What is Insurance
Insurance is a special type of contract between an insurance company and its client (Insured person) in which the insurance company agrees that on the happening of certain events the insurance company will either make payment to its client or meet certain costs. Lets take example of car insurance, in a car insurance policy, the insurance company agrees that if the car is damaged, the insurance company will pay the cost of repairing it. Under an income protection policy, the insurance company agrees that if its client is unable to work, the insurance company will pay its client an agreed amount.
The reason we call an insurance policy a special type of contract is because there are certain characteristics that relate to an insurance policy that do not relate to most other contracts. In particular, an insurance policy is a contract of “utmost good faith”. This means that the insurance company and the insured person have certain very important obligations that do not exist in normal contracts. These include the duty of disclosure and the duty not to make any false statements in relation to a claim. This duty of good faith is why insurance companies can refuse to pay your claim if you have not told the insurance company all material information when you applied for or renewed the insurance. Some of the obligations that exist in an insurance contract can be very onerous on the insured person, and so over the years, the government has regulated the insurance industry. This is considered under the regulation tab. The special nature of the insurance contract also places very important obligations on the insurance company. The insurance company has to act in good faith, and a failure to do so can expose the insurance company to special types of damages. In addition, because many insurance policies are contracts to provide comfort in stressful times, a failure by an insurance company to honour its obligations can result in general damages being awarded by the Courts.
Insurance policy is a type of contract, it is important to remember that the duties of the insurance company and the insured person are largely contained within that contract, often called a policy. So before jumping to conclusions about what the insurance company should or should not do, or what your obligations might or might not be, it is important to first read your insurance contract or policy. Ask the insurance company for a copy of the policy if one has not been provided to you, and read the policy carefully. Avoid generalisations. Whilst many insurance policies are similar, none are exactly the same, and slightly different words in an insurance policy may have different meanings. Many people express opinions about insurance policies or what should or should not be covered without actually reading the policy, and that must be avoided. As well as the insurance contract itself, the law (called common law by lawyers) imposes all kinds of special obligations on insurers and insureds, and so when considering an insurance contract, it is important to do so in the context of the common law obligations that are imposed upon insurance companies.
Life Insurance is the key to good financial planning. On one hand, it safeguards your money and on the other, ensures its growth, thus providing you with complete financial well being.Life Insurance can be termed as an agreement between the policy owner and the insurer, where the insurer for a consideration agrees to pay a sum of money upon the occurrence of the insured individual's or individuals' death or other event, such as terminal illness, critical illness or maturity of the policy. Life insurance plans, unlike mutual funds, are beneficial when you look at them as a long term avenue of investment which also offers protection through life cover. Life insurance policies are broadly categorized into 2 types; Traditional Plans and Unit Linked Insurance Plans (ULIPs).
Traditional policies offer in-built guarantees and define maturity benefits through variety of products such as guaranteed maturity value. The investment risk in traditional life insurance policies is borne by life insurance companies. Additionally, the investment decisions are regulated to a large extent by IRDA rules and regulations, ensuring stable returns with minimal risk. Investment income is distributed amongst the policy holders through annual bonus. These policies are ideal for policy holders who are not market savvy and do not wish to take investment risks.
ULIPs, on the other hand provide a combination of risk cover and investment. More importantly they offer a flexibility to decide your risk taking profile.
insurance is the transfer of financial risk to a third party. For example a doctor wants malpractice insurance because he/ she can be sued if they make a mistake. So in exchange for a premium the doctor can pay an insurer to defend them in court and if necessary pay the judgment.
Basically what insurance is, is something that will pay for and fix up a problem if an accident occurs.
Lets take an example, If you have car insurance and have a car crash on accident your insurance will pay for your damaged car and any injuries you attain. ( it's not exactly this simple but you get the idea). You pay money to the insurance people every month, like a phone or power bill. Every year that goes by that you weren't in an accident the payment goes down. When you do have an accident the payment is raised. So in a sense you are paying for the damages but sort of not. That's the basics of it but it's a little more complicated than just that.
