You think twice before taking the plunge into buying insurance. Is buying insurance a necessity now? Spending an 'extra' amount as premium at regular intervals where you do not see immediate benefits does not seem a necessity at the moment. May be later.

Well you could be wrong. Buying Insurance cannot be compared with any other form of investment. Insurance gives you a life long benefit and the returns will definitely come but only when you need it the most i.e at the right time. Besides buying insurance early in life is one of the wise decisions you could take. Because the premium you would be paying would be comparatively lower.

Insurance is not about how much more it can offer you when the stock market is at its peak. It may not be an attractive investment option. But weigh the pros and cons and consider how much more it offers at a small price.

Most important of all it provides you with that unique sense of security that no other form of investment provides. It gives you a sense of financial support especially during that time of crisis irrespective of the fluctuations in the stock market. Insurance provides for your career goals right from your childhood years.

If the earning member of the family is no more your child's educational needs will not suffer. In fact his higher education too will be provided for. You need not spend sleepless nights thinking about how to save for your child's marriage. Life Insurance will take care of that typical once-in-a-life-time spending on marriages.

An accident or a disability may be devastating but an insurance policy can be of utmost support for the family during such times too. Besides it provides for additional benefits such as bonuses. You need not worry about your retirement years. The rising prices, taxes, and your lifestyle will be taken care of easily. And you can relax and spend your old age in comfort and peace.

Life insurance today plays a major role in ones life at various stages. Considering the benefits it offers one cannot but give a thought to buying an insurance policy at the earliest.

Need for Life Insurance

The need for life insurance comes from the need to safeguard our family. If you care for your family’s needs you will definitely consider insurance.

Today insurance has become even more important due to the disintegration of the prevalent joint family system, a system in which a number of generations co-existed in harmony, a system in which a sense of financial security was always there as there were more earning members.

Times have changed and the nuclear family has emerged. Apart from other pitfalls of a nuclear family, a high sense of insecurity is observed in it today besides, the family has shrunk. Needs are increasing with time and fulfillment of these needs is a big question mark.

How will you be able to satisfy all those needs? Better lifestyle, good education, your long desired house. But again - you just cannot fritter away all your earnings. You need to save a part of it for the future too - a wise decision.

This is where insurance helps you.

Factors such as fewer number of earning members, stress, pollution, increased competition, higher ambitions etc are some of the reasons why insurance has gained importance and where insurance plays a successful role.

Insurance provides a sense of security to the income earner as also to the family. Buying insurance frees the individual from unnecessary financial burden that can otherwise make him spend sleepless nights. The individual has a sense of consolation that he has something to fall back on.

From the very beginning of your life, to your retirement age insurance can take care of all your needs. Your child needs good education to mould him into a good citizen. After his schooling he need to go for higher studies, to gain a professional edge over the others - a necessity in this age where cut-throat competition is the rule. His career needs have to be fulfilled.

Insurance is a must also because of the uncertain future adversities of life. Accidents, illnesses, disability etc are facts of life which can be extremely devastating. Other than the hospitalisation, medication bills these may run up it’s the aftermath of the incident, the physical well being of the individual that has to be taken into consideration. Will the individual be in a position to earn as before? A pertinent question. But what if he is not? Disability can be taken care of by insurance. Your family will not have to go through the grind due to your present inability.

Moreover, retirement, an age when every individual has almost fulfilled his responsibilities and looks forward to relaxing can be painful if not planned properly. Have you considered the increasing inflation and taxes? Will your investment offer you attractive returns under such circumstances? Will it take care of your family after you? An insurance policy will definitely take care of these and a lot more.

Insurance today has opened up new vistas for every section of society. Even for the village farmer insurance holds a lot of potential. Considering how dependent our agricultural system is on the monsoon, the farmer sees a dim future. The uncertainty of the monsoon too can be taken care of by insurance. Looking at the advantages of an insurance policy a number of farmers have gone in for insurance. Insurance has become a necessity today. It provides timely financial as also rewards with bonuses.

Buying Life Insurance cannot ever be compared with other investment decisions since it is very much in contrast with those stock market investments where you wait for the right time to buy and sell. Neither is this like receiving tips on a particular scrip doing well in the market and holding great future prospects.

Buy life insurance at the earliest. Do you know when you would fall ill? Are you sure about your future income earning potential? Are you sure you will never meet with an accident? If not buy insurance now.

This is because the future is always uncertain. Just as buying insurance is a necessity so also buying insurance early in life is important too. With proper financial planning one can work out as to how much money an individual is entitled to after the end of a particular term. A policy that will fulfill your child's future educational needs would have to be timed appropriately so that he receives the policy amount at that time when he needs it the most.

