Insurance Policies information ...

Life Insurance Policies decoded..

Ø  Family Income Policy

Under this policy, life assured's dependents will get an agreed income until the expiry date of the policy, from the date of life assured's death.  It is a type of decreasing term assurance where the benefit is payable over a period rather than as a lump sum.  Family income benefit may be added as an extension under whole life or endowment policy or separate policy can be taken.

Ø  Life Annuity

Life Annuity refers to payment of certain fixed amount annually or more frequently on survival of the life annuitant.  When a person wants to provide an income for himself after he retires or at some other time, he can approach Life Assurance Co. and on payment of lump sum amount can purchase an annuity.  He can purchase annuity in the form of single payment or annual payment prior to the date of commencement or vesting date of annuity.   Annuity is not life insurance but life insurance co. are dealing in it.  There are different types of annuities :-

1)      Immediate annuity > which would start at once;

2)      A deferred annuity > which may start at a date in the future

3)      A guaranteed annuity >  which is an immediate annuity but will be payable for a minimum guaranteed period (even if annuitant is not alive).

4)      A reversionary annuity > provides for the payment to the annuitant, on the death of the spouse (say proponent)

5)      A joint and last survivor annuity which is payable while two people, say husband and wife, are alive and, on the death of one, will continue at the same or smaller rate, on the life of the survirvor.

6)      Capital Redemption policy >  annuity certain – an annuity which would be payable for certain period irrespective of the death of the persons concerned.  

Ø  Joint Life Assurance / Annuity

Life assurance or annuity may be issued to two or more lives such that the assurance / annuity would be payable on death of one or more lives insured.

Ø  Industrial life Assurance

In the UK, there are many industrial life assurance policies in force.  There are lower income classes people, who are not keen to take life assurance due to lump sum high amount of annual premium .  In order to provide protection to such classes, under Industrial Life assurance, there is a possibility of paying premium in frequent intervals like weekly, bio monthly or monthly.  As a result, the premium amount becomes very small and can be easily paid by the assured.  Under Industrial Life Assurance, there are Home Representatives, who will call the assured for reminding premium due / or collecting the premium from them.

For the company, industrial life assurance business proves to be very expensive due to small policies and requirement of employing home representatives.

In India, we had several provident societies prior to nationalization of life insurance, which offered smaller life insurance covers. After nationalization, the LIC tried this policy in the form of Janata Policy but it has to wind it up due to problem in premium collections and accounting.

Ø  Insured pension scheme

On retirement from the services, employees get pensions.   It may be created as under :-

1)      Employer maintaining separate fund, where employer's  &  employees contribution is collected and benefits to eligible members is disbursed.  It is known as Self Managed Pension Scheme.

2)      The Fund created as mentioned above, may be administered by employer or handed over to another party like a life insurance co or a trustee company.

3)      The pension scheme may build up a fund as mentioned in 1) above, and then at the time of retirement or death of the employee, purchase an annuity at the prevailing rates with a life insurance company in order to provide pension

4)      Alternatively, the employer may take an insured pension policy, with a life insurance office paying only the periodical premium, thereby passing on the responsibility to disburse pensions to the life insurers. 

An employer having a small number of employees would find it more advantageous to have an insured pension scheme.

Many pension schemes are insured by means of group or master policies issued to the employer or to the trustees of the scheme.  In addition, the employer may choose to take group life assurance, with a life office providing benefits in respect of those employees who die before the retirement age.  Life offices thus perform a vital role in respect of pension scheme.  An individual can also purchase pension scheme