What is the difference between life insurance and health insurance
Life insurance is getting your life insured with a specific amount. Upon the death of the insured person, a specific amount which is assured is provided to the nominee/beneficiary. Health insurance is insurance against the risk of medical expenses at times of medical emergencies and day-care procedures. There are many providers providers of life insurance and health insurance in India who offer really impressive plans for you and your family at affordable rates. According to japan... Health Insurance is what u get subsidized whenever u go to hospital and every time you pay. Life insurance is the specific amount of money received my your nominee, when the road of heaven chooses you. Life insurance covers the risk of life while health insurance covers for medical treatments.Life insurance is a contract between an insurance policy holder and an insurer, where the insurer promises to pay a designated beneficiary a sum of money (the "benefits") upon the death of the insured person. Depending on the contract, other events such as terminal illness or critical illness may also trigger payment. The policy holder typically pays a premium, either regularly or as a lump sum. Other expenses (such as funeral expenses) are also sometimes included in the premium.
Life-based contracts tend to fall into two major categories:
1. Protection policies
2. Investment policies
Protection policies are designed to provide a benefit in the event of specified event, typically a lump sum payment. A common form of this design is term insurance. And Investment policies are where the main objective is to facilitate the growth of capital by regular or single premiums.
Health insurance is insurance against the risk of incurring medical expenses among individuals. By estimating the overall risk of health care expenses among a targeted group, an insurer can develop a routine finance structure, such as a monthly premium or payroll tax, to ensure that money is available to pay for the health care benefits specified in the insurance agreement. The benefit is administered by a central organization such as a government agency, private business, or not-for-profit entity.
Anytime you drive a car there is a risk of an accident. If you were responsible for the accident (negligent) would you be able to pay someones hospital bill if they were in intensive care for a few weeks? What if they were permanently disabled. Would you be able to pay them because they could no longer earn a living? You transfer the risk of financial loss to an insurance company to protect yourself. If you saw your doctor and he/she said you have cancer that will require aggressive treatment would you be able to pay for that out of pocket? Or would it make more sense to buy insurance before that happened? In return for a monthly premium you are protected from financial ruin. In other words, you transferred the risk to an insurance company.
Insurable Interest
This principle is an important element within a contract of insurance. It means that the insured must have an interest in the subject matter of the insurance.
When does insurable interest exist?
The courts have confirmed that this common law principle is still relevant and that the insured is under an obligation to prove that he or she had an insurable interest at the time of loss.
An insurable interest exists when a person benefits by an insured event not occurring, or is prejudiced by the occurrence of the event.
In a practical sense this means that the insured must suffer a financial or economic loss. This also means that the interest in the property must be a real one and not a contrived one. The question you need to ask is, "Who is the beneficial owner of the property?" Or, "Who stands to lose if an event that is insured against occurs?"
When does an insurable interest not have to be shown?
At the time the insurance is arranged there is no requirement to show that an insurable interest exists. This was abolished under Sections 7 and 15 of the Insurance law Reform Act 1985
When does insured person does not have good title to a property?
Examples of when an insured does not have good title to a property or item are:
Stolen property
Pirated goods such as illegally copied computer software
Goods that have been imported illegally.
Is the lack of insurable interest a technical defence for denying a claim?
This is no longer available in domestic policies. However, if a person tries to claim for an item that he or she did not own then they would not have suffered a loss. In some situations the courts have said that 'ownership' is against the public interest and they have declined to uphold a claim on that basis.
Advantages of Life Insurance
Risk Cover - Life today is full of uncertainties; in this scenario Life Insurance ensures that your loved ones continue to enjoy a good quality of life against any unforeseen event.
Planning for life stage needs - Life Insurance not only provides for financial support in the event of untimely death but also acts as a long term investment. You can meet your goals, be it your children's education, their marriage, building your dream home or planning a relaxed retired life, according to your life stage and risk appetite. Traditional life insurance policies i.e. traditional endowment plans, offer in-built guarantees and defined maturity benefits through variety of product options such as Money Back, Guaranteed Cash Values, Guaranteed Maturity Values.
Protection against rising health expenses - Life Insurers through riders or stand alone health insurance plans offer the benefits of protection against critical diseases and hospitalization expenses. This benefit has assumed critical importance given the increasing incidence of lifestyle diseases and escalating medical costs.
Builds the habit of thrift - Life Insurance is a long-term contract where as policyholder, you have to pay a fixed amount at a defined periodicity. This builds the habit of long-term savings. Regular savings over a long period ensures that a decent corpus is built to meet financial needs at various life stages.
