1 Unit-2 Life Insurance

Definition of life Insurance: Life insurance is a contract between two parties whereby one party agrees to pay to the other party, a certain amount of money as premium to make good the loss of life arising out of an uncertain event of death in which the insured has interest. Human life is subject to risks of death and disability due to natural and accidental causes. When human life is lost or a person is disabled permanently or temporarily, there is a loss of income to the household. The family is put to hardship. Sometimes, survival itself is at stake for the dependants. Risks are unpredictable. Death/disability may occur when one least expects it. An individual can protect himself or herself against such contingencies through life insurance. Though Human life cannot be valued, a monetary sum could be determined which is based on loss of income in future years. Hence in life insurance, the Sum Assured (or the amount guaranteed to be paid in the event of a loss) is by way of a benefit in the case of life insurance. It is the uncertainty that is risk, which gives rise to the necessity for some form of protection against the financial loss arising from death. Insurance substitutes this uncertainty by certainty. The primary purpose of life insurance is the protection of the family. Insurance in its various forms protects against such misfortunes by having the losses of the unfortunate few paid by the contribution of the many that are exposed to the same risk. This is the essence of insurance the sharing of losses and substitution of certainty for uncertainty. There are a variety of life insurance products to suit to the needs of various categories of peoplechildren, youth, women, middle-aged persons, old people; and also rural people,etc. Life insurance products could be purchased from registered life insurers notified by the IRDA. Insurers appoint insurance agents to sell their products.Public who are interested to buy life insurance products should receive proper advice from insurance agents/insurer so that a right product could be chosen to suit particular financial needs. Need for the Life Insurance: The original basic intention of life insurance is to provide for one family and perhaps others in the event of death. Originally, polices were to provide for short periods of time, covering temporary risk situations, such as sea voyages. As life insurance became more established. It was realized what a useful tool it was in a number of situations, including: Temporary needs threats: The original purpose of Life Insurance remains an important element, namely providing for replacement of income on death etc. Regular saving: Providing ones family and oneself, as a medium to long term exercise (through a series of regular payment of premiums). This has been become more relevant in recent times as people seek financial independence from their family. Investment: Put simply, the building up of saving while safeguarding it from ravages of inflation. Unlike regular saving products are traditionally lump is investments, where the individual makes are onetime payment. Retirement: Provision for ones on later years has become increasingly necessary. Especially in charging culture abs social environment, one can buy a suitable insurance policy which will provide periodical payments on ones old age.

Benefits of Life Insurance: 1. It is superior to traditional saving machine. As well as providing a secure vehicle to build up saving etc. it provides pieced of mind to the policy holder. In the event ultimately death, of say, the main earner in the family, the policy will pay out guaranteed sum assured, which is likely to be significantly more than the total premiums paid. With more traditional, saving vehicles such as fixed deposits, the only return would be the amount invested plus any interested accrued. 2. It encourages saving and forces thrift. Once an insurance contract has been entered into, the insured has an obligation to continue paying premiums, until the end of the term of policy, otherwise the policy will lapse. In other words, it becomes

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compulsory for the insure to save regularly and spend wisely. In contrast saving held in a deposit account can be accessed or stop easily. 3. It provides easy settlement and protection against creditors Once a person appointed for receiving the benefits or a transfer of rights is made (assignments), a claim under the life insurance contracts can be settled easily. In addition, creditors have no right to any momies by the insurer, where the policy is written under trust. Under the married womans act the money available from the policy forms a kind of trust which creditors cannot claim on. 4. It can be enchased and facilities borrowing. Sum contracts may allow the policy can be surrendered for a cash amount, if policy holder is not in a position to pay the premium. A loan, against certain policy, can be taken for a temporary period to tide over the difficulty. Presence of life insurance policy facilitates credit for personal or commercial loans as it can be offered as collateral security. 5. Tax relief: The policy holder obtains income tax rebates by paying the insurance premium. The specified from of saving which enjoys a tax rebate u/s 88 of the income tax act. Include Life Insurance premiums and contribution to a recognized PF etc.