LIFE INSURANCE FAQ
How insurance is social security tool ?
When the breadwinner dies, the family income dies. The economic condition of the family is affected and unless some arrangements are available, the family is pushed to lower strata of society. Life insurance comes in handy to restore the situation to some extent. Poor people cost the nation by way of subsidies and doles and so on. Life insurance tends to reduce such costs. In this sense, life insurance is complimentary in the state's efforts in social management.
What is a term assurance?
Term assurances are the purest and cheapest form of insurance. Term assurances are plans where benefits are payable only on the death of the policy holder within the term.
What is whole life plan?
Whole life plans are a special type of term assurance wherein the term of the policy is whole of the life. So it follows that benefits under the policy are payable only on death of the policy holder.
What is an endowment assurance plan?
Endowment plans are among the most popular forms of insurance as they provide both insurance coverage and also act as a savings instrument. These are the plans wherein benefits are payable on death within the term or survival to maturity which ever is earlier.
What is money back plan?
Money back plans are a special type of endowment plans and are also called as anticipated endowment assurance plans. Under money back plans, survival benefits are spread over the term of the policy i.e., certain percentage of sum assured is paid at regular intervals. Apart from the above death benefit continues like an endowment plan i.e., full sum assured shall be payable on death within the term irrespective of earlier survival benfits.
What is Rider ?
A rider to a policy provides for some additional benefit or making certain stipulations.
What is the benefit of opting riders/add ons?
Riders/add ons are the additional benefits which can be added to the basic policy by paying marginal additional premium. Each company has got their own set of rider and most common riders offers by insurers are:
» Term rider.
» Critical illness rider.
» Accidental death and dismemberment rider.
» Waiver of premium rider.
What is an assignment?
Assignment is a means whereby the beneficial interest, right and title under a policy gets transferred from the assignor to the assignee. 'Assignor' is the policy holder who transfers the title and 'Assignee' is the person who derives the title from the assignor.
When to assign a policy?
Assignment can be made only after acquiring the policy. Assignment can be done only for consideration- for money or money's worth or good, moral and meritorious consideration like, love and affection.
Procedure to assign a policy
Assignment can be done by mere endorsement on the policy or by a separate duly stamped deed. Assignment can be done by the proposer, policy holder, or the absolute assignee.
Pre-requisites for a valid assignment
Assignor must be a major. Assignor must have an absolute right over the policy. Assignment must be in writing. Assignor's signature along with a witness is a must. Notice of assignment is to be submitted to the insurer.
Types of assignments
There are two kinds of assignments.
» Conditional Assignment
» Absolute Assignment
Conditional assignment is usually effected for consideration of natural love and affection. Absolute assignment is usually affected for valuable consideration.
The rights of an assignor and assignee
On assigning the policy, the assignor (life assured/policy holder) loses his right over the policy and the assignee gets the right and becomes the owner of the policy. The assignee can further re-assign the policy and he also has a right to sue under the policy.
A valid Assignment once made cannot be cancelled. It is only an another valid assignment the earlier assignment gets cancelled. In all the cases, Assignment automatically cancels the nomination. However, when the policy is assigned to the insurer, nomination gets affected and it does not get cancelled.
Under conditional assignment, if the conditional assignee dies, the benefit under the policy goes back to the life assured if surviving. otherwise, the benefit goes to policyholders nominee. Under absolute assignment, if the absolute assignee dies, the benefits under the policy goes to the legal heirs of the assignee.
What is nomination?
Nomination is the process of identifying a person to receive the policy money in the event of the death of the Policyholder.
When to nominate?
Nomination can be done at the inception of the Policy by providing details of nominee in the proposal form. However, if the nomination is not done at the inception of the policy, the policyholder can nominate at a later date. This nomination has to be effected by giving notice in a prescribed form to the insurer and getting it endorsed on Policy Bond.
Change of Nomination
Change of Nomination can be done by the Policyholder any time during the term of the Policy and any number of times. For this, the policy holder has to give a notice in a prescribed form to the insurer and getting it endorsed at the back of the Policy. Further, Nomination can be removed any time by the Policyholder without giving prior notice to the Nominee.