Safe and profitable long-term investment - Life Insurance is a highly regulated sector. IRDA, the regulatory body, through various rules and regulations ensures that the safety of the policyholder's money is the primary responsibility of all stakeholders. Life Insurance being a long-term savings instrument, also ensures that the life insurers focus on returns over a long-term and do not take risky investment decisions for short term gains.
Assured income through annuities - Life Insurance is one of the best instruments for retirement planning. The money saved during the earning life span is utilized to provide a steady source of income during the retired phase of life.
Protection plus savings over a long term - Since traditional policies are viewed both by the distributors as well as the customers as a long term commitment; these policies help the policyholders meet the dual need of protection and long term wealth creation efficiently.
Growth through dividends - Traditional policies offer an opportunity to participate in the economic growth without taking the investment risk. The investment income is distributed among the policyholders through annual announcement of dividends/bonus.
Facility of loans without affecting the policy benefits - Policyholders have the option of taking loan against the policy. This helps you meet your unplanned life stage needs without adversely affecting the benefits of the policy they have bought.
Tax Benefits-Insurance plans provide attractive tax - benefits for both at the time of entry and exit under most of the plans.
Mortgage Redemption - Insurance acts as an effective tool to cover mortgages and loans taken by the policyholders so that, in case of any unforeseen event, the burden of repayment does not fall on the bereaved family.
Benefits of ULIPs
Unit Linked Plans offer unique opportunity to combine protection with investments. Some special features of Unit Linked Life Insurance Policies (ULIPs) are:
Provides flexibility in investments
ULIPs offer a complete selection of high, medium and low risk investment options under the same policy. You can choose an appropriate policy according to your risk taking appetite, coupled with the opportunity to switch between fund options without any additional expense for specified number of switches. ULIPs provide the flexibility to choose the sum assured and investment ratio in the annual targeted premium. It also offers the flexibility of one time increase in investment portfolio, through top-ups to avail investment opportunity offered by external environment or own income flows.
Transparency
The charge structure, value of investment and expected IRR based on 6% and 10% rate of returns, for the complete tenure of the policy are shared with you before you buy a product. Similarly, the annual account statement, quarterly investment portfolio and daily NAV reporting, ensures that you are aware of the status of your investment portfolio at all times. Most companies publish latest NAVs on their respective websites on a daily basis.
Liquidity
To cope with unforeseen circumstances, ULIPs offer the benefit of partial withdrawal; wherein after 5 years you can withdraw funds from our Unit Linked account, retaining only the stipulated minimum amount.
Disciplined and regular savings
Disciplined and regular savings
ULIPs help you inculcate a regular saving habit. Also, the average unit costs tend to be lower than one time investment.
Multiple benefits bundled in one product
Multiple benefits bundled in one product
ULIP is an outstanding solution for risk cover, long term investments with the benefit of various investment opportunities, coupled with tax benefits.
Spread of risk
ULIPS are ideal for those investors who wish to avail the benefit of market linked growth without actually participating in the stock market, with the added benefit of risk-cover.
How to Plan
Don't buy insurance just because your neighbour bought it. Buy insurance because you need it.
Here are a few points to ponder about, whilst going about fulfilling your needs. This Points help you to understand the insurance policies better.
What kind of insurance do I need?
Understand your financial goals. Once you know what your aim is, you will be in a better position to choose the type of insurance you need - protection, savings, investment or retirement.
What will my insurance policy cover?
Different insurance policies have different covers. Make sure your financial advisor presents you with a list of recommendations, including the types of policies and benefits. Read them thoroughly to be aware of what your policy covers.
How much insurance coverage do I need?
The amount of insurance coverage you need depends on factors such as the number of dependants, debts or mortgages, lifestyle and investment needs. Insurance cover should be to such an extent that in case of one's demise, his / her dependents are able to maintain the same lifestyle as they used to have before the unfortunate event occurred.
How much will I be paying for my insurance cover and will I be able to afford the premiums over the long term?
The amount of premium paid depends on the insurance cover you buy. Look at the current benefits your insurance policy provides and opt for a rider accordingly. With some riders, you may stop paying premiums for your policy if you become disabled, but will still be able to enjoy the benefits of life insurance protection.
