What is Life Insurance ?

Life Insurance

Life insurance is a contract whereby, for an agreed payment (premium), the insuring company agrees to pay the insured, or his beneficiaries, a fixed sum or an income upon the death of the insured.In addition, life insurance can be used as a means of investment or savings.

There are four people involved in the contract:

the insurer – who draws out the contract and pledges to offer a service to    the beneficiary
the policy holder – a person, natural or legal who signs the contract, pays the premium and selects the nominated beneficiaries
the insured – the person’s whose death is covered by the policy
the nominated beneficiaries or next of kin – persons, natural or legal who will receive the fixed sum or income as agreed by the contract.

In practice, a person can be policy holder, insured and beneficiary at the same time. Also, you could take out a joint life insurance policy.

Taking out a life insurance policy is a long-term investment and can be a good way to:

build up your savings
get additional income for your retirement
get returns on your capital
pass on your capital.

Before you sign a life insurance contract, you should give careful consideration to the following:

the contracts’ terms and conditions
beneficiaries
setting up a trust
premium payments
cooling-off period
types of life insurance funds
charges
withdrawals and loans on life insurance policies.

Classification of Insurance:

There are mainly two broad classes of Insurance – Life and Non Life.

1.  Life insurance products include Term Life policies, which give a pure risk coverage of only the death benefit, whereas endowment or money back policies have a risk as well as savings component i.e. death as well as maturity benefit. Also coming under the life insurance umbrella are the Unit – Linked Policies in which there is a risk component and a savings component, which is invested in equity, debt or gilt funds, depending on the insurance company.

2.  Non Life insurance products include property or casualty, health insurance or house, fire, marine insurance etc. This insurance class deals with all the non-life aspects of an insured like his/her house, health, land, office, cargo, etc which might bring financial loss.

The US$ 41-billion Indian insurance industry—the fifth largest life insurance market in the emerging insurance economies globally—has made a strategic comeback with better performances in the April-November 2009 period. Life insurance in India has the First Year Premium (inclusive of Single Premium) segment accounting for US$ 24 billion and Non-Life Insurance—US$ 5.6-billion industry—with motor and health segments accounting for 56 per cent of total business.

The life insurance industry contributed 4.1 per cent to the GDP of the economy in 2009, a huge rise since the sector was thrown open to the private sector in 1999. The sector has contributed US$ 1.3 billion in foreign direct investment (FDI), even as the government is likely to reintroduce the Insurance Bill on FDI cap to increase the cap from 26 per cent to 49 per cent in the next Parliament session.

There are around 10 million registered vehicles in the country and the total insurance premium collected in 2008-09 was US$ 6.62 billion.

The total number of life insurers registered with the Insurance Regulatory Development Authority (IRDA) has gone up to 23, with registration of India First Life Insurance Company Limited, a joint venture life insurance company promoted by Bank of Baroda and Andhra Bank, India and Legal & General Middle East Limited, UK.

The new businesses of the life insurance companies grew 22 per cent to US$ 12 billion in April-November 2009-10, compared to the US$ 9.8 billion in the corresponding period last year, according to IRDA data. Buoyed by a steep rise in sale of single premium policies, the industry clocked a 53.25 per cent rise in November 2009 alone.

The market share of Life Insurance Corporation (LIC) among 23 players in the sector jumped to 66 per cent at US$ 7.9 billion during the first eight months of 2009-10, from US$ 5.5 billion during the same period last fiscal. The 22 private insurers have collected US$ 4.1 billion first year premium during April-November this fiscal, compared to US$ 4.35 billion during the same period last year.

The life insurance industry had earlier been expected to grow by 15 per cent this fiscal and cross the US$ 54.1 billion mark in total premium income by March-end, according to industry body, Life Insurance Council. This growth in premium income includes new business as well as renewals, driven by increasing awareness on the value of getting insured.

The quarter has also witnessed new product launches. Private sector insurer, Aviva Life Insurance has launched nine unit-linked plans, in line with the recent IRDA guidelines on cap on charges, which have enhanced features and higher internal rate of return (IRRs).

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