By taking a policy early in life you not only benefit in forking out a lower premium amount but also make a wise decision as far as insuring risks to yourself and your family is concerned.

As old age approaches, security and comfort become the most sought after. Advances in science and technology have thankfully lead to an increase in life span but at the same time there exists a requirement of funds for the individual during his retirement period to carry off a certain standard of living and fulfill the day-to-day essentials of life.

Proper financial planning during an individuals’ productive years can put to rest these issues but sadly, such savings habits in every individual is hard to come by. By foreseeing the growing needs of the future and saving an appropriate amount well in advance can help the individual tide over the financial problems that may arise in his old age.

Retirement planning has not been taken seriously in our country. One of the reasons for the pension market not being very attractive may be the not -so -attractive financial options that were available earlier.

Professionalism:

Today, things have changed for the better. More professionalism is expected to come in with the entry of foreign companies in insurance.

Multiple options:

These insurance companies will also bring in a variety of financial products to choose from. Besides the insurance plans will be designed in a manner to suit every individual, be it the urban or the rural customer.

Flexibility in Plans:

The individual need not compromise anymore by merely accepting whatever was handed over to him whether it suited his needs or no. The customer is king today and can purchase just the right product according to his financial needs. In this changed environment, he can have tailor made products too. Insurance companies may come out with policies combining healthcare and pension as also taking into consideration the rising inflation. Such combinations will find a number of beneficiaries.

Improved Service:

An important area that will go through a total revamp is service. The insurance agents will have to brush up their skills in order to gear up for the competitive market. And you as a customer can expect prompt service unlike yesteryears.

Multiple information channels:

Informed decision-making is another of those upcoming areas. The customer can take an informed decision today. Insurance agents will not be the only source of information. With dime a dozen channels of information mushrooming each day the customer is bombarded with information explosion. The internet contains a wealth of information and each and every customer can now look forward to receiving every minute detail of the product he plans to purchase at his finger tips.

Buying an insurance policy is a long-term investment and it would only do well if you consider all those benefits you will receive in comparison with your financial outflow. With an increased number of financial options available and an equal number of sources for information a proper analysis could help you gain much more than you actually expected.

Final expenses resulting from death

After an individual's untimely death, his survivors and heirs are entrusted with the responsibility of conducting his last rites according to customs and traditions as propagated by religion. Almost all religious sects follow certain rules that need to bidden regardless of the social circumstances. As it is, the deceased individual's family members are likely to be emotionally devastated by their loss. And if they are saddled with monetary expenditure resulting from the death of their family member, their condition might become dangerously unstable. Thankfully, the proceeds from the deceased's insurance policy will more than provide for the final expenses and rituals associated with the funeral. At least this way, the deceased's family is absolved from the shame and sacrifice that might be expected of them after their family member's death. 

Guaranteed maintenance of lifestyle

As long as there is a steady and assured supply of income, an individual's family and dependants are able to keep a self-professed standard of living. The family's eating and drinking habits, entertainment and lifestyle expenses are maintained at a certain level during their earning member's lifespan. In case of the unexpected death of the earning member, his or her family will be hard-pressed in trying to arrange for funds that would assist them in maintaining the standard of living that they've grown accustomed to. After all, no one really likes to make sacrifices, despite their miniscule fiscal value. And this is exactly where the proceeds from insurance will prove extremely useful for the family members. They will be able to maintain their standard of living without making any sacrifices whatsoever.  

Replacement of income

Most families in India depend on the earnings of the breadwinner to sustain their existence. Routine day-to-day expenses like provisions and ration supplies, milk, newspapers, medical bills and general maintenance are normally met through a regular supply of income. Additionally the income also provides for any outstanding payments arising from rent, loans or mortgages. These liabilities have to be minimised by making payments at regular intervals. In case there is a default in payments, there are chances of legal intervention and repossession of the utility made available. And having to do without a service that the family has grown accustomed to can prove to be severely detrimental to their metaphysical and social well being. The proceeds from insurance if invested wisely can support the insured's family members and dependants for the remainder of their lives with relative ease and in creature comfort. 

Mortgage or liquidation payments

These days, people tend to constantly compete within their peers and social groups with regards to their lifestyles and related expenses. The spending pattern is governed by advertising and credit facilities offered by numerous financial institutions. Since liquid funds are available at a very marginal rate from various financial institutions, people go forth and borrow without a care being seduced by the 'Buy now, Pay later' philosophy. They are able to make the installment payments from their regular sources of income and sustain a standard of living that would have been beyond their means under ordinary circumstances. As long as income is flowing in on a regular basis, there is no cause of concern. But in case of any default in payments, the lending company will obviously initiate legal proceedings. Legal proceedings initiated by a corporate body against an individual can have devastating consequences on the individual's social and economic status. And the only salvation from such painful ignominy comes from the proceeds due to the insured's family thanks to his or her insurance policy. The funds that will be obtained from the insurance company will provide a buffer that will curtail any impending calamity before it can come close enough to cause any real damage.  

