LIFE INSURANCE

Meaning of Life Insurance:

• Life insurance, usually referred to as ‘life insurance’ insures the insured against

the happening of certain event .i.e death through the time when it may happen is

uncertain.

• The life insurance contract can be described as ‘contingent contracts’ because the

loss of life cannot be compensated and only a specified sum of money is paid if

the insured dies.

• In addition to this, life insurance is considered a better way of making investment

along with the benefits of protection against the risks of death.

 On the basis of present day economic

environment, there are few basic needs for which life insurance is

needed. The life insurance is concerned with the hazards that stand

across the life of every person that is dying prematurely leaving

dependent and that of living to old age without visible means of support.
Definition of life insurance:
According to Section 2 of the Indian Insurance Act, 1938 has defined
life insurance as: “ Life Insurance business is the business of effecting
contracts upon human life.”

In simple words, it may be defined as ‘a contract whereby the

insurance company, in consideration of periodical premium, agrees to pay a
certain amount either on the death or on the maturity of the policy, whichever
is earlier.
Under life insurance, the sum assured under policy is paid to:

 The insured if policy matures during his life time; and

 To his nominees in case of death.

The premium may be paid in lump sum or in monthly, quarterly, half-

yearly or yearly instalments.

Features of Life Insurance:
1. Outcome of an offer made by the insured & its acceptance by insurer. (Contract in writing)

2. To pay certain sum of money during an uncertain event.(Death or maturity whichever earlier)

3. To pay the amount periodically. (payment till death of insured or maturity whichever earlier)

4. It is not a contract of indemnity. (Loss of death cannot be calculated by money)

5. Insurable must be present at the time policy taken.

6. It extends hand of protection to those who left support less.

7. It covers scope under certain other risks (other than death i.e. permanent disability, compulsory
retirement, medical expenses.etc.)

8. It relieves insured from various risks and uncertainties which may occur before and after the death
of insured.
Nature of Insurance:

a) Family Protection. (Economic hardships)

b) Investment of Savings. (New source of income when permanent

earnings stop)

c) Additional Way of Earnings. (Bonus& interest credited by LIC)

d) Helpful at the Time of End of Earnings.

Benefits of Life Insurance:
1. Superior saving plan. (full protection against death)
2. Encourage saving habits. (long-term savings in painless manner)
3. Suitable for raising loans.
4. Easy settlement protection against creditors.
5. Tax relief. (for premium paid)
6. Economic protection.(to family members)
7. Investment element. (premium paid is investment)
8. Helpful to the government.
9. Money when needed.
10. Ready marketability & Suitability for quick borrowings. (Surrender for cash
value)
11. Disability & accidental death benefit.
 Types of Policies
The two basic elements in a life insurance cover are:

(a) Death cover.

(b) Risk cover.

The insurance plans that provide only the death covers i.e. the
benefits are paid on the death of the insured person are called as Term
assurance plan.

The plans under which the benefits are paid on the survival of
the insured within a specified period are called as Pure Endowment Plans.
1) Classification based on time
(a) Whole Life : (life time of assured)
Whole term – Death or Maturity
Limited Term - Policy payable only on death of the life insured
Convertible – Conversion to endowment insurance

(b) Term Plans : (Death benefit)

Convertible – Convert to some other insurance without medical examination
Renewable – Renew contract of further period without medical examination

(c) Endowment Plans: ( Provide living benefit on specific purpose)

Pure – Survival or Death within endowment period
Joint – Policy for 2 or more lives under single policy
Double – In addition to usual benefit of endowment plan, offers life
insurance also
(In the event of insured death twice the basic sum assured is paid)
Anticipated – Sum assured is paid at certain intervals & balance at maturity
2) Classification based on premium payment
(a) Single premium policies – provide whole premium in one installment
(b) Level premium policies – payable on regular basis for selected term or
till prior to death

3) Classification based on claim payment

(a) Fixed sum policies
(b) Annuity policies- Accumulate long term savings
Maximize income in retirement
Provide lifetime of regular income source
Tax benefits
4) Classification based on number of persons assured
(a) Single life – Risk on one individual
(b) Multiple life – Joint life policies or last survivorship policy

5) Classification based on participation in profit

(a) With profit policies or Participating policies
Participating policy holders entitled to get the share of
profits or benefits as per terms & conditions of the
corporation. Sum assured with benefit shall become
payable to the insured at the end of maturity or death
whichever is earlier.
(b) Without profit policies