Life Insurance is a contract between the person who takes an insurance policy and an insurance company. The contract provides for payment of a sum of money to the life assured or to his nominee on the happening of an event. The event may be either death or the person surviving a specified age.

A family is generally dependent for all its economic needs on the regular income brought by the breadwinner of the family. The uncertainty of deaths inherent in human life. As long as the breadwinner lives and the income is received steadily, that family is secure; but his sudden death leaves the family in a very difficult situation and sometimes in stark poverty. It is this uncertainty i.e. the risk, which gives rise to the necessity for some form of financial protection-loss arising from death. Insurance substitutes this uncertainty by certainty and also that of living to old age without visible means of support.

The person on whose life risk is covered by an individual life insurance policy is called life assured.

It could be-

1. Financial security for the family
2. Provision for old age
3. Children’s education.
4. Redemption of loans
5. Tax saving

Yes, if other people are dependent on a person and will suffer financially if he dies, then he needs life insurance. Life insurance is a necessity for anybody who has dependent children.

A person who has attained majority (over 18 years of age) and is eligible to enter into a valid contract can buy an insurance policy for himself and on those in whom he has insurable interest.

It is sometimes argued that insurance is a sort of gamble. It is said that an individual is tempted to receive a large sum of money by paying a small amount of premium on happening of a contingency such as death. It is wrong. Rather the purpose of insurance is to protect the insured against intrinsic losses resulting from hazards beyond his control. The life assured should not and does not gain on the occurrence of the event insured against. He is indemnified to the extent of the loss suffered by him. The limit of liability is, of course the sum assured. The principle of indemnity cannot be applied and does not apply to a Life Insurance contract because of putting a monetary value on human life, which is invaluable.

Risk depends upon need for insurance, state of health, personal habits, standard of living and income of the insured person. The danger that an insured person might deliberately attempt to conceal or misrepresent information or go in for speculative insurance causing an extra risk to the insurer is moral hazard. Moral hazard is the risk factor that affects the decision of an insurance company to accept the risk.

There is no such restriction, but it is not in policyholders’ interest to revive a lapsed policy after 5 years on account of heavy sum that he will have to pay on revival for the arrears of premiums and the interest thereon.

It depends upon the individual human life value which is a measure of the actual future earnings or service of an individual i.e. it is the capitalized value of an individual’s net future earnings after subtracting the self-maintenance cost. The rough rule is: 15 to 20 times of your annual income depending on remaining working life OR 20% of annual income as premium.

Whole Life Assurance Plans: These are low cost insurance plans where the sum assured is payable on the death of the insured.

Term Assurance Plans: The sum assured is payable only on the death of the life assured during the term.

Endowment Assurance Plans: The sum assured under these plans is payable on the date of maturity of the policy or on the death of the life assured, if earlier.

Pension Plans: The plans provide for immediate or deferred pension for life to the purchaser.

A with-profit plan is one entitled to Bonus which is paid at the time of claim- death or maturity. A without-profit plan does not participate in bonuses and in it the contracted amount is paid without any addition.

It is the value payable to the policyholder in the event of his deciding to terminate the policy at a particular point before the maturity date.

Surrender value will accrue after premiums have been paid for three years. The GSV is 30 % of all the premiums paid excluding first year premium and all extra premiums. This is a minimum surrender value stipulated by Insurance Act.

Insurers normally offer surrender value favourable than GSV stipulated by Insurance Act. These scales are revised by the insurer from time to time depending upon their experience and the competition.

Cases under which the policies cannot be surrendered:

1. where the assignee is minor
2. where policyholders or conditional assignee has become insane or is an under discharged insolvent
3. where prohibitory attachment order has been served on the insurer attaching the policy moneys
4. where title is not clear

Normally, after 3 years’ premiums have been paid under the policy. Loan is not admissible under some of the policies like money-back. Conditions printed on the back of the policy document do indicate whether the policy is admissible or not.

It keeps on varying with the experience of earning rate of the insurer on total investments. The present rate of interest charged by insurance companies is 10.5% compounding half-yearly.

When the premium is paid for full three years and subsequent premium be not duly paid, the policy lapses and acquires paid up value automatically. Under such policies, the paid up value becomes payable on the happening of contingencies insured in the policy, e.g. death, survival to maturity date, etc, the paid up value of the policy is reduced sum assured calculated on a proportionate basis by the use of following formula for most of the plans of LIC of India. P.V.= Number of premiums paid /No. of premiums payable x Sum Assured.

Paid up values for money back plans and some other similar type of plans are normally shown in the privilege conditions of the policy.

In case of with profit policy, bonuses already vested remain attached.

Paid up policy is not eligible for additional benefits attached to the policy, viz

1. Double Accident Benefit
2. Survival Benefit payment payable under money back policies
3. Guaranteed additions

The policyholders are expected to pay the premium on the due dates. A period of one month but not less than 30 days is allowed as grace to make payment of premium under a yearly, half-yearly or quarterly mode policy. The grace days are 15 in case of monthly mode policy. No interest is charged for payment made within days of grace. Policy remains in force and the claim becomes admissible during the grace period.