Costs of Education

Education used to be considered as a sacrosanct field until a decade back. With the advent of privatisation into mainstream education, the cost of higher studies has escalated beyond all reasonable limits. And to add fuel to this fire is an annual inflation rate of 6.32 percent. Most families start planning for their child's future education costs as soon as he clears his kindergarten papers. After all, every parent wants his or her child to grow and become a professionally qualified engineer or physician or likewise. And this is a fairly mean task since year after year since capitation fees charged by even run-of-the-mill colleges come up to lakhs of rupees. In case either of the child's guardians or parents happens to expire before the end of his education, there are chances that he will not be able to complete his education. Nothing aids an individual in his life as much as what he or she knows. In any case, every parent wants to plan for his children's future and security. And to achieve success in this plan, it is vital that the guardian or parents uses insurance as a tool to plan for his children's future, regardless of his or her presence. In case of the demise of a parent, the proceeds from his or her insurance can be channeled into their dependant children's education fund.  

Estate and other taxes

Normally after a family member's death, his family or dependants are usually flooded with notices from creditors or taxation officers. At a time like this when the family is struggling to recover from such a severe shock, it might seem inhuman for them to be subjected to such humiliation. However in today's materialistic world, chivalry is no longer in demand. In case of an emergency, women and children rarely come first but creditors always do. Not only is it prudent for any individual to clear his debts prior to his demise but it would also spare his or her family the shame of having to clear debts that they did not incur, at least directly. Since no one knows when his or her time may come, there is always a chance that the dependants will have to pay the existing dues regardless of their economic status. Thanks to insurance, all existing debts and taxes can be cleared from the proceeds in no time at all. And the dependent family will be spared from the ignominy of having to pay what they did not owe, in the first place.  

Continuity & Security of Interests

At times after an individual's death, his family might have to sacrifice their interests in business or investments to arrange for their expenses and maintain a decent standard of living. In extreme cases, the dependent spouse might also have to suffer and sacrifice everything the family owns in a desperate bid to maintain the family name and crest above everything else. After all, India is still a country where honour is regarded higher than life itself. Surely, making prudent investments in insurance from time to time can aid in averting such a disgraceful situation for any self-respecting individual's family. Only then will the family be able to maintain its standard of living prior to the demise of the head of the family. Obviously, the proceeds from insurance will help secure the family's status and position in society as well as maintain their socio-economic level in life. Thus insurance serves the perfect hedging tool for securing the interests of the family and maintaining the continuity of their interests.  

Life insurance is many different things to many different people. For some, it is a premium to be paid on time. For others it offers liquidity since cash can be borrowed when needed. For the investment-minded, it denotes a constantly growing capital account and numerous other benefits. 

Life insurance is nothing but the creation of capital funds on an installment basis. Only here, the results are guaranteed. Life insurance is basically a property that is bought under a contract, accompanied by contractual guarantees that ensure large sums of money at the death of the insured. 

The contractual guarantee is the promise to pay, backed by one of the oldest and most stably regulated financial industry operating in the Indian sub-continent today.

Insurance Buys Time and Money

People like to refer to life insurance as time insurance, the reason being that life insurance proceeds are paid to the insured's beneficiaries in case of death. The money proffered by life insurance helps buy time to adjust to the change of circumstances. Insurance provides large amounts of cash that will keep the lifestyle for the survivors the way it was before the insured's death.

Insurance Offers Peace of Mind

For the person who buys an insurance policy, it offers absolute and complete peace of mind. He or she knows that the decision made by him will provide sound benefits in the future, whether or not the individual may live to see it. The life insurance policy will subsequently prove this in the future if and when funds are needed. This is the guarantee of the insurance contract.

Multiple Applications

The future is uncertain for each and every one. No one knows how long he or she will live. The investment benefit is paid to the insured's beneficiaries after his death or it can be used during the life as well. Life insurance policy owners can turn to the cash value of the policy in case of a financial emergency when all avenues are either blocked or denied. They know that they can avail of loans based on their insurance policies.

Insurance policy owners can use the cash value of their policies to meet their long-term financial needs as well. They may have purposefully invested in insurance to use the cash in the policy for their children's future marriage expenses or higher education fees.

