Insurance is an umbrella term that includes Life Insurance, Motor Insurance, Health Insurance, Property Insurance, Mobile Insurance, Cycle Insurance, Travel Insurance, Pet Insurance etc. Insurance is a way of safeguarding against financial loss. It’s a type of risk management that’s generally utilised to protect against the danger of a speculative or unpredictable loss.
Understanding Life Insurance
On the occurrence of the event insured against, life insurance is a contract that promises the payment of an amount to the person assured (or his nominee).
The contract is valid for payment of the insured sum on the following dates:
» Maturity date
» Specified dates at periodic intervals
» Unfortunate death, if it happens sooner
The policyholder is required to pay premiums to the Corporation regularly, according to the contract. Life insurance is commonly recognized as an institution that eliminates “risk,” replacing uncertainty with certainty, and comes to the family’s aid in the tragic event of the breadwinner’s death.
Common terminologies used
- Life Assured:The person who is covered by the insurance policy is known as the life assured.
- Proposer:The proposer is the one who pays the policy’s premiums. If you bought the policy for yourself, for example, you are both the Life Assured and the Proposer. Similarly, if you buy an insurance policy for a relative, you are the proposer and the relative is the Life Assured.
- Nominee or Beneficiary:This is the person you choose to receive the benefits of your insurance policy in your absence when you purchase it.
- Insurer:The Insurer is the name of the insurance firm that sells the life insurance policy (for example, LIC).
- Life Cover:The amount that the Insurer will pay to your Nominee in the event of an unfortunate incident is known as life cover.
- Maturity Benefit:The insurer pays a lump sum of money at the end of the policy term for Protection + Savings policies. The Maturity Amount is the name given to this sum.
- Premium:A premium is an amount you pay to the insurer in exchange for the insurance policy’s benefits. These payments can be sent regularly, for a specific number of years, or only once, depending on the options available under the policy you choose.
- Premium Payment Term:The Premium Payment Term is the number of years for which you will be paying premiums.
- Policy Term:The length of time that the Life Cover is in effect.
Who Is Eligible To Purchase A Policy?
Anyone who has reached the age of majority and is legally capable of entering into a valid contract can insure himself and those in whom they have an insurable interest.
Policies on the life of one’s spouse or children can also be purchased, subject to specific criteria. The Corporation considers criteria like the policyholder’s health, the proponent’s income, and other pertinent factors while underwriting proposals.
Life Insurance Corporation of India (LIC)
The Life Insurance Corporation of India (LIC) is a government-owned insurance and investment company in India. It is owned by the Ministry of Finance of the Government of India.
The Life Insurance Corporation of India was founded on September 1, 1956, when the Indian Parliament passed the Life Insurance of India Act, which nationalized the Indian insurance business. The state-owned Life Insurance Corporation of India was formed through the merger of over 245 insurance companies and provident societies.
Chairman M R Kumar and Managing Directors Vipin Anand, T. C. Suseel Kumar, Mukesh Kumar Gupta, and Raj Kumar make up the LIC’s executive board.
The Chairman, the four Managing Directors, and all Executive Directors are all located in the LIC Central Office in Mumbai (Department Heads). Delhi, Chennai, Mumbai, Hyderabad, Kanpur, Kolkata, Bhopal, and Patna are the eight Zonal Offices of LIC.
Banks, cement, chemicals, and fertilizers, electricity, and transmission, electrical and electronics, engineering, construction, and infrastructure, fast-moving consumer goods, finance and investments, healthcare, hotels, information technology, metals and mining, motor vehicles, and ancillaries, oil and natural resources, retail, textiles, transportation, and logistics are among the sectors in which LIC invests.
LIC’s position in ITC was reported to be the greatest in terms of value in 2012 (27,326 crores), followed by RIL (21,659 crores), ONGC (17,764 crores), SBI (17,058 crores), L&T (16,800 crores), and ICICI Bank (10,000 crores). LIC suffered a big loss of over 7000 crores during the financial year due to a share price collapse in ITC on July 18, 2017.
LIC also owns a 51 percent share in IDBI Bank, making it India’s only insurance company with a bank. Regulations restrict insurers from owning more than 15% ownership in any enterprise.
Their plans are divided into 4 categories viz., Endowment Plans, Whole Life Plans, Money Back Plans, and Term Assurance Plans. However, due to limitations in the length of this article, only Endowment plans will be explained here.
These serve to pay a lump sum amount after a designated period or death. LIC provides the following Endowment plans:
- Saral Jeevan Bima:A sum is assured on death which applies to both accidental and non-accidental death. If a mode of premium is regular or limited premium payment, for accidental death, the sum assured is equal to 10 times the annualized premium or 105% of all premiums paid as on the date of death or absolute amount assured to be paid on death and for Single Premium Mode of Payment, the sum assured is equal to 125% of Single premium or absolute amount assured to be paid on death. The Death Benefit is equivalent to 100 percent of all Premiums paid, excluding taxes, if any, in the event of death due to causes other than an accident. Rider benefits are not available in this policy. No maturity benefits are applicable under this policy.
- Bima Jyoti:This policy uses the date of commencement of risk as a reference point. In case of death before the date of commencement of risk, during the policy term, the sum assured is equal to the return of premiums paid excluding taxes, any extra amount chargeable under the policy due to underwriting decision, and rider premium(s), if any. In case of death after the date of commencement of risk, during the policy term, the sum assured is equal to 125% of Basic Sum Assured or 7 times of annualized premium. Rider benefits are available in this policy. Similarly, maturity benefits are also available.
- Bachat Plus:Under this policy, during the first five years after death, before the date of commencement of risk, the sum assured is equal to the total premium(s) paid without interest excluding taxes, any extra amount chargeable under the policy due to underwriting decision and rider premium(s), if any. On or after the Date of Commencement of Risk, “Sum Assured on Death” shall be payable. After completion of the above-mentioned five years but before the date of maturity of the policy, “Sum Assured on Death” along with Loyalty Addition, if any, shall be payable. Maturity and rider benefits are available under this policy.
- New Endowment Plan:Death benefit, defined as the total of “Sum Assured on Death” and vested Simple Reversionary Bonuses and Final Additional Bonus, if any, shall be payable in the event of death within the policy period provided all due premiums have been paid. Here “Sum Assured on Death” is defined as the higher of the Basic Sum Assured or the annualized premium multiplied by ten. This death benefit must equal at least 105 percent of all premiums paid as of the date of death. Service tax, additional premiums, and rider premiums, if any, are not included in premiums. Maturity benefits are applicable as is one rider benefit – LIC’s Accidental Death and Disability Benefit Rider.
- New Jeevan Anand:Death benefit, defined as the total of the Sum Assured on Death plus any vested Simple Reversionary Bonuses and Final Additional Bonuses, if any, is payable on death within the policy period. Where the Sum Assured on Death is the greater of 125 percent of the Basic Sum Assured or ten times the annualized premium. This death benefit must equal at least 105 percent of all premiums paid as of the date of death. Service tax, additional premiums, and rider premiums, if any, are not included in the aforesaid premiums. Maturity and rider benefits are similar to the ‘New Endowment Plan’ discussed before.
Other Endowment Plans include:
- New Bima Bachat
- Single-Premium Endowment Plan
- Jeevan Lakshya
- Jeevan Labh
- Aadhaar Stambh
- Aadhaar Shila