Life insurance is a contract for payment of money to the person assured (or to the person entitled to receive the same) on the occurrence of the event insured against.

Usually the contract provides for -
. payment of an amount on the date of maturity or at specified periodic intervals or at death, if it occurs earlier.
. periodical payment of insurance premium by the assured, to the corporation who provides the insurance.

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

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.

Unlike whole life, an endowment life insurance policy is designed primarily to provide a living benefit and only secondarily to provide life insurance protection. Therefore, it is more of an investment than a whole life policy.

Endowment life insurance pays the face value of the policy either at the insured's death or at a certain age or after a number of years of premium payment. Endowment life insurance 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 those for a whole life policy.

This is basically 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.

Annuity schemes are those wherein your regular contributions over a period of time (or a one-time contribution) accumulate to form a corpus with the insurer. This corpus is used to yield you a regular income that is paid to you 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.

The insurer distributes its 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.

An insurer distributes its profits among it 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".

In some policies, the insurer guarantees 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 performance of insurance company 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.

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.

In some policies, 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 for 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 term, the survival benefits will be deducted from maturity value.

On payment of an additional premium of Re1 per Rs1000 of Sum Assured per year, the assured is entitled to the following benefits:-

1. In case of accidental death, the nominee shall receive double the sum assured,
2. In case of total and permanent disability due to accident, risk coverage continues without further payment of premium. In addition, an amount equal to the sum assured is paid to the assured in monthly installments spread over 10 years. However, subsequent accidental death will not entitle the nominee for double the sum assured.

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.

Premiums, other than single premiums, can be paid by the policyholders to the insurer in yearly, half-yearly, quarterly or monthly installments or through a Salary Savings Scheme. If the mode of payment is yearly or half-yearly, some insurers give a rebate of 3% and 1.5% respectively on the premium. If the mode of payment is monthly, some insurers charge an additional 5% (this additional charge is waived for the Salary Saving Scheme).

Salary Savings Scheme provides for payment of premiums through monthly deductions by the employer from the salary of employees. For this scheme, the additional charge of 5% of the premium usually added for the monthly mode of payments will be waived.

At present loans are granted on unencumbered polices as follows -

. up to 90% of the Surrender Value for policies, where the premium due is fully paid-up, and
. up to 85% of the Surrender Value for policies where the premium due is partly paid-up.

The minimum amount for which a loan can be granted under a policy is Rs150. The rate of interest charged is 10.5% p.a., payable half-yearly. Loans are not granted for a period shorter than six months, or on the security of lost policies (the assured must have the duplicate policies) or on policies issued under certain plans. Certain types of policies are, however, without loan facility.

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. Generally, a policy can be surrendered provided the policy is kept in force for atleast 3 years. The bonus is also added to the surrender value if the policy has been in force, in most cases, for atleast 5 years.

The claim is usually payable to the nominee/assignee or the legal successor, as the case may be. However, if the deceased policyholder has not nominated/assigned the policy or not made a will, the claim is payable to the holder of a Succession Certificate or such evidence of title from a Court of Law.

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 corporation. 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.

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 do offer insurance cover without any medical examination, subject to certain conditions.

When a policyholder wants to change his address in the insurer's records, notice of such change should be given to the Branch office servicing his policy. Policy records can be transferred from the Branch Office that services the policy to any other Branch Office nearest to the policyholder's place of residence. The correct address facilitates better services and quicker settlement of claims.

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.

A lapsed policy may be revived during the lifetime of the assured, but within a period of 5 years from the due date of the first unpaid premium and before the date of maturity. Revival of a lapsed policy is considered either on non-medical or medical basis depending upon the age of the life assured at the time of revival and the sum to be revived. If the revival of the policy is completed by payment of over-due premium within 14 days from the expiry of the grace period, only the late fee for one month has to be paid.

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/her and desires to change them to suit his/her convenience. As all insurers also realise that insurance is a long term contract, certain changes under given circumstances might necessitate an alteration of the contract. Keeping in view the basic principles of insurance and administrative convenience, most insurers permit some alterations. Though, it is generally found that as a rule, insurers do not permit alterations resulting in lower rates of premia and within the 1st year from the commencement of the policy.

A Life Insurance deals with various plans connected with the life of a person, whereas all kinds of non life insurance policies are issued by the General Insurance companies.