Normally when premium due under a policy is not paid within the grace period, policy lapses and the insurer is not on the risk after the expiry of the grace period. However, some of the insurance companies provide some concessions to this rule with certain conditions. These concessions provide risk coverage to the policyholder for some limited period beyond the grace period.

Premiums paid towards an insurance policy are eligible for tax deduction under Section 80 C of the Income Tax Act upto a total of Rs. One lac24. Can a person pay premium on the life o his wife and children and claim rebate from income tax?

In simple words, assignment means legal transfer of rights. It is a method by which the holder of a policy can pass on his interest to another person. An assignment can be made by an endorsement on the policy document or as a separate deed. An assignment made on the policy document is exempt from stamp duty. However, if it is made by a separate deed, it attracts stamp duty.

There are two types- conditional & absolute

Conditional assignment is useful where the policyholder desires the benefit of the policy to go to a near relative in the event of his early death. This assignment is effected for natural love & affection.

Absolute assignment is made for valuable considerations like raising of loan from an individual/institution. The assignment has the effect of passing the title permanently.

Section 60, clause (kb) of the code of civil procedure lays down that all moneys payable under a policy of insurance on the life of the judgment-debtor will be free from attachment. This places an insurance policy outside the reach of the creditors.

Nomination indicates the person authorized to receive the policy moneys, on the payment of which the insurer gets a valid discharge of its liability. Nomination is done as per section 39 of the Insurance Act, 1938. A policyholder can effect the nomination in favour of a person/s to receive the policy money in the event of the policy becoming a claim by death of life assured during the currency of the policy.

Yes, the life assured has the right to change the nomination on his policy any number of times during the currency of the policy.

Yes, but the payment of policy money cannot be made in specified shares to the nominees. Where there are more nominees than one, the policy moneys become payable to the nominees jointly who survive the assured.

The nominee has no rights to surrender a policy as long as the life assured is alive.

A minor can be nominated as a nominee, but in that case it is advisable to appoint an Appointee to receive the policy moneys in the event of the death of the life assured during the minority of the nominee.

Yes, a trust can be appointed as a nominee.

An assignment cancels the nomination. Therefore, when policy is reassigned, a fresh nomination needs to be made on it.

The insurer can allow certain alterations keeping in view the basic rules of acceptance of risk. The policy terms are then modified. Alterations are not allowed in the first year of the policy, unless they are in the nature of clerical mistakes.

Some of the alterations are permissible during the first policy year just as corrections in the policy, conversion into Salary Savings Scheme or financing of the policy from PF account, alteration in name, bringing the policy under the provision of MWP Act, alteration in age providing higher or lower, settlement options, granting premium waiver benefit and accident benefit.

As a general rule alterations may be allowed for in force policies and not for fully paid up /lapsed policies.

Normally, no alteration is allowed as a rule with in 1 year of the commencement of the policy with certain exceptions.

Some policies provide a part or bulk payment of sum assured on survival of life assured to specified date/s before maturity date. Benefits payable on such dates are called survival benefits.

The payment to the policyholder at the end of the stipulated term of the policy is called maturity claim. This is the amount paid when the policy matures.

Premiums under life insurance policy depends on the age of the life assured. So, insurer calls for the proof of age at the time of issue of policy. In case the age is not admitted, it is likely to delay the settlement of claim.

Under this scheme, all the arrears of unpaid premiums with interest along with the evidence of good health (whenever necessary) are required.

If the policyholder is not in a position to pay the entire arrears of unpaid premiums with interest, the policy can be revived under this scheme. Under this, the date of commencement is shifted to a later date giving credit of number of instalments already paid.

Sometimes the policyholder, who wishes to revive the policy, may find it difficult to pay the arrears of premium and interest theron in lumpsum. For such cases, the instalment revival scheme is suggested.

Sometimes the policy bond gets lost and the policyholder is anxious to get the duplicate policy bond issued in lieu of lost one. The loss or destruction of lost policy document does not in any way absolve the insurer of the liability of payment of policy moneys when the claim arises. If the policy bond is lost or destroyed, claim will be paid to the claimant who furnishes an indemnity bond jointly with one surety. The insurer can also issue a duplicate policy on getting some formalities completed from the policyholder.

The main difference is in the flexibility in the choice of investments. In the case of unit-linked life insurance, the insurance company would usually offer a choice of different funds (say, with a differential mix of bond and equity investments) in which the policyholder can opt to invest his/her contributions. These funds differ by virtue of their risk exposure and their appreciation potential. The policyholder can decide which funds his/her contributions need to be invested in and in what proportion. Therefore, the returns under the policy are dependent on the investment choice made by the policyholder. The policyholder can also opt to invest top-up contributions over and above the regular contributions at any time and to switch his/her investment pattern at any time during the term of the policy. In the case of traditional life insurance, the policyholder is usually offered a guaranteed sum assured.