Tax4india ›› Indian Insurance›› Life Insurance
Life Insurance In India
Life insurance made its debut in India well over 100 years ago. Its salient features are not as widely understood in our country as they ought to be. What follows is an attempt to acquaint readers with some of the concepts of life insurance, with special reference to life insurance. It should, however, be clearly understood that the following narration is by no means an exhaustive description of the terms and conditions of a life insurance policy or its benefits or privileges. For more details, please contact our Branch or Divisional Office. Any life insurance Agent will be glad to help you choose the life insurance plan to meet your needs and render policy servicing.
Life Insurance sector is the fastest growing sector in India since 2000 when the Government allowed Private players and FDI [Foreign Direct Investment] up to 26%. Life Insurance in India was nationalized by incorporating Life Insurance Corporation (LIC) in 1956. All private life insurance companies at that time were taken over by LIC.
In 2000, the legislation amending the Insurance Act of 1938 and legislating the Insurance Regulatory and Development Authority Act of 2000 was passed, where in the newly appointed insurance regulator - Insurance Regulatory and Development Authority [IRDA] started to issue licenses to private life insurers.
What is Life Insurance?
Life Insurance is 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 the happening of the event insured against. Usually the contract provides for the payment of an amount on the date of maturity or at specified dates at periodic intervals or at unfortunate death, if it occurs earlier. Among other things, the contract also provides for the payment of premium periodically to the Corporation by the assured. Life insurance is universally acknowledged to be an institution which eliminates 'risk', substituting certainty for uncertainty and comes to the timely aid of the family in the unfortunate event of death of the breadwinner. By and large, life insurance is civilisation's partial solution to the problems caused by death. Life insurance, in short, is concerned with two hazards that stand across the life-path of every person: that of dying prematurely leaving a dependent family to fend for itself and that of living to old age without visible means of support.
Why is it superior to other forms of Savings?
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 (with bonuses wherever applicable) whereas in other savings schemes, only the amount saved (with interest) is payable.
Aid To Thrift: Life insurance encourages 'thrift'. Long term saving can be made in a relatively 'painless' manner because of the 'easy instalment' facility built into the scheme (method of paying premium either monthly, quarterly, half yearly or yearly). Take, for example, our Salary Saving Scheme popularly known as SSS. This scheme provides a convenient method of paying premium each month by deduction from one's salary. The deducted premium is remitted by the employer to the LIC. The Salary Saving Scheme can be introduced in an institution or establishment subject to specified terms and conditions.
Liquidity: Loans can be raised on the sole security of a policy which has acquired loan value. Besides, a life insurance policy is also generally accepted as security for even a commercial loan.
Tax Relief: Tax relief in Income Tax and Wealth Tax is available for amounts paid by way of premium for life insurance subject to Income Tax rates in force. Assessees can avail themselves of provisions in the law for tax relief. In such cases the assured in effect pays a lower premium for his insurance than he would have to pay otherwise.
Money When You Need It: A suitable insurance plan or a combination of different plans can be taken out to meet specific needs that are likely to arise in future, such as children's education, start-in-life or marriage provision or even periodical needs for cash over a stretch of time. Alternatively, policy moneys can be so arranged to be made available at the time of one's retirement from service to be used for any specific purpose, such as for the purchase of a house or for other investments. Subject to certain conditions, loans are granted to policyholders for house building or for purchase of flats.
Who Can Buy A Life Insurance Policy?
Any person who has attained majority and is eligible to enter into a valid contract can take out a life insurance policy for himself and on those in whom he has insurable interest. Policies can also be taken out, subject to certain conditions, on the life of one's spouse or children. While underwriting proposals, factors such as the state of health of the life to be assured, the proponent's income and other relevant factors are considered by the Corporation.
Insurance On Women.
Prior to nationalization (1956), many of the private insurance companies used to offer insurance to female lives with some extra premium or on restrictive conditions. After nationalization of life insurance, the terms under which life insurance is granted to female lives have been reviewed from time to time. At present, women with earned income are treated on par with male lives. In other cases, a restrictive clause is imposed and that too only if age of the female is up to 30 years and if she does not have an income attracting Income Tax.
Medical And Non-Medical Schemes.
Life insurance is normally offered after a medical examination of the life to be assured. However, to facilitate greater spread of insurance and also as a measure of relaxation, LIC has been extending insurance cover without any medical examination, subject to certain conditions.
With Profit And Without Profit Plans.
An insurance policy can be 'with' or 'without' profit. In the former, bonuses disclosed, if any, after periodical valuations are allotted to the policy and are payable alongwith the contracted amount. In 'without' profit plan the contracted amount is paid without any addition. The premium rate charged for a 'with' profit policy is therefore higher than for a 'without' profit policy.
Keyman Insurance.
Keyman Insurance is taken by a business firm on the life of key employee(s) to project the firm against the finance loss which may occur due to the premature demise of the Keyman.
|