Procedure for Nomination
Nomination can be done only by a policyholder who is a major holding Policy Bond in his own name. In the case of Children's Policies, Nomination is not done until the Child becomes major.
Rights of a nominee
Under Nomination, the Nominee gets only the right to receive the policy money in the event of the death of the Policyholder. Nomination does not pass on the property in the Policy. If Nominee dies when the Policyholder is still surviving then the nomination would be ineffective. Nomination has no effect if the Policyholder is surviving. If Nominee dies after the death of the policyholder but before receiving policy money, then also Nomination becomes ineffective and money can be claimed only by the Legal Heirs of the Policyholder.
What is surrender value?
The cash value payable by the insurance company on termination of the policy contract at the desire of Policyholder but before the expiry term is known as Surrender Value. A policy can be surrendered, provided the policy is kept in force atleast three years. The bonus will be added, provided the policy was in force for atleast 5 years, i.e., premiums should have been paid for 5 years and five years should have been completed from the date of commencement of the Policy (this condition is not applicable in respect to claims by death.)
How much life insurance should an individual own?
It is very difficult to place a monetary value on human life. Theoretically therefore an individual can have life policies for any amount. However, in practice, it is determined based on the needs for insurance and the capacity to pay premiums regularly. Though there is no thumb rule to arrive at the exact amount of insurance, it is determined by taking 10 times of the annual income of the person, if such income is not fluctuating. If the income is fluctuating it is desirable to work his average annual income and then determine the amount of insurance.
When does a policy acquire paid up value?
After payment of three years of premiums if subsequent premiums have not been paid under a policy, such a policy is said to have acquired a paid up value, though literally it is a lapsed policy. The paid up value is calculated by multiplying the sum assured by the ratio of number of premiums paid under the policy and the number of premiums payable under the policy. The value so arrived at, should not be less than Rs.250 excluding the accumulated bonus under such a policy. Such a reduced paid up policy will not be entitled to participate in future bonuses.
What is permanent total disablement?
Permanent total disablement means that the life assured is incapacitated to work or follow an occupation and obtain wages, compensation or profit. The following are considered to constitute such disability:
irrecoverable loss of entire sight of both of the eyes
» amputation of both hands
» amputation of both feet
» amputation of one hand and one foot
Is there any maximum limit in sum assured for grant of accident benefits?
Maximum accident benefit one can avail under all the policies which he holds is fixed and varies from company to company In case of LIC generally it is Rs.5 lakhs sum assured. Can an individual have accident benefit alone?
No, The benefit is available only along with a plan of assurance wherein it is permissible.
What is meant by a 'with profit plan'?
A policy issued under a with profit scheme is eligible to participate for bonus addition arising out of surplus revealed on conducting an actuarial valuation. Premium under a with profit plan is always greater than the rate for a with out profit plan. that is while computing the structure of a premium table a bonus loading is made to the rate determined by the other three factors viz., Mortality, Interest and expenses.
GENERAL INSURANCE FAQ
What does Insurance mean?
It is a method in which the losses suffered by a few are spread over many, exposed to similar risks. Insurance is a well-thought out cover against financial loss arising on the happening of an unanticipated occurrence
What is risk and why insurance is done ?
Risk means that there is a possibility of loss or damage. It may or may not happen. Insurance is done against the contingency that it may happen. Insurance compensates the economic loss (though not fully).
How much of Insurance do I need?
It is pretty imperative to have sufficient amount of coverage for each insurance policy. Even before zeroing in on the Sum Insured as regards any asset or property insurance, the value of the asset based on market value or reinstatement value should be primarily taken into consideration. If the Sum Insured does not meet requirements, the percentage representing the exposed segment of the asset has to be necessarily borne by the insured.
What are the different ways to buy general Insurance?
» Through an agent, broker or any other such intermediary.
» Anyone using the title broker is usually independent and generally aims to find you the best deal on the market.
