Life Insurance Cover
In a nutshell, insurance cover means the cover provided to the economic value of losses that
are contingent in nature. This essentially is a contract between 2 parties viz. the insured, i.e.
the person who or whose declared asset gets insurance cover and who agrees to pay regular
premiums in return for this, and the insurer, i.e. usually a company who agrees to pick up the
risk and compensate the insured for the value of the asset that has been insured if it is to suffer
a damage or is lost. The insured must have some insurable interest in the asset that is being
insured. The whole idea works on the principle of uncertainty and probability, where records
of cases show that a certain number of people suffer damage for a particular kind of asset
each year when a group of thousand people is considered. life insurance cover is same kind
of cover, but provided to the lives of people. The economic value of their lives is compensated
in the event of their death. Death is certain for every person, but the time of it is uncertain and
hence the insurance. As against the other insurances, in life insurance a person can cover
himself for any value, as the value of life of any person cannot be measured. The value of a life
insurance cover comes more from the peace of mind that the insured gets, than from any actual
economic returns.
History of life insurance cover concept
As goes the adage, every cloud has a silver lining; we can say that the silver lining to existence
of piracy in the oceans in the old ages is that it has given us the concept of life insurance cover.
Nearly 5000 years ago the Chinese merchants who sailed in ships often suffered losses for
being looted by the pirates, so they used to contribute money towards a fund which would be
given to the merchants who suffered losses. The risk got shared between all the merchants
– much like the ‘term life insurance cover’ policies we see today. There also was another
practice, that of carrying the cargo of each other between the ships, so no ship would suffer
total loss. This was about the insurance concept in general. The first traces of life insurance
cover can be found in ancient Rome, where they formed ‘burial clubs’ that would take care of
the funeral expenses of people who died untimely death on account of floods, famines etc.
Also, the Indian Vedas, specifically Rig Veda has mentions of ‘community insurance’. It was in
practice around 1000 BC among Aryans. The origin of modern day life insurance cover concept
that we have today can be traced back to 17th century England. At the Lloyd’s Coffee House in
London, where merchants and underwriters met to discuss business, the first ‘mortality table’
was presented and the practice of insurance started. As the practice spread to some of the
other countries, initially it was opposed by religious groups. But, after a fire in Chicago in which
many people died, the opposition voice died as well.
Types of life insurance
There basically are just 2 basic types of life insurance covers – pure risk cover and investment
type. With time, different combinations in different proportions of these 2 have resulted in the
most common policy types that we see today as enlisted below:
1. Term life insurance cover: Under this, the insured pays regular premiums for the term he has
chosen, during which if he dies, his family is given the entire insurance amount. If he doesn’t
die during the term, the insurance company keeps the premiums paid by him. It is a pure risk
cover policy type and hence the cost of this life insurance cover is lowest among all types.
2. Endowment: This policy combines risk cover with financial savings. Policy holders get
benefit in two ways - in case of death during the tenure, the beneficiary gets the sum assured. If
the individual survives the policy tenure, he gets back the premiums paid with other investment
returns, plus bonuses.
3. Whole life: This policy provides life insurance cover to the insured throughout his life term.
The advantage in this policy type is that the validity of this life insurance policy is not defined
and hence the individual enjoys the life cover throughout the life. The insured has to pay regular
premiums until his death, upon which insured sum is paid to the family. The policy doesn’t
expire until any unfortunate event occurs with the individual.
4. Money back: This type of life insurance cover gives periodic payments during the term. A
portion of the sum assured is paid out at regular intervals. If the policy holder survives the term,
he gets the balance sum assured.
5. Universal life policies: These type of policies let you decide how much you wish to pay
over the basic premium specified by the company. The company chooses the investment
options and returns from these are stored in a separate account, which can either be left
alone to grow or can be used for paying future premiums. A sub type under this policy is
the ‘Universal variable’ life insurance cover, which lets the insured choose the investment options.
Insurance vs No Insurance
There are 2 school of thoughts generally found opining on whether they’d have a life insurance
cover or they won’t. The basic premise assumed by one group is that there are virtually
a million things that can or cannot happen theoretically in any given moment. Living a life
free of botherations is more important than finding what all things can go wrong and making
arrangement for them. These people do not believe in insurance and they won’t get any
insurance, not even life insurance cover. The other group doesn’t quite agree with this view.
My personal opinion on this is that, it’s a waste to get intimidated by the thoughts of future, so
one shouldn’t. But if you keep an emergency lamp in your house, then principally you should
also have some portion of your earnings, perhaps a small one, allotted to life insurance cover.
