What is Life Insurance?
Life insurance is a contract that undertakes to pay the insured or his agent immediately the insured event occurs. The promised amount is paid in accordance with the law, which may be:
To the policyholder on the date the policy (contract) ends, or
To the owner of the order on the specified date during the period, or
To the employee in the event of accidental death of life insurance, during the contract period.
However, the life insurance company pays the insured/nominee this sum assured in exchange for monthly/annual premiums – called premiums. Generally, life insurance is accepted as a company to which you can transfer your ‘risk’. It cannot eliminate the risk but it can limit the financial impact of the risk. It often replaces trust with uncertainty and helps families in times of tragedy such as the death of a sole breadwinner.
Life insurance provides protection against two risks to an individual’s life:
Passes quickly and leaves dependent families to fend for themselves. Living to old age without a clear support system.
Basically, life insurance is a society’s solution to death-related issues. Key words used in life insurance
Before we go any further, let’s first review some of the most commonly used terms related to life insurance:
Life Insurance – This is a covered life insurance policy.
Policyholder – This is the person who buys the life insurance policy and pays for it. However, this person may or may not be life insured.
It is important to understand the difference between an underwriter and a life insurance. For example, when a husband buys an insurance policy for his wife, the husband is the policyholder, while the wife is the policy holder.
Nominee or Beneficiary – This is the person who the insured (if he is also the policy owner) when he buys the policy. This person receives the sum assured if the insured person dies.
Insurer – It is the life insurance company that writes the life insurance policy (eg Future Generali India Life Insurance). Policy Period – The length/number of years a life insurance policy provides coverage.
Sum Insured – This is the “agreed sum” that the applicant will receive in case of accidental death of the life insured or life insured at the end of the policy term or any event as defined in the Police. Premium – This is the fixed amount that the insured pays periodically (annually, monthly, semi-annually or quarterly) to the insurance company, to obtain coverage for a specified period.
Premium Payment Period – This is the number of years that the premium must be paid. Life insurance or death benefit – This is the amount that the insurer is expected to pay to the applicant in the unfortunate event of the death of the insured.
Maturity Benefit – This is the guaranteed amount paid by the insurer at the end of the policy term. Maturity benefits are provided for life insurance plans that provide protection and/or investment in addition to life insurance. Qualifying benefits may also include non-standard equipment. Rider or Add-On Benefit – This is an optional add-on cover provided to the basic life insurance policy to enhance the scope and value of the life insurance policy at a nominal add-on cost.
Grace period – This is an extension given by the insurance company to the policyholder to pay for the policy after the premium payment date. This policy continues with full coverage benefits during this period. In the case of a claim during the grace period, the amount paid is deducted from the amount of the claim. Lapsed Policy – If premiums are not paid, the policy may lapse. An expired policy will have no value and will expire if you do not do so. Premiums Policy – Insurance policies may continue with reduced benefits if premiums are not paid. Release is accepted after paying the minimum amount as specified in the law. Claims – This is the process by which the claimant or the insured has to file a claim to get the death or maturity benefit or any other benefit covered by the policy.
How does life insurance work?
Here’s how life insurance policies work:
You decide to take out a life insurance contract with an insurance company. You decide the amount of insurance or the amount of insurance you/your nominee will receive.
You decide the term of the policy (the term of the policy) and the term of the premium payment (the term of the premium to be paid). Depending on various factors such as your age, health condition, sum insured, period of policy and selected premium payment period, etc., the insurance company will decide the amount you will pay.
You buy a life insurance plan from an insurance company and the premiums you pay. Now, depending on the type of policy you purchase, you will get one or all of the following benefits:
Death Benefit / Life Insurance – In case of unfortunate event of death of the insured during the period of insurance (the duration of the policy), the sum insured or death benefit is paid to the policyholder of the policy that is. stopped.
Maturity benefit – At the end of the policy, if the insured survives, they get the promised maturity benefit. Full/Partial Maturity Benefit or No Maturity Benefit may be approved depending on the nature of the policy.
Survivor’s Benefit – In case of an insurance plan like an annuity plan or an annuity plan, the survivor’s benefit is the exact amount/percentage of the sum insured, etc. he is brought back to the sure life at the appointed time.
Principles of life insurance
A life insurance contract is an agreement between a policyholder and an insurance company (or insurer).
Providing life insurance in India is based on four basic principles. They are:
Interest is not money
This principle distinguishes insurance contracts from betting or betting contracts.
Non-payable interest is available if there is a possibility of financial loss if the insured dies or becomes disabled or has an illness or other limitation. Some famous examples can be spouse, children, business owner in their employees, borrower and lenders, etc. A person is considered to have an unlimited interest in his own life. The insurance policy will not be issued if there is no interest without insurance.
Covers pure risk
Any company that sells life insurance transfers the “risk” and agrees to pay a specified amount if a covered event occurs (such as death or critical illness or any other covered event). . Insurance will only cover pure risk, that is, if the expected outcome is excluded, it will only result in loss. Example:
A person is expected to be healthy and live for a certain number of years – the deviation from the expectation is premature death, disability or illness, etc. All of these events will result in financial loss, both to the individual and the family. Therefore, risks such as death, disability and illness can be covered. Investments made in the market to achieve a certain return – deviation from expectations can be either a profit (higher than expected return) or a loss (low or negative return) . This risk is called unquantifiable risk. in good faith
A life insurance policy, as mentioned earlier, is a contract between the insurance company and the insured.
This agreement is based on good faith that both parties will provide accurate and relevant information without concealing anything. Failure to disclose information can have serious consequences.
For example, if the insurance company finds out that the policyholder has an existing heart condition and did not disclose it at the time of purchasing the policy, then the claim may be denied under the law/law. law of large numbers
This is one of the most important principles of life insurance, which is based on a mathematical formula and a large number that pays for anonymity.