Term assurances are the purest and cheapest form of insurance. Term assurances are plans where benefits are payable only on the death of the policy holder within the term.
Whole life plans are a special type of term assurance wherein the term of the policy is whole of the life. So it follows that benfits under the policy are payable only on death of the policy holder.
Endowment plans are among the most popular forms of insurance as they provide both insurance coverage and also act as a savings instrument. These are the plans wherein benfits are payable on death within the term or survival to maturity which ever is earlier.
Money back plans are a special type of endowment plans and are also called as anticipated endowment assurance plans. Under money back plans, survival benefits are spread over the term of the policy i.e., certain percentage of sum assured is paid at regular intervals. Apart from the above death benefit continues like an endowment plan i.e., full sum assured shall be payable on death within the term irrespective of earlier survival benfits.
Assignment is a means whereby the beneficial interest,right and title under a policy gets transferred from the assignor to the assignee. ‘Assignor’ is the policy holder who transfers the title and ‘Assignee’ is the person who derives the title from the assignor.
Nomination is the process of identifying a person to receive the policy money in the event of the death of the Policyholder.
Nomination can be done at the inception of the Policy by providing details of nominee in the proposal form. However, if the nomination is not done at the inception of the policy, the policyholder can nominate at a later date. This nomination has to be effected by giving notice in a prescribed form to the insurer and getting it endorsed on Policy Bond.
Change of Nomination can be done by the Policyholder any time during the term of the Policy and any number of times. For this, the policy holder has to give a notice in a prescribed form to the insurer and getting it endorsed at the back of the Policy. Further, Nomination can be removed any time by the Policyholder without giving prior notice to the Nominee.
Nomination can be done only by a policyholder who is a major holding Policy Bond in his own name. In the case of Children’s Policies, Nomination is not done until the Child becomes major.
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.
Policy holders 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 85% of the Surrender Value is given as loan.
Rate of interest charged varies from company to company and time to time. A policy holder can repay the loan amount either in part or in full any time during the term of the Policy. 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.
LIC is currently charging 10.5% interest payable half-yearly on Policy Loans. For LIC, the minimum repayment should be Rs. 50 and thereafter in multiples of Rs. 10. If the interest is not paid regularly every half year, then the interest is calculated on compound interest basis.
If the interest is not paid regularly every half year, then the interest is calculated on compound interest basis.
Important Income Tax provisions applicable to Policyholders are :
An individual can claim rebate on premium paid on his/her life, his/her spouse, his/her children including adult children and married daughter.
Under section 88 of the Income Tax Act, certain percentage of rebate is allowed on investment in the form of insurance premium with any of the insurance company approved by IRDA. Percentage of rebate can be up to a maximum of 20% and varies depending upon the tax bracket one falls. This rebate is deductible from the tax payable by the individual. The total amount of investment in the form of insurance premium and other specified investments like PPF, NSC, etc. is restricted to Rs. 60,000 per annum.
Under Section 80 DDA a deduction upto Rs. 40,000 p.a is allowed from gross total income, when a contribution or deposit is made with the LIC for the maintenance of a handicapped dependent.
Under Section 80 CCC a deduction up to a maximum of Rs. 10,000 per annum is allowed from gross total income.
Any sum received under insurance policy including maturity bonus etc., is non-taxable. The exceptions to this are Keyman Insurance, Jeevan Aadhar, Jeevan Dhara, Jeevan Akshay policies,
ICICI Pru Forever and Dhanaraksha scheme of LIC Mutual Fund.
The cash value payable by the insurance company on termination of the policy contract at the desire of Policyholder but before the expiry term is known as Surrender Value. A policy can be surrendered, provided the policy is kept in force atleast three years. The bonus will be added, provided the policy was in force for atleast 5 years, i.e., premiums should have been paid for 5 years and five years should have been completed from the date of commencement of the Policy (this condition is not applicable in respect to claims by death.)
It is very difficult to place a monetary value on human life. Theoretically therefore an individual can have life policies for any amount. However, in practice, it is determined based on the needs for insurance and the capacity to pay premiums regularly. Though there is no thumb rule to arrive at the exact amount of insurance, it is determined by taking 6 times of the annual income of the person, if such income is not fluctuating. If the income is fluctuating it is desirable to work his average annual income and then determine the amount of insurance.From an individuals stand point one should be able to save atleast 10% of his annual income.
After payment of three years of premiums if subsequent premiums have not been paid under a policy, such a policy is said to have acquired a paid up value, though literally it is a lapsed policy. The paid up value is calculated by multiplying the sum assured by the ratio of number of premiums paid under the policy and the number of premiums payable under the policy. The value so arrived at, should not be less than Rs.250 excluding the accumulated bonus under such a policy. Such a reduced paid up policy will not be entitled to participate in future bonuses.
This life policy is designed to meet the requirements of individual borrowers to ensure that the outstanding loan is extinguished automatically in the event of the borrowers death. The annual premiums depend on the schedule of outstanding loan amounts at the beginning of each year. On death of the borrower the loan is liquidated straightaway by admittance of claim under the policy. Benefits are fixed and death benefit decreases with every year. Premium under the plan can also be paid in a lumpsum as single premium.
Riders/add ons are the additional benefits which can be added to the basic policy by paying marginal additional premium. Each company has got their own set of rider and most common riders offers by insurers are:
» Term rider.
» Critical illness rider.
» Accidental death and dismemberment rider.
» Waiver of premium rider.
Permanent total disablement means that the life assured is incapacitated to work or follow an occupation and obtain wages, compensation or profit.The following are considered to constitute such disability:
irrecoverable loss of entire sight of both of the eyes
» amputation of both hands
» amputation of both feet
» amputation of one hand and one foot
Is there any maximum limit in sum assured for grant of accident benefits? Maximum accident benefit one can avail under all the policies which he holds is fixed and varies from company to company In case of LIC it is Rs. 5 lakhs sum assured. Can an individual have accident benefit alone?
No, The benefit is available only along with a plan of assurance wherein it is permissible.
A policy issued under a with profit scheme is eligible to participate for bonus addition arising out of surplus revealed on conducting an actuarial valuation. Premium under a with profit plan is always greater than the rate for a with out profit plan. that is while computing the structure of a premium table a bonus loading is made to the rate determined by the other three factors viz., Mortality, Interest and expenses.
Every year the policies that are in force are valued and the present value is arrived at. The assets are also valued as on that date and a comparison is made to ascertain the valuation surplus. 95% of the valuation surplus is distributed among with profit policy holders.
LIC follows a system of reversionary addition to the sum assured at the rate per thousand of sum assured declared every year. Bonus vests with the policy if it is in force. Paid up policies are not eligible for bonus.