medical or medical basis depending upon the age of the life assured at the time of revival and the sum to be revived. If the revival of the policy is completed by payment of over-due premium within 14 days from the expiry of the grace period, only the late fee for one month has to be paid.
Can a policy be altered?
No alteration is permissible in the policy document - the evidence of contract, unless both the parties to the contract agree. After the policy is issued, a policyholder in a number of cases finds the terms not suitable to him/her and desires to change them to suit his/her convenience. LIC, as insurer, also realises that insurance being a long term contract, certain changes under given circumstances might necessitate an alteration of the contract. Keeping in view the basic principles of insurance and administrative convenience, LIC permits some alterations. As a rule, LIC will not permit alterations resulting in lower rates of premia and within the 1st year from the commencement of the policy.
What happens if the policy document is lost?
The loss or destruction of a policy document does not in any way absolve the Corporation of the liability of payment of policy monies when the claim arises. If the policy is lost or destroyed, claim or sum assured will be paid to the claimant or policyholder after he/she furnishes an indemnity bond jointly with one surety. Similarly, a policy can be surrendered even if the original policy document is lost. However, for the purpose of loan or survival benefit one has to obtain a duplicate policy. The policy being a legal document, the issue of duplicate policy involves the normal procedures like issuing a newspaper advertisement, surety, etc.
What should be done in the case of a lost policy?
Who can buy a life insurance policy?
What is the procedure when opting for a LIC policy?
What is meant by 'dating back' of a policy?
Who is a life insurance agent?
What is the agent's role?
What is a premium?
Premiums may be one-time or single premiums or they may be paid monthly, quarterly, half-yearly or annually. The mode of premium payment can be changed during the premium paying period.
What is meant by 'days of grace' for payment of premium?
What happens if the premium is not paid?
What is nomination of policy?
How is nomination effected?
Who can nominate?
Nomination can be done only by a policyholder who is a major holding Policy Bond in his own name.
What are the rights of a nominee?
Under Nomination, the Nominee gets only the right to receive the policy money in the event of the death of the policyholder. Nomination does not pass on the property in the policy. If nominee dies when the policyholder is still surviving then the nomination would be ineffective. Nomination has no effect if the policyholder is surviving. If Nominee dies after the death of the policyholder but before receiving policy money, then also Nomination becomes ineffective and money can be claimed only by the legal heirs of the policyholder.
How can nomination be changed or cancelled?
What is meant by assignment of policies?
When can Assignment be made?
Assignment can be made only after acquiring the policy. Assignment can be done only for consideration- for money or money's worth or good, moral and meritorious consideration like, love and affection.
How is a policy assigned?
Assignment can be done by mere endorsement on the policy or by a separate duly stamped deed. Assignemnt can be done by the proposer, policyholder, or the absolute assignee
What are the essential features of assignment?
Can one take loans against life insurance policies?
Policyholders are eligible to take loans on their policies subject to certain rules. The policyholder has to apply for a loan in a prescribed form and submit the Policy Bond with the form duly completed. The loan amount is calculated depending on the Surrender Value (SV) that the policy would have acquired, and approximately 90% of the Surrender Value or 85% in the case of paid-up policies is given as loan.
LIC is currently charging 10.5% interest payable half-yearly on Policy Loans. A policyholder can repay the loan amount either in part or in full any time during the term of the Policy. The minimum repayment should be Rs. 50 and thereafter in multiples of Rs. 10. If the loan amount is not repaid during the term of the Policy or early claim, the amount of loan plus interest, if any, will be deducted from the claim money and the balance amount will be paid to the claimant.
If the interest is not paid regularly every half year, then the interest is calculated on compound interest basis.
No loans are given on children's education or marriage or term assurance or on a lost policy.
What is the procedure for the revival of a lapsed insurance
When does a life insurance policy result in a claim?
On death of the life insured, if it occurs before maturity of the policy, provided policy is in force on the date of death or has acquired paid-up value.
What is the procedure to be followed in the case of maturity of the policy?
What is the procedure to be followed in the case of death of the policyholder?
Are there instances where the insurance company will not honour the claim?
What are the tax benefits available?
Important Income Tax provisions applicable to Policyholders are :
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