Frequency of Premium Payment:-
Choice of Frequency of premium payment period - Single premium, Yearly, Half yearly, quarterly and monthly should be carefully exercised. However, if your policy does not have this benefit and you are finding it difficult to continue meeting the premium payments, consult your financial advisor.
Note- While exercising the choice for frequency of premium payment and mode of payment ,please ensure that you mark the appropriate column in the proposal form
What happens if I fail to make the required premium payments?
Typically there is a grace period (15 to 30 days) during which you can pay the premium with no interest charged. If you do not pay your premium within this grace period, your policy lapses as a matter of general rule. However the discontinuation of policy is governed by the policy conditions which may differ from insurer to insurer and plan to plan.
Should I replace an existing insurance policy?
An insurance policy is a long-term commitment and any decision to cancel a policy should only be taken after careful consideration. Early cancellation of a policy may incur additional fees and charges. More importantly, you could lose out on valuable benefits. If you are unable to continue paying premiums on your current policy, you should consult your financial advisor on the options that are available. If you decide to replace your current policy with a new one, we would recommend that you do not cancel your original policy until you receive confirmation that your new policy is in force. This will ensure that you are not left without coverage during the interim period.
How to Buy an Insurance
There's no thumb rule on buying insurance; it depends completely on every individual's financial goals, income profile and risk appetite. However, here are a few basic rules you should keep in mind before you buy an insurance product.
Buy insurance only from a licensed company
Buying life insurance is like buying future financial security for your family. Hence when buying insurance, ensure your policy is provided by a licensed company. The list is available on this website too.
Buy insurance only from a licensed agent/ intermediary
Buy insurance only from a licensed agent/ intermediary who is licensed to sell Life Insurance Products. You can ask for the license before you actually buy the policy
Shop around
Seek premium quotes and proposals from various insurance companies and do a comparative study. Different policies offer different benefits, so choose one that suits you the most. Cheapest is not necessarily the best.
Understand the scope of cover, terms and conditions of the policy
Make sure you have a complete understanding of all necessities such as the terms and conditions as well as exclusions in the policy. If necessary, do not shy away from asking for explanations from the insurance company.
Avoid unwanted additional coverage
Do not be pressured into buying 'packaged' products, as they often contain fixed coverage's you don't need. However, you may opt to add additional coverage or riders of your choice at an additional premium which offers value for money. Your financial commitment should be in tune with your financial condition.
Get the right life insurance policy
Carefully study your agent's recommendation to make sure the policy is what you are looking for. The benefits should match your needs.
Check the date the insurance becomes effective
The date the insurance goes into effect may be different from the date the company issues the policy. Ensure you ask your agent when the insurance becomes effective.
Fill in your application carefully
Never sign blank proposals or application forms. Ensure all information filled in your application is complete and correct to avoid delays or even denial of claims at a later stage.
Health related particulars
Life Insurance is a contract of utmost good faith where the responsibility of disclosure of material fact vests with the buyer. Please ensure that all questions relating to family history, personal health are answered with utmost care. Any concealment or non disclosure of material facts could jeopardize claim to your nominees.
Age and Address Proof
Regulations require proposal forms to be accompanied by authentic age and address proof. Kindly ensure that acceptable proof of age and address are submitted with proposal form.
Ensure premiums are paid to your insurance company
Make sure your cheque or money order is made payable to the insurance company and not to your agent and insist for a receipt immediately as proof of payment.
Read your policy when you receive it
Life policies have a 'free look' period of 15 days from the date you receive it. Use this opportunity to make sure this is the right policy for you. In case the policy document contains any condition which was not explained to you by the agent or intermediary, you have the right to return it to the insurance company and ask for refund within this period.
Spread of risk
ULIPS are ideal for those investors who wish to avail the benefit of market linked growth without actually participating in the stock market, with the added benefit of risk-cover.
How to Plan
Don't buy insurance just because your neighbour bought it. Buy insurance because you need it.
Here are a few points to ponder about, whilst going about fulfilling your needs. This Points help you to understand the insurance policies better.
What kind of insurance do I need?
Understand your financial goals. Once you know what your aim is, you will be in a better position to choose the type of insurance you need - protection, savings, investment or retirement.
What will my insurance policy cover?
Different insurance policies have different covers. Make sure your financial advisor presents you with a list of recommendations, including the types of policies and benefits. Read them thoroughly to be aware of what your policy covers.