Enduring Elasticity

Since life insurance is flexible enough to serve several needs, the insured can keep several long-term goals in mind once he or she invests in the insurance plan. The cash value of the policy can be allocated towards augmenting the monthly income during the retirement years. Leisure years should be turned into pleasure years. Permanent life insurance is designed on the concepts of long-term flexibility.

Financial Security

The insurance policy offers contractual guarantees to people looking for peace of mind when they buy life insurance. Life insurance offers complete financial security. The purchase of life insurance demonstrates concern for a family's future financial well being.

Regard for Family

The purchase of life insurance clearly displays care and concern for the people the policy owner loves.

Insurance is Safer No financial institution can do what life insurance does. No industry can back its products with reserves and surplus as sound as those of the insurance industry.

The proof of strength and safety that insurance companies have ensured even under the most adverse of conditions is a matter of pride for the entire insurance industry. For generation after generation, life insurance has been acclaimed as the very benchmark of security against which the other industries are measured.  

Unit-linked insurance plans, ULIPs, are distinct from the more familiar ‘with profits’ policies sold for decades by the Life Insurance Corporation.

‘With profits’ policies are called so because investment gains (profits) are distributed to policyholders in the form of a bonus announced every year.

ULIPs also serve the same function of providing insurance protection against death and provision of long-term savings, but they are structured differently.

In ‘with profits’ policies, the insurance company credits the premium to a common pool called the ‘life fund,’ after setting aside funds for the risk premium on life insurance and management expenses.

Every year, the insurer calculates how much has to be paid to settle death and maturity claims. The surplus in the life fund left after meeting these liabilities is credited to policyholders’ accounts in the form of a bonus.

In a ULIP too, the insurer deducts charges towards life insurance (mortality charges), administration charges and fund management charges.

The rest of the premium is used to invest in a fund that invests money in stocks or bonds.

The policyholder’s share in the fund is represented by the number of units.

The value of the unit is determined by the total value of all the investments made by the fund divided by the number of units.

If the insurance company offers a range of funds, the insured can direct the company to invest in the fund of his choice. Insurers usually offer three choices — an equity (growth) fund, balanced fund and a fund which invests in bonds.

In both ‘with profits’ policies as well as unit-linked policies, a large part of the first year premium goes towards paying the agents’ commissions.

1. What is a ULIP?

ULIP is an abbreviation for Unit Linked Insurance Policy. A ULIP is a life insurance policy which provides a combination of risk cover and investment. The dynamics of the capital market have a direct bearing on the performance of the ULIPs. REMEMBER THAT IN A UNIT LINKED POLICY; THE INVESTMENT RISK IS GENERALLY BORNE BY THE INVESTOR.

2. What is a Unit Fund?

The allocated (invested) portions of the premiums after deducting for all the charges and premium for risk cover under all policies in a particular fund as chosen by the policy holders are pooled together to form a Unit fund.

3. What is a Unit?

It is a component of the Fund in a Unit Linked Policy.

4. What Types of Funds do ULIP Offer?

Most insurers offer a wide range of funds to suit one’s investment objectives, risk profile and time horizons. Different funds have different risk profiles. The potential for returns also varies from fund to fund.

The following are some of the common types of funds available along with an indication of their risk characteristics.

5. Are Investment Returns Guaranteed in a ULIP?

Investment returns from ULIP may not be guaranteed.” In unit linked products/policies, the investment risk in investment portfolio is borne by the policy holder”. Depending upon the performance of the unit linked fund(s) chosen; the policy holder may achieve gains or losses on his/her investments. It should also be noted that the past returns of a fund are not necessarily indicative of the future performance of the fund.

6. What are the Charges, fees and deductions in a ULIP?

ULIPs offered by different insurers have varying charge structures. Broadly, the different types of fees and charges are given below. However it may be noted that insurers have the right to revise fees and charges over a period of time.

6.1 Premium Allocation Charge

This is a percentage of the premium appropriated towards charges before allocating the units under the policy. This charge normally includes initial and renewal expenses apart from commission expenses.

6.2 Mortality Charges

These are charges to provide for the cost of insurance coverage under the plan. Mortality charges depend on number of factors such as age, amount of coverage, state of health etc

6.3 Fund Management Fees

These are fees levied for management of the fund(s) and are deducted before arriving at the Net Asset Value (NAV) .

6.4 Policy/ Administration Charges

These are the fees for administration of the plan and levied by cancellation of units. This could be flat throughout the policy term or vary at a pre-determined rate.

6.5 Surrender Charges

A surrender charge may be deducted for premature partial or full encashment of units wherever applicable, as mentioned in the policy conditions.

