elements of good life insurance policy

7/31/2019 Elements of Good Life Insurance Policy

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ELEMENTS OF GOOD LIFE INSURANCE POLICY

There are many different types of insurance. Life insurance, health insurance,

auto insurance, homeowners insurance, long-term-care insurance and disability

insurance are just some examples. Each of these policies is designed to serve a

specific purpose and may have advantages and disadvantages, but every insurance

policy has certain common elements. The most common element of a life insurance

policy is to protect the finances of ones family or in case of a wage-earners death,

but thats not its only element. Some of the basic components of a good life

insurance policy are as under:

1. PROVISION FOR RISK COVER : Every policy must spell out the details of thtype of coverage provided. A decent insurance policy will state what the company is

willing to give you in exchange for the premiums you pay. For example, in a term-lif

insurance policy, you may have a 30-year term and Rs.500000 death benefit. This

means your coverage protects you if you die within 30 years from the time you

purchased the policy, and the insurer will pay Rs.500000 if you do die.

2. PREMIUM : Owner of a policy need to pay premiums for every type ofinsurance. Premiums are the amount you pay for the privilege of transferring the ris

to the insurer. So, a premium should be accurate when compared to sum assured. A

decent plan provides a premium which is neither less nor more when equated with

the total amount of maturity. For example, in health insurance, premiums are the

amount you pay to transfer the risk that you will incur large medical expenses, whic

the insurer will pay, so the premium 10 tyms of sum assured In a life insurance

policy, you are transferring the financial risks associated with your death to an

insurer. Insurance premiums are set based on the type of insurance, but generally th


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insurer will calculate the statistical likelihood that it will have to pay a large claim an

uses that likelihood to arrive at a monthly premium.

3. TERM OF A POLICY : How long insurer need to be covered by the lifeinsurance policy is also important. It is very common for a person to choose a time

period that's from 20 to 25 years. It should be kept under consideration that the age

at the time an individual gets the policy should be considered as well. Most of the

time firms won't offer such life insurance to anybody that is more than 70 years old

The ones that will charge a very costly monthly fee so a caution must be taken to

have coverage in position before you reach that age grouping. Thus, an upright polic

provides a flexibility of term of a policy.

4. FLEXIBILITY: Elasticity or flexibility is a feature that offers a selection of highmedium and low risk investment options within the same policy. Underwriter can

choose an appropriate policy as per their risk taking appetite. A good policy provide

the flexibility to choose the sum assured and investment ratio in the annual targete

premium. It also offers the flexibility of one time increase in investment portfolio,

through top-ups to avail any investment opportunity offered by external

environment or own income flows.

5. LOAN AGAINST POLICY : Many corporation provide loan against their polic. By and large loan is issued after the policy acquires surrender value i.e. policy has

run and premiums have been paid at least for 3 years. A plan should be chosen such

that it provides a loan against it.

6. TAX BENEFIT : One of the key factors to keep in mind when buying lifeinsurance is tax. Although insurance should not be bought to save tax, the tax saving

provided under various sections of the Indian Income Tax Act, make buying insuranc

cheaper as well as an efficient investment for long term savings. Reduce tax

liability. Under this section, investments made in the specified instruments are


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subject to rebate. Currently, the amount available for rebate under section 80C is Rs

100,000 which can be invested in life insurance premiums, pension superannuation

fund, employee provident fund, equity linked mutual fund schemes (ELSS), National

Savings Certificates and public provident fund (maximum Rs 70,000). The amountinvested in these instruments is eligible for rebate through deduction of the amoun

from gross taxable income.

7. RIDERS AVAILABLE: Life insurance is for protecting your life cover.Sometime the life insurance is not enough for you to protect from unexpected

expenses like accident and illness. In that case you have to prepare for some other

plans other than the normal life insurance policies.Riders are additional benefits tha

can be purchased with an insurance policy.Apart from the basic life insurance policy

you have to option to add some extra benefits to protect from the unexpected

happenings. In the event of total and permanent disability during the term of the

policy due to an accident (within a specified period from the date of accident), an

amount equal to or less than the rider sum assured is be paid to the insured. There

are different types of riders in the life insurance policies

8. DEATH BENEFITS : The amount on a life insurance policy or pension that ispayable to the beneficiary when the annuitant passes away. A death benefit may be

percentage of the annuitant's pension. For example, a beneficiary might be entitled

to 65% of the annuitant's monthly pension. Alternatively, the benefit may be a large

lump-sum payment from a life insurance policy. The size and structure of the

payment is determined by the type of policy the annuitant held at the time of deathWhether youre a man or a woman, purchasing life insurance is a very difficult yet

crucial step, in coming to terms with your mortality and considering the bigger

picture: the welfare of your family after youve passed. However, before purchasing

you should familiarize yourself with all aspects of a life insurance contract including

the all-important death benefit.


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9. MATURITY BENEFITS : Survival benefits, also called maturity benefitsdepend totally on the type of life insurance policy purchased. Term plan do not

provide any maturity benefit, but it offers a huge risk cover with significantly lowpremium.

10. GROWTH THROUGH DIVIDENDS - Traditional policies offer an opportunitto participate in the economic growth without taking the investment risk. The

investment income is distributed among the policyholders through annual

announcement of dividends/bonus
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elements of good life insurance policy

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