Murky cover: Chain-selling of insurance products thrives despite IRDA restrictions - Moneylife Personal Finance Magazine
Moneylife Foundation conducted a workshop on 'How to be safe and smart with your money', on 20 April 2010. Click here for more pictures of the event.
Noted writer Achyut Godbole chaired a Moneylife Foundation workshop for booklovers on 17 April 2010.
Moneylife Foundation conducts 'Brainstorming seminar on senior citizens issues'(09 April 2010).
Moneylife Foundation conducts financial literacy workshop for women (26 March 2010).
Full Story: Murky cover: Chain-selling of insurance products thrives despite IRDA restrictions - Moneylife Personal Finance Magazine
Profit vs cover - Calcutta Telegraph
When the Life Insurance Corporation of India launched its unit-linked endowment plan Profit Plus in 2007, 25-year-old Samik Roy knew it to be the right place to park his money.
After all, a life insurance plan saves tax and gives tax-free returns in addition to providing financial protection to the family in the case of death of the policyholder during the policy term. If it is a unit-linked insurance plan, the tax-free return just gets bigger, the LIC agent told Roy.
Roy bought the plan. With an annual income of Rs 5 lakh, he could not spend more than Rs 50,000 a year for premium. For an annual premium of Rs 50,000, Roy got a life cover of Rs 5 lakh for 20 years. Given the premium amount and his age, Rs 5 lakh was the maximum insurance that he could get under the plan.
Had Roy bought LICs Endowment Assurance Policy, his annual premium outgo would have been Rs 23,638 for the same Rs 5 lakh cover for 20 years. This single instance explains why the Securities and Exchange Board of India (Sebi) contended that Ulips are more of a collective investment scheme rather an insurance product.
Full Story: Profit vs cover - Calcutta Telegraph
A term life insurance policy is the cheapest form of life cover - Economic Times
The main objective of an individual going in for an insurance cover should be the financial security of his dependents , in the event of his death. This is supplemented by tax benefits and investmentrelated advantages. A term life insurance policy is a pure life cover. There are no investment benefits attached to it. This is the cheapest form of life insurance cover.
A term life insurance policy covers a person against death for a limited period or term. For example, a term might be five, 10 or 20 years. The premium for such a policy can be paid throughout the term, annually, half yearly or quarterly.
In case of death of the insured person during the term, the nominee gets the sum assured. This policy is attractive because of the low premium on it.
However, in case the policyholder survives the tenure of the policy, there is no payout from the insurance company. The policy is closed with no returns from the insurance company to the insured.
Full Story: A term life insurance policy is the cheapest form of life cover - Economic Times
LIFE INSURANCE: Kamesh Goyal - Business Standard
The decision to switch to a different term plan will depend on various factors. One, if you have taken your present term plan at an early age. Second, if you wish to switch, you would most likely require to pay more premium, since the new insurer would underwrite your risk afresh. Under such conditions, and because you have grown older, you might have to undergo medical tests. And, in case deviations from normal health are detected, your premium may be higher. In some extreme cases, your request for cover may be rejected altogether.
It is important to point out that one should not judge the efficacy of the plan by just comparing their prices. For instance, a term plan with the feature of waiver of premium in case of accidental disability is certainly going to cost more and provide better comprehensive coverage than a term plan which offers only death benefit. So, a like-to-like comparison is to be ensured when taking the call.
If you decide to discontinue your ongoing term plan, you simply have to discontinue the premium payment and not reinstate it in future.
Irda and Sebi have made it very clear that any new development will not impact existing policies. So, you need not worry about anything happening on the regulatory front. You should keep paying your due premiums to enjoy the benefits that Ulips offer as long-term financial products.
Full Story: LIFE INSURANCE: Kamesh Goyal - Business Standard
IRDA tightens norms on equity-linked plans - Economic Times
CHENNAI: The insurance regulator has tightened the norms on all unit linked insurance plans (ULIPs) to offer life cover on these products, even as it is fighting a turf war with markets watchdog on overseeing such equity-linked schemes.
The Insurance Regulatory and Development Authority (IRDA) has said the norms would be applicable from July 1, adding that all ULIP policies, including pension and annuity products, should offer a minimum sum assured payable on death.
The tightening of rules is seen as a fallout of its tussle with the capital markets regulator, the Securities and Exchange Board of India (SEBI), over the regulation of ULIPs, a popular investment product.
But IRDA member-actuary R. Kannan said the policy revision was an ongoing process. "The new norms are no way connected with the current issue with SEBI," Kannan told IANS.
Full Story: IRDA tightens norms on equity-linked plans - Economic Times
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