6.6 Fund Switching Charge

Generally a limited number of fund switches may be allowed each year without charge, with subsequent switches, subject to a charge.

6.7 Service Tax Deductions

Before allotment of the units the applicable service tax is deducted from the risk portion of the premium.

Investors may note, that the portion of the premium after deducting for all charges and premium for risk cover is utilized for purchasing units

7. What should one verify before signing the proposal?

One has to verify the approved sales brochure for

• all the charges deductible under the policy

• payment on premature surrender

• features and benefits

• limitations and exclusions

• lapsation and its consequences

• other disclosures

• Illustration projecting benefits payable in two scenarios of 6% and 10% returns as prescribed by the life insurance council.

8. How much of the premium is used to purchase units?

The full amount of premium paid is not allocated to purchase units. Insurers allot units on the portion of the premium remaining after providing for various charges, fees and deductions. However the quantum of premium used to purchase units varies from product to product. The total monetary value of the units allocated is invariably less than the amount of premium paid because the charges are first deducted from the premium collected and the remaining amount is used for allocating units.

9. Can one seek refund of premiums if not satisfied with the policy, after purchasing it?

The policyholder can seek refund of premiums if he disagrees with the terms and conditions of the policy, within 15 days of receipt of the policy document (Free Look period). The policyholder shall be refunded the fund value including charges levied through cancellation of units subject to deduction of expenses towards medical examination, stamp duty and proportionate risk premium for the period of cover.

10. What is Net Asset Value (NAV) and how to calculate this?

The Term Net Asset Value (NAV) is used by investment companies to measure net assets. It is calculated by subtracting liabilities from the value of a fund's securities and other items of value and dividing this by the number of outstanding shares. Net asset value is popularly used in newspaper mutual fund tables to designate the price per share for the fund. The value of a collective investment fund based on the market price of securities held in its portfolio. Units in open ended funds are valued using this measure. Closed ended investment trusts have a net asset value but have a separate market value. NAV per share is calculated by dividing this figure by the number of ordinary shares. Investments trusts can trade at net asset value or their price can be at a premium or discount to NAV. Value or purchase price of a share of stock in a mutual fund. NAV is calculated each day by taking the closing market value of all securities owned plus all other assets such as cash, subtracting all liabilities, then dividing the result (total net assets) by the total number of shares outstanding. Calculating NAVs - Calculating mutual fund net asset values is easy. Simply take the current market value of the fund's net assets (securities held by the fund minus any liabilities) and divide by the number of shares outstanding. So if a fund had net assets of Rs.50 lakh and there are one lakh shares of the fund, then the price per share (or NAV) is Rs.50.00.

11. What is the benefit payable in the event of risk occurring during the term of the policy?

The Sum Assured and/or value of the fund units is normally payable to the beneficiaries in the event of risk to the life assured during the term as per the policy conditions.

12. What is the benefit payable on the maturity of the policy?

The value of the fund units with bonuses, if any is payable on maturity of the policy.

13. Is it possible to invest additional contribution above the regular premium?

Yes, one can invest additional contribution over and above the regular premiums as per their choice subject to the feature being available in the product. This facility is known as “TOP UP” facility.

14. Whether one can switch the investment fund after taking a ULIP policy?

Yes. “SWITCH” option provides for shifting the investments in a policy from one fund to another provided the feature is available in the product. While a specified number of switches are generally effected free of cost, a fee is charged for switches made beyond the specified number.

15. Can a partial encashment/withdrawal be made?

Yes, Products may have the “Partial Withdrawal” option which facilitates withdrawal of a portion of the investment in the policy. This is done through cancellation of a part of units.

16. What happens if payment of premiums is discontinued?

a) Discontinuance within three years of commencement – If all the premiums have not been paid for at least three consecutive years from inception, the insurance cover shall cease immediately. Insurers may give an opportunity for revival within the period allowed; if the policy is not revived within that period, surrender value shall be paid at the end of third policy anniversary or at the end of the period allowed for revival, whichever is later.

b) Discontinuance after three years of commencement At the end of the period allowed for revival, the contract shall be terminated by paying the surrender value. The insurer may offer to continue the insurance cover, if so opted for by the policy holder, levying appropriate charges until the fund value is not less than one full year’s premium. When the fund value reaches an amount equivalent to one full year’s premium, the contract shall be terminated by paying the fund value.

17. What information related to investments is provided by the Insurer to the policyholder?

The Insurers are obliged to send an annual report, covering the fund performance during previous financial year in relation to the economic scenario, market developments etc. which should include fund performance analysis, investment portfolio of the fund, investment strategies and risk control measures adopted.