This is a type of life insurance that for years or a certain period of time. If the insured dies during the period when the policy is active, then death benefits will be paid to nominee.
Term insurance is much less expensive than permanent life insurance. It has no cash value. There are different types of policies available. They differ in terms of policy periods and premiums payable.
When choosing the sum assured, the policy holder must take into account the basic expenditure the family will incur, major expenses like education and other liabilities. If the insurance benefits doesn’t cover the essential financial needs, the whole purpose of the life insurance policy is defeated.
Policy Tenure and Coverage
Insurance has to cover a person till the age of 65 years. If you take a policy for a lesser term, then you will be not covering the risky years.
It is advisable to take up simple plans rather than those offering complex plans. Single premium options are not a good idea either as the premium for the rest of the term goes waste in case of death.
Guaranteed Plan :
- If the insured dies during the policy period, the nominee will be given Death Benefit.
- Maturity benefit will be given to the insured if the insured survives till the maturity of the policy.
- If the insured survives after a fixed tenure of the policy, a guaranteed income will start occurring and continue to occur till the maturity of the policy and also a maturity benefit will also be given at the maturity of the policy. If an insured person irrespective of he is alive or not, these guaranteed benefits will be given to him or his nominee.
A traditional insurance plan pays out a lump sum assured in the event of the death of the policyholder. The beneficiaries of the life insured receive a benefit if the worst should come to pass for the insurance holder. An endowment plan works the same way, but has an additional clause that a lump sum payment will be made to the insurance holder if he or she survives till the end of a specified period known as the “maturity period”, “endowment policy term” or “survival term”.
- Fully filled Application form/Proposal form.
- Proof of residence / address proof.
- Proof of age.
- Medical reports (only if required)
ULIP is a financial instrument that offers customers best of both the insurance and the investment world. ULIPs are provided by insurance companies to customers who want to avail insurance as well as grow their money
How ULIP works?
A ULIP or a Unit Linked Insurance Plan is a financial instrument that provides risk cover as well as investment options for the policyholder. The policyholder can choose the investment type based on his risk appetite as all option guarantee returns.
ULIPs allow the policyholder to invest in multiple options, ranging from low-risk to high-risk as the case may be.
Insurance is a means of protection from unforeseen financial loss. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss and secure from financial loss.
An entity that provides insurance is known as an insurer, insurance company, insurance carrier or underwriter. A person or entity who buys insurance is known as an insured or as a policyholder. The insurance transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer’s promise to compensate the insured in the event of a covered loss. The loss may or may not be financial, but it must be reducible to financial terms, and usually involves something in which the insured has an insurable interest established by ownership, possession, or pre-existing relationship.
There are 4 broad terms in which
1. Life Insurance
2. General Insurance
3. Health Insurance
4. Pension Insurance
Life insurance can provide tension free that your beneficiaries will be provided for after you die. Learn more about selecting the right policy for you, and how some policies can even serve as retirement savings. There are 4 types of life insurance,
1) Term Insurance
2) Traditional / Endowment Insurance
4) Guaranteed Income Insurance
You must check and see whether or not there is availability of guarantee of return, what the lock in period is, details of premium to be paid, what would be implications of premium default, what the revival conditions are what the policy terms are, what are the charges that would be deducted, would loan be available etc.
In case of certain proposals, depending upon the age of entry, age at maturity, sum assured, family history, and personal history, special medical reports may be necessary for consideration of risk. E.g. if the proposer is overweight, special reports like Electro Cardiogram, Glucose Tolerance test, etc could be required, while for underweight proposers, an X-ray of the chest and lungs with reports could be required.
Term insurance is available with many product mixes, like return of premium, insurance with add on the cover of accidental benefits, etc.
A bank a/c saving of 2 Crores as FD, which will at 5%, generate a yearly income of 10 Lakh for your family.
A sizeable investment which might grow to a corpus of 2 Crores, before your death.
If you can’t manage to create a large saving/ investment, then a viable option is a term plan of 2 Crores. It will pay this amount to your family on your demise. Premiums for a 2 Crores life cover start at 1000 per month 2 only, which is less than half the cost you would pay for dinner with family at a restaurant.
Also, with current lifestyles and increasing instances of diseases and illnesses, it may become difficult to get a term plan later, as you grow older.
If budget is a problem, you could go for a monthly premium payment option over a yearly commitment. However, it is important to have a sufficient life cover so that your family’s financial security is not compromised.
Premium Allocation Charge
This is a percentage of the premium appropriated towards charges before allocating the units under the policy. This charge normally includes initial and renewal expenses apart from commission expenses.
These are charges to provide for the cost of insurance coverage under the plan. Mortality charges depend on a number of factors such as age, amount of coverage, state of health, etc.
Fund Management Fees
These are fees levied for management of the fund(s) and are deducted before arriving at the Net Asset Value (NAV).
Policy/ Administration Charges
These are the fees for administration of the plan and levied by cancellation of units. This could be flat throughout the policy term or vary at a pre-determined rate.
A surrender charge may be deducted for premature partial or full encashment of units wherever applicable, as mentioned in the policy conditions.
Fund Switching Charge
Generally, a limited number of fund switches may be allowed each year without charge, with subsequent switches, subject to a charge.
Service Tax Deductions
Before allotment of the units, the applicable service tax is deducted from the risk portion of the premium.
Investors may note that the portion of the premium after deducting for all charges and premium for risk cover is utilized for purchasing units.
• all the charges deductible under the policy
• payment on premature surrender
• features and benefits
• limitations and exclusions
• lapsation and its consequences
• other disclosures
• Illustration projecting benefits payable in two scenarios of 6% and 10% returns as prescribed by the life insurance council.
B) Discontinuance after three years of commencement – At the end of the period allowed for revival, the contract shall be terminated by paying the surrender value. The insurer may offer to continue the insurance cover, if so opted for by the policy holder, levying appropriate charges until the fund value is not less than one full year’s premium. When the fund value reaches an amount equivalent to one full year’s premium, the contract shall be terminated by paying the fund value.
C) Policies having a 5-year lock-in-period: For policies bought on or after 01-09-2010, the lock in period has been increased to 5 years. Upon discontinuance of the payment of premium, the policyholder has the option of (i) Reviving the policy or (ii) Complete withdrawal without any risk cover. A notice shall be sent by the insurer giving the above options, within 15 days from the date of expiry of the grace period, if no option or option (ii) is exercised within 30 days of such notice, the proceeds of discontinued policy shall be refunded but not before the completion of the lock-in period. If such discontinuance is within the lock in period, the policyholder shall have the right to revive the policy within a period of two years from the date of discontinuance but not later than the expiry of the lock-in period.
The policyholder gets his/her sum assured on a fixed date in the future as per the policy terms and conditions. However, in case of the sudden death of the policyholder, the insurance company will pay the sum assured (plus the bonus, if any) to the nominee of the policy. Besides, it is also useful to secure yourself or your family post-retirement or to meet various financial needs such as funding for children’s education and/or marriage or buying a house.