All assets have economic value. A motor car has an economic value of some thousand of dollars; even all human beings are assets, which have economic value. Insurance protects the economic value of the assets. If the assets gets lost or destroyed or become non functional through an unfortunate event the owner of the assets and those deriving benefits from the assets suffer. Insurance is a tool which helps to reduce effects of such adverse events.
Why one needs insurance
Efforts of we all, are directed towards earning a living and then working hard for its betterment. Insurance is necessary to ensure that the basic necessity of life, comfort and pleasure derived by all of us from our living continues to be available for us. We all know that death is certain but time is uncertain. The death of any of the earning members, their physically disability and similar events which are fortuitous in nature are out of control of the family if they are destined to happen we cannot stop them. All these events all these events subject the members of family to financial losses and hence to lot of suffering.
People buy insurance because they realize the need for protection for families after their death of their income earner of the family.
Life insurance protect against the loss of income of an individual.
The following are the some of the reasons why an individual needs insurance.
* To provide cash to meet varies routine expenses of the family and immediately following death of the family.
* To prevent family*s accustomed standard of living ever after the death of the death of the breadwinner.to provide continuous flow of funds for the living spouse, children and other dependants.
* To allocate the income funds for the children*s education.
* To provide the retirement income through old age. To provide a reliable saving plan for the future.
* To supplement income when earning power is reduced or eroded by illness, accident or any handicap.
* Fundamentals of risk sharing.
* The resources can be pooled.
* The loss can be spread over a large population ,thereby diminishing effect of a calamity
* The basic mechanism of insurance works with the principle that people exposed to the same risks come together and pool funds to protect each individual against risk
* Insurance is a sharing of risk.
* If there is no uncertainty there is no insurance.
Benefits of insurance to the society.
* Providing relief to the insured in any case of mishap.
* Removing fear of uncertainty and encourage commercial and industrial development.
* Reducing burden of government in providing relief to citizens.
* Promoting loss minimization and safety through associated agencies.
Life Insurance Products
The main motto behind life insurance is to protect the loss of income due to death of person or loss of income earning capacity of that person due to illness and permanent disability.
There are two basic plans in life insurance.
1. Term Insurance:
Term insurance plans offer pure risk cover without any element of saving. Term insurance pays a death benefit to the legal heirs if, the person insured, dies during the term of the policy. In case if life insured does not dies nothing is payable.
2. Pure Endowment:
Pure endowment is a saving oriented insurance policy. Pure endowment provides for payments only if the assured survives the selected term. Nearly all life insurance plans are combined of term insurance and pure endowment features in different proportions.
Unit linked policy.
A unit linked policy is a assurance policy in which the benefits depends on the performance of a portfolio securities Each premium is split into two component, one part is used to provide life *assurance cover, while the other part, after providing all expenses is used to buy units in a mutual fund. In this way a small investor can benefit from investment in a managed fund without making a large financial commitment. As there are linked values to the share, unit link policies can go up or down in value.
Annuities start where life insurance ends. It is the reverse of life insurance Annuities are form of pension in which the company makes a series of periodic payments to person or his/her dependent over a number of years in turn for the money paid to the insurance company either in lump sum or in installments.
Inflation sensitive products:
The life insurance policies are often compared with different saving scheme and the comparison by the customer ends with the observation that returns are not so good. Secondly insurance products cannot be isolated from inflationary tendencies. The erosion in the value of the sum assured will also be a matter of concern for the insured. The companies are trying to compensate these drawbacks by some additional benefit and features. This is done by way of money back mechanism, wherein some portion of sum assured is return periodically, without reducing the death cover.
Option Guarantees Riders
The insurance products are made appealing, attractive to the customer and also the product differentiation is brought about by certain Add On to the basic insurance policy. These add on or additional features are called as riders, option, guarantees.
These features not only make the plan more attractive but they also provide long term benefits to the customer. However, these benefits come at an additional cost.
A special policy provision or a set of provisions, which get attached to and enlarge the scope of the original policy and benefits, is referred to as a rider.
Certain benefits granted for the operational convenience of a policy holder, during the term of the policy are called as options. The options can be modified at any time during the term of the policy.
Some common examples are:
Option to change the mode of payments of premium. A policyholder can choose a mode of premium payments, such as monthly, quarterly, semiannually, annually etc.
Some plan have provision for provision of the claim either by yearly, half yearly, quarterly or monthly installments spread over a specific period.
Guarantees are the privileges given to the policy holder; it is an inbuilt feature and doesn*t in valve any extra work. E.g. Days of grace, surrender value, paid up value etc.
Claim: claim is the demand from the insured to the insurer for the commitment made by the insurer at the time of entering into life insurance contract. The insurer has to perform his part of the contract like settlements of claims after satisfying himself that all the conditions and requirements of the contract have been complied with by the insured.
* The commitments which are required to be met with under the contract such as payments of bonus, payments of sum assured in installments, waver of future premiums, etc.
* Admissibility of the claim under the policy
* Relevance of the person entitled to demand claim-whether by nominations / assignment/ income tax notice/ prohibitory orders/ official assignee*s notice etc.
Settlement procedure in a maturity claim is simple. After receipt of the completed and stamped discharge voucher along with the policy document from the person entitled to receive the money, claim amount will be paid by account payee cheque. In case of survival benefit, benefit claim, that is where the sum assured is paid in installments, suitable endorsements will be maid on the policy document and in policy records, before returning the documents to the policyholder. If the assured is reported to have died before the maturity date, the claim has to be treated as a death claim and process accordingly. Death certificate and evidence of the title would be necessary.