Life Insurance
Breathing New Life…
Life insurance made its debut in India well over 100 years ago. Its salient featuresare not as widely understood in our country as they ought to be. What follows is anattempt to acquaint readers with some of the concepts of life insurance, with specialreference to Life Insurance. It should, however, be clearly understood that thefollowing information is by no means an exhaustive description of the terms andconditions of an LIC policy or its
Life Insurance?History
The origin of insurance is lost in antiquity. The earliest traces of insurance in theancient world are found in the form of marine trade loans or carriers’ contracts,which included an element of insurance. Evidence is on record that arrangementsembodying the idea of insurance were made in Babylonia and India at quite an earlyperiod. In ‘Rigveda’, the most sacred book of India, references were made theconcept ‘Yogakshema’ more of less akin to the well-being and security of the people.The codes of Hummurabi and of Munu had recognized the advisability of provision forsharing the future losses. However, there is no evidence that insurance’s in itspresent form was practiced prior to the twelfth century.
Life Insurance benefits or privileges.
A contract for payment of a sum of money to the person assured (or failing him/her,to the person entitled to receive the same) on thehappening of the event insured against. Usually thecontract provides for the payment of an amount on thedate of maturity or at specified dates at periodicintervals or at unfortunate death, if it occurs earlier.Among other things, the contract also provides for thepayment of premium periodically to the Company by theassured. Life insurance is universally acknowledged tobe an institution, which eliminates 'risk', substitutingcertainty for uncertainty and comes to the timely aid of the family in the unfortunate event of the death of thebreadwinner. By and large, life insurance is civilization’s partial solution to theproblems caused by death.Life insurance, in short, is concerned with two hazards that stand across the life-pathof every person: that of dying prematurely leaving a dependent family to fend foritself and that of living to old age without visible means of support.
Why is it superior to other forms of Savings?
(i) Protection: Savings through life insurance guarantee full protection against risk of death of the saver. In life insurance, on death, the full sum assured is payable (withbonuses wherever applicable) whereas in other savings schemes, only the amountsaved (with interest) is payable.(ii) Aid to thrift: Life insurance encourages 'thrift'. Long term saving can be made ina relatively 'painless' manner because of the 'easy installment' facility built into thescheme (premiums can be paid through monthly, quarterly, half-yearly or yearlyinstalments). The Salary Savings Scheme, popularly known as SSS, provides aconvenient method of paying premium each month by deduction from one's salary.
You cannot be substituted physically or emotionally but youcan be substituted financially.
The deducted premium is remitted by the employer to the LIC. The Salary SavingsScheme can be introduced in an institution or establishment subject to specifiedterms and conditions.(iii)
Liquidity
: Loans can be raised on the sole security of a policy which hasacquired loan value. Besides, a life insurance policy is also generally accepted assecurity for even a commercial loan.(iv)
Tax Relief
: Tax relief in Income Tax and Wealth Tax is available for amountspaid by way of premium for life insurance subject to the Income Tax rates in force.Assesses can avail themselves of provisions in the law for tax relief. In such casesthe assured in effect pays a lower premium for his insurance than he would have topay otherwise.(v)
Money when you need it
: A suitable insurance plan or a combination of different plans can be taken out to meet specific needsthat are likely to arise in future, such as children'seducation, start-in-life or marriage provision or evenperiodical needs for cash over a stretch of time.Alternatively, policy moneys can be so arranged to bemade available at the time of one's retirement fromservice to be used for any specific purpose, such as forthe purchase of a house or for other investments. Subjectto certain conditions, loans are granted to policyholdersfor house building or for purchase of flats.
Types of insurance
The deregulation of Indian insurance has opened new vistas before thissector. The first stirrings of change are visible in two areas. The insuranceregurelotary & development authority (IRDA) has granted license to many privateplayers to commence life & non-life insurance business in India, the state ownednon-life megacorp, has witnessed to the first phase of restructuring wherein itssubsidiaries have been delinked from GIC, which itself has been converted into aNational Reinsurer. Clearly, the Indian insurance sector is coming alive.
“
A life-saving pill when you need it, you must have it – irrespective of the cost.”
Insurance
Life Insurance
Non Life InsuranceFireMotor MiscellaneousMarine
The spotlight could not have been more sudden. Within days of comingtogether under the common banner of GIPSA (Association of General Insurers-PublicSector), the officials of the newly formed body of non-life insurers in India camped atBhuj, a small town in the state of Gujarat. The town had been hit by the worstearthquake in independent India on the mooring of January 26. The circumstanceswere tragic. But they were also ominous for the independent, but still state-owned,non-life companies. Customer service, fast response,speed of delivery etc. were no longer empty jargon.They were now loaded. They were real. The insurerswere on trial.With the enactment of the IRDA Act in November1999 by the Indian parliament, Indian joined thegrowing list of countries where insurance is open to theprivate sector. In fact, only three nations in the world –Cuba, Myanamar and North Korea-have the dubiousdistinction today of having total state control overinsurance.
The million dollar question
Does deregulation benefit the customer and the policyholder ?
The jury is stillout on that one. But as the then Union Finance Minister
Yashwant Sinha
said in theparliament while piloting the bill
, “The liberalization of Indian insuranceindustry is an idea whose time has come
.” At last the season has changed, there was a time when many Indians believed thatwhoever bought life insurance would, in fact, die prematurely. Many families werethus left in penury by their superstitious breadwinners who died uninsured at anearly age.Fortunately, those days are now gone and Life Insurance does roaring business. Theinsurance business is concerned with three basic functions:
i. Indemnification of the loss of value.ii. Scientific approach to risk management.iii. Equitable distribution of the costs among the insured.
Today there are many reasons for investing in life insurance policies, such as:
Protection for the Family:
The most important objective of life insurance is to provide financial protection forthe family in case of an unexpected and premature death of its breadwinner. Thepurpose is to protect the dependents against the loss of earning power of the insuredthrough death or disability. Those who have insured their lives for an adequate sumcan live in peace and comfort, free of the gnawing worry of what would happen totheir families in the event of their sudden and premature death. Life insurance haslong been recognized as a necessary and essential element in a family’s totalfinancial program.
1. Regular Savings:
Saving is not a physical need, unlike hunger or sleep. Many of us may not saveunless there is compulsion to do so. For such people, life insurance is a compulsory,regular savings scheme, especially the monthly salary savings schemes. Even if youdo not subscribe to the salary savings scheme, you can issue standing instructions toyour bankers to pay the premium regularly without reference to you.The element of savings in a life insurance contract should be understood in a properperspective. Typically, life insurance is made available on the basis of equatedperiodical payments. In the initial years, you tend to pay more compared to the riskfactor. Strictly, speaking, the 'savings' aspect in a life insurance policy should not becompared with other pure savings media.
“The liberalization of Indian insuranceindustry is an ideawhose time has come
.”-
Yashwant Sinha, former Union Finance Minister
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