Who can buy a life insurance policy?
Any person above 18 years of age, who is eligible to enter into a valid contract can go for an insurance policy. Subject to certain conditions, a policy can be taken on the life of a spouse or children.

What is a Whole Life Policy?
When most people think of life insurance, they think of a traditional whole life policy. These are the simplest policies to understand. You pay a fixed premium every year based on your age and other factors, you earn interest on the policy's cash value as the years roll by and your beneficiaries get a fixed benefit after you die. The policy takes you into old age for the same premium you started out with. Whole life insurance policies are valuable because they provide permanent protection and accumulate cash values that can be used for emergencies or to meet specific objectives. The surrender value gives you an extra source of retirement money if you need it.

What is an Endowment policy?
Unlike whole life, an endowment life insurance policy is designed primarily to provide a living benefit. Thus, it is more of an investment than a whole life policy. Endowment life insurance pays the face value of the policy either at the time of death of the policyholder or at the time of maturity of the policy. The policy is a method of accumulating capital for a specific purpose and protecting this savings program against the saver's premature death. Many investors use endowment life insurance to fund anticipated financial needs, such as college education or retirement. Premium for an endowment life policy is much higher than that of a whole life policy.

What is a Money Back policy?
It is an endowment policy for which a part of the sum assured is paid to the policyholder in the form of survival benefits, at fixed intervals, before the maturity date. The risk cover on the life continues for the full sum assured even after payment of survival benefits and bonus is also calculated on the full sum assured. If the policyholder survives till the end of the policy term, the survival benefits are deducted from the maturity value.

What is an Annuity Scheme?
Annuity schemes are those wherein policyholders regular contributions over a period of time (or a one-time contribution) accumulate to form a corpus. This corpus is used to yield a regular income that is paid to policyholders until death starting from your desired retirement age. Some annuity schemes have the option to pay your survivors a lump sum amount upon your death in addition to the regular income you receive while you are alive.

What are With Profit and Without Profit Plans?
Some insurers distribute profits among it policyholders every year in the form of a bonus/ profit share. An insurance policy can be "with" or "without" profit. In the former, any bonus declared is allotted to the policy and is paid at the time of maturity/ death (with the contracted amount). In a "without" profit plan, the contracted amount is paid without any profit share. The premium rate charged for a "with" profit policy is therefore higher than for a "without" profit policy. Those who assure under the `with profit' plan get a share of the profits but these shares are not the same in the case of all such policy holders as the profits of the company are not the same from the premiums paid by the different class of policy holders. Policies of long duration give more profits to the company than the policy of short duration.

What are 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, some insurers extend insurance cover without any medical examination, subject to certain conditions.

What is Bonus?
Insurers distribute profits among policyholders every year in the form of a Bonus. Bonuses are credited to the account of the policyholder and paid at the time of maturity. Bonus is declared as a certain amount per thousand of sum assured. The term "bonus" is used interchangeably with "with profit".

What are Guaranteed Additions?
In some policies, insurers guarantee the bonus/profit declared as a certain amount per thousand of sum assured. This assured bonus will be credited to the policyholder irrespective of the insurer's performance and is known as Guaranteed Additions. Guaranteed Additions will be payable at the end of the term of the policy or early death of the policyholders.

What are Loyalty Additions?
In some policies, over and above Guaranteed Additions, the insurer will declare and credit to the policyholder, an additional amount per thousand of sum assured every 5 years, depending on its performance. This additional amount is known as Loyalty Addition.

What are Accident Benefits?
On payment of an additional premium, the assured is entitled to the following benefits:- in case of accidental death, the nominee shall receive double the sum assured.

What are Disability Benefits?
If the assured becomes totally and permanently disabled due to any accident, he need not pay future premiums and his policy shall remain in force for the full sum assured.

What are the various modes of payment for premium?
Premiums other than single premiums, can be paid by the policyholders in yearly, half-yearly, quarterly or monthly installments or through a Salary Savings Scheme. If the mode of payment is yearly or half-yearly, the insurer offers a small discount on the premium amount.

What is Salary Savings Scheme?
Salary Savings Scheme provides for payment of premiums through monthly deductions by the employer from the salary of employees.

What is Surrender Value?
The cash value payable by the insurer on termination of the policy contract at the desire of the policyholder before the expiry of policy term is known as the surrender value of the policy. A policy can be surrendered provided the policy is kept in force for at least 3 years. The bonus is also added to the surrender value if the policy has been in force for at least 5 years.

What is Nomination/Assignment of a Policy?
When the policy money becomes due for payment on the death of the policyholder, it can be paid only to that person who is legally entitled to give a valid and effective discharge to the insurer. If the policy bears nomination, the claim is settled in favour of the nominee. Similarly, if the policy is assigned, the assignee receives the claim amount. It should be noted that an assignment of a policy automatically cancels the existing nomination. Hence, when such a policy is reassigned in favour of the policyholder, it is necessary to make fresh nomination.

When does a policy lapse?
When the premium is not paid within the days of grace provided after the due date, the policy lapses. The grace period in case of yearly, half-yearly and quarterly modes of payment is one month and in case of the monthly mode of payment, it is 15 days.

How can a lapsed policy be revived?
A lapsed policy may be revived during the lifetime of the assured, but within a period of 2 years from the due date of the first unpaid premium and before the date of maturity. Different insurers have varying rules for policy revival.

Can a policy be altered?
No alteration is permissible in the policy document - the evidence of contract, unless both the parties to the contract agree. After the policy is issued, a policyholder in a number of cases finds the terms not suitable to him and desires to change them to suit his convenience. Keeping in view the basic principles of insurance and administrative convenience, insurers permit some alterations. As a rule, insurers will not permit alterations resulting in lower rates of premia.

Can a life insurance policy be sold?
It is not possible to raise money against your life insurance policy. However, there is a provision available by way of assignment or mortgaging the policy provided the policy has been in force for a minimum stipulated period.

What is the meaning of Reserve?
Reserve is an amount, which is earmarked as a reserve for every policy, by the underwriters. For a given policy the reserve will be less in its initial period.

How are premiums on life policies calculated?
The calculation of life insurance premiums is primarily based on four factors - age of the assured, type of policy, sum assured and term of the policy.

What loans are available against life insurance policies?
Loans are granted on unencumbered polices. Certain types of policies are, however, without loan facility.

This article forms a part of "Money Simplified – Life insurance: Hear it from the experts", a free-to-download online guide from Personalfn. To download the entire guide, please click here.

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