INSURANCE

What is Insurance ?

Insurance is nothing but an agreement between the insurer (The Insurance Company) and the insured (You) to pay an amount as compensation if any unexpected event occurs. This amount may vary from a few hundred to even a few crores. The maximum amount the insured person can claim depends on the amount agreed upon as per the insurance policy. The concept of insurance is brought into the market only because of the family protection in case if the only earning person died unexpectedly.

What is Term Insurance Plans?

Term Insurance plans are the purest insurance plans available in the market. There are different types of insurance plans in the market like Term Insurance, Endowment Insurance, ULIP, etc. Every type has its unique features.

Term Insurance Plans

The following are the key facts about the term insurance plans.

  • Term insurance plans are the purest form of insurance plans. It will cover the pure risk of your dying.
  • In the event of your death, your nominees will receive the assured amount.
  • You will not get any benefit, if you survive the policy term. As already said, the purpose of this policy is to protect your family from your death.
  • The premium for term insurance policy is very low compare to other insurance policies. For example a 30 year old person takes 20 years policy for the sum assured of Rs.500000. His premium will be just Rs.1500 per year.
  • Premiums are payable every year.
  • Generally maximum entry age of this policy is 50 years.

    • Importance of taking Term Insurance

    In our country there is very little knowledge on the term insurance and its benefits. Another reason why people not shown interest is, they have the wrong assumption of seeing insurance as the investment and looking for the decent returns at the end of tenure. If that is the case, one should not think about taking the insurance. There are lot other products available in the market to earn good returns. But, when you are no more, who will support your family or give the needed financial support. Taking term insurance is like sacrificing some money to save your family if you are not in this world any more.Anytime did you think that when you are taking the car insurance, did you get the returns at the end of year?. But,you are benefited when you met accident. Even we are protecting our vehicle by taking insurance, why not save our family by taking the term insurance?. If you are the only earning member in the family, first thing you have to take the term insurance with maximum coverage. Spread this awareness to your friends.

    Different Types of Life Insurance

    Introduction

    Term Insurance Policy

    This policy is pure risk cover with the insured amount will be paid only if the policy hold dies in the period of policy time. The intention of this policy is to protect the policy holders family incase of death. For example, a person who takes term policy of Rs.500000 for 20 years, if he dies before 20 years then his family will get the insured amount. If he survive after 20 years then he will not get any amount from the insurance company. It is the reason why term policies are very low cost. So, this type of policy is not suitable for savings or investment.

    Whole Life Policy

    As the name itself says, the policy holder has to pay the premium for whole life till his death. This policy doesn't address any other needs of the policy holder. because of these reasons this kind of policy is not very popular or insurance company not suggesting to take this policy.

    Endowment Policy

    It is the most popular Life Insurance Plans among other types of policies. This policy combines risk cover with the savings and investment. If the policy holder dies during the policy time, he will get the assured amount. Even if he survives he will receive the assured amount. The advantage of this policy is if the policy holder survives after the completion of policy tenure, he receives assured amount plus additional benefits like Bonus, etc. from the insurance company. In this kind of policy, policy holder receives huge amount while completing the tenure.

    Money Back Policy

    Money Back Policy is to provide money on the occasions when the policy holder needs for his personal life. The occasions may be marriage, education, etc. Money will be paid back to the policy holder with the specified duration. If the policy holder dies before the policy term, the sum assured will be given to his family. A portion of the sum assured is payable at regular intervals. On survival the remainder of the sum assured is payable.

    Life Insurance pension plans: Traditional there was only one option and that was LIC (life Insurance Corporation of India). This was because of the fact that the life insurance business was nationalized in 1960 and the monopoly rights were given to LIC. Again in 2002 in tune within LPG (Liberalization, Privatization and Globalization) era the Government allowed private companies to establish life insurance companies and at present there are about 15 players in life insurance market. LIC is popular mode of savings due to the popularity and market reach it has got. Even in remote rural areas you may not find Bank or post Office but there will be an insurance agent giving services to the people. This is mainly because the commission structure of the LIC, the middleman (Agents) earns commission between 25% to 40% on the first year premium. Now even banks hav been enrolled as Corporate Agent and do not get surprised if you bank manager request you to buy the policy . From investment point of view insurance of very bad investment. Many a people buy the policy because of selling effort of agent and not as a prudent investment decision. The traditional returns on typical endowment insurance plain have grown from 3-4% to present levels of about 5%

    ULIP (Unit Linked Insurance Plan): Since the rate of return on typical endowment life policy is low because of heavy pay out in form of commissions. Hence, to make the life insurance proposal look attractive and salable the companies have floated the product under the title ULIP. This product is a combined from of insurance with corpus invested as a mutual Fund. In 2010 there was lot of debate on this product between two regulators SEBI (securities and Exchange Board of India) Regulator for stock market a mutual Fund and IRDA (Insurance Regulator and Development Authority) regulator for insurance. ULIP was approved by IRDA alone. Hence SEBI took a strong stand that the capital market is a part of these product should be with approved of SEBI. The agent will normally project a very good return based on the history of capital market and under that guise sale the insurance proposal. Be cautious before buying such product. It is better to buying such product. It is better to buy a separate insurance proposal and separate MF investment; at lest you will save on middlemans charge and typical terms and condition printed in unreadable fine print. Hence before buying any insurance plain, ask yourself a question "How much Insurance cover is needed?" and of course a prime question "At what cost?" The real answer may be "Making today's life miserable" due to heavy premium pay out with an imaginary protection of "security after death" is unaffordable.