How much insurance coverage do I need?
The amount of insurance coverage you need depends on factors such as the number of dependants, debts or mortgages, lifestyle and investment needs. Insurance cover should be to such an extent that in case of one's demise, his / her dependents are able to maintain the same lifestyle as they used to have before the unfortunate event occurred.
How much will I be paying for my insurance cover and will I be able to afford the premiums over the long term?
The amount of premium paid depends on the insurance cover you buy. Look at the current benefits your insurance policy provides and opt for a rider accordingly. With some riders, you may stop paying premiums for your policy if you become disabled, but will still be able to enjoy the benefits of life insurance protection.
Frequency of Premium Payment:-
Choice of Frequency of premium payment period - Single premium, Yearly, Half yearly, quarterly and monthly should be carefully exercised. However, if your policy does not have this benefit and you are finding it difficult to continue meeting the premium payments, consult your financial advisor.
Note- While exercising the choice for frequency of premium payment and mode of payment ,please ensure that you mark the appropriate column in the proposal form
What happens if I fail to make the required premium payments?
Typically there is a grace period (15 to 30 days) during which you can pay the premium with no interest charged. If you do not pay your premium within this grace period, your policy lapses as a matter of general rule. However the discontinuation of policy is governed by the policy conditions which may differ from insurer to insurer and plan to plan.
Should I replace an existing insurance policy?
An insurance policy is a long-term commitment and any decision to cancel a policy should only be taken after careful consideration. Early cancellation of a policy may incur additional fees and charges. More importantly, you could lose out on valuable benefits. If you are unable to continue paying premiums on your current policy, you should consult your financial advisor on the options that are available. If you decide to replace your current policy with a new one, we would recommend that you do not cancel your original policy until you receive confirmation that your new policy is in force. This will ensure that you are not left without coverage during the interim period.
How to Buy an Insurance
There's no thumb rule on buying insurance; it depends completely on every individual's financial goals, income profile and risk appetite. However, here are a few basic rules you should keep in mind before you buy an insurance product.
Buy insurance only from a licensed company
Buying life insurance is like buying future financial security for your family. Hence when buying insurance, ensure your policy is provided by a licensed company. The list is available on this website too.
Buy insurance only from a licensed agent/ intermediary
Buy insurance only from a licensed agent/ intermediary who is licensed to sell Life Insurance Products. You can ask for the license before you actually buy the policy
Shop around
Seek premium quotes and proposals from various insurance companies and do a comparative study. Different policies offer different benefits, so choose one that suits you the most. Cheapest is not necessarily the best.
Understand the scope of cover, terms and conditions of the policy
Make sure you have a complete understanding of all necessities such as the terms and conditions as well as exclusions in the policy. If necessary, do not shy away from asking for explanations from the insurance company.
Avoid unwanted additional coverage
Do not be pressured into buying 'packaged' products, as they often contain fixed coverage's you don't need. However, you may opt to add additional coverage or riders of your choice at an additional premium which offers value for money. Your financial commitment should be in tune with your financial condition.
Get the right life insurance policy
Carefully study your agent's recommendation to make sure the policy is what you are looking for. The benefits should match your needs.
Check the date the insurance becomes effective
The date the insurance goes into effect may be different from the date the company issues the policy. Ensure you ask your agent when the insurance becomes effective.
Fill in your application carefully
Never sign blank proposals or application forms. Ensure all information filled in your application is complete and correct to avoid delays or even denial of claims at a later stage.
Health related particulars
Life Insurance is a contract of utmost good faith where the responsibility of disclosure of material fact vests with the buyer. Please ensure that all questions relating to family history, personal health are answered with utmost care. Any concealment or non disclosure of material facts could jeopardize claim to your nominees.
Age and Address Proof
Regulations require proposal forms to be accompanied by authentic age and address proof. Kindly ensure that acceptable proof of age and address are submitted with proposal form.
Ensure premiums are paid to your insurance company
Make sure your cheque or money order is made payable to the insurance company and not to your agent and insist for a receipt immediately as proof of payment.
Read your policy when you receive it
Life policies have a 'free look' period of 15 days from the date you receive it. Use this opportunity to make sure this is the right policy for you. In case the policy document contains any condition which was not explained to you by the agent or intermediary, you have the right to return it to the insurance company and ask for refund within this period.