» Other intermediaries might just quote the best deal from a fairly small panel of insurance companies or represent a single insurance company.
» You can approach the insurance company directly. If you approach the company directly, the chances of getting a better rate are very high.
What is the difference between an Agent and a Broker?
» An agent is the representative of Insurance Company whereas a broker is the representative of the consumer or the policyholder.
» An agent could be a paid employee of the Insurance Company or could be an independent businessman.
What services does a broker provide?
In general an insurance broker would:
» Provide pre sales and after sales service to customers
» Provide relevant information to the underwriters for risk assessment and ascertain the premium
» Structure product and design covers that meet the specific requirements of customers
» Recommend risk improvement and loss minimization measures
» Provide a collection of Premiums
» Provide risk management and insurance education.
What does Premium mean?
The amount of money you pay periodically to maintain insurance coverage.
What factors affect the cost of Insurance?
The factors that can affect the cost of insurance include:
» The likelihood of a loss occurring —The greater the probability a loss will occur the higher the rate. E.g. Floods Insurance in parts of North-east India.
» Purchase of a large amount of coverage (that is, if the item you are insuring is quite valuable) -- The chances are there could be a large claim and the premium will need to cover that possibility.
To purchase Insurance, why must I fill up a proposal form?
Insurance is typically a contract that needs to be signed between the insured and the insurer. The proposal form is the basis of contract that contains all the relevant information for the preparation of the policy that is a contract document.
What is underwriting?
Underwriting of a risk involves the consideration of material facts on the basis of which a decision will be taken whether to accept the risk and if so, at what rate of premium.
What is deductible?
In an insurance policy, the deductible or excess is the portion of any claim that is not covered by the insurance provider. It is normally quoted as a fixed amount and is a part of most policies covering losses to the policyholder. The deductible must be "met", that is, paid by the insured, before the benefits of the policy can apply.
What is Reinsurance?
Insurance companies practice the fundamental principle of spreading their risk too. Further reinsuring the risks that the insurance company has insured does this.
Who do you file your claim with?
You file a claim with the insurance company that issued your policy. In case of policies received on account of your employment you may have to file claims through the HR administrator.
How to file a claim?
» Most companies offer a call centre facility.
» Alternatively, you can:
a) contact your Broker
b) write to your insurance company intimating the claim.
» There is usually a claim form that needs to be filled. This can be:
a) downloaded from the insurance company’s website.
b) be obtained by visiting the insurance company’s office.
c) provided to you by your agent.
What are the things to be taken care of while filing a claim?
Be thorough and exact when reporting damage and always tell the truth. Withholding vital information or exaggerating the facts can, not only lessen your chances of the claim being settled to your satisfaction, but also may be considered a crime. (Insurance fraud costs consumers crores of rupees a year.
What happens after a claim has been filed?
Once your claim has been filed, the insurance company will assign a surveyor.
» He or she is charged with investigating your claim and then making a recommendation to the insurance company.
» The recommendation can be to accept the claim and pay the full amount requested, accept part of the claim and make partial payment, or refuse the claim and make no payment.
» The insurance company will then make a decision regarding your claim and notify you of its final decision. The amount of compensation offered can vary according to the surveyor’s analysis.
What impact does a deductible have while settling a claim?
» If you have no deductible, the company will pay 100% on a covered loss.
» To understand how a deductible works, consider the following: If the deductible on your motor insurance is Rs. 1000 it means you agree to pay this amount first, and your insurance company will pay for damages exceeding this deductible.
» By increasing your deductible from Rs. 1000 to Rs. 2500 or even Rs. 3500 this decreases the insurance company’s risk. This could mean a savings in your premium.
Who keeps an eye on the Insurance companies?
» Insurance is a heavily regulated industry.
» The Insurance Regulatory and Development Authority controls insurance regulations in India. In addition to approving rates, the regulatory body is involved in all insurance matters on behalf of private citizens and businesses.
» It issues operating licenses to insurers and agents, based on among other things:
a) ability to meet the requirements for conduct
b) knowledge about insurance issues.
“Insurance is the subject matter of solicitation"
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