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General Advice for Life Insurance

When you decide to buy an insurance policy:
  • Check if the company selling the policy is registered with IRDA
  • Make sure you buy the policy through a genuine licensed agent or broker. Ask for an identity card or licence
  • You can also buy policies from the company directly
  • Read the policy brochure/ prospectus carefully and get to know what the policy covers and does not cover
  • Why Buy Life Insurance ?
  • What Life Insurance to Buy ?
  • Life Insurance Dos and Don'ts

Life Insurance is a financial cover for a contingency linked with human life, like death, disability, accident, retirement etc. Human life is subject to risks of death and disability due to natural and accidental causes. When human life is lost or a person is disabled permanently or temporarily, there is loss of income to the household

Though human life cannot be valued, a monetary sum could be determined based on the loss of income in future years. Hence, in life insurance, the Sum Assured ( or the amount guaranteed to be paid in the event of a loss) is by way of a ‘benefit’. Life Insurance products provide a definite amount of money in case the life insured dies during the term of the policy or becomes disabled on account of an accident.

Who needs Life Insurance:

Primarily, anyone who has a family to support and is an income earner needs Life Insurance. In view of the economic value of their contribution to the family, housewives too need life insurance cover. Even children can be considered for life insurance in view of their future income potential being at risk.

How much Life Insurance is needed:

The amount of Life Insurance coverage you need will depend on many factors such as:
  • How many dependants you have
  • What kind of lifestyle you want to provide for your family
  • How much you need for your children’s education
  • What your investment needs are
  • What your affordability is

You should seek the help of an insurance agent or broker to understand your insurance needs and suggest the right type of cover.

 Why you should buy Life Insurance

Why you should buy Life Insurance:

All of us face the following risks:
  • Dying too soon
  • Living too long

Life Insurance is needed :

  • To ensure that your immediate family has some financial support in the event of your demise
  • To finance your children’s education and other needs
  • To have a savings plan for the future so that you have a constant source of income after retirement
  • To ensure that you have extra income when your earnings are reduced due to serious illness or accident
  • To provide for other financial contingencies and life style requirements

Kinds of Life Insurance Policies:

Term Insurance

You can choose to have protection for a set period of time with Term Insurance. In the event of death or Total and Permanent Disability (if the benefit is offered), your dependants will be paid a benefit. In Term Insurance, no benefit is normally payable if the life assured survives the term.

Whole Life Insurance:

With whole life insurance, you are guaranteed lifelong protection. Whole life insurance pays out a death benefit so you can be assured that your family is protected against financial loss that can happen after your death. It is also an ideal way of creating an estate for your heirs as an inheritance.

Endowment Policy

An Endowment Policy is a savings linked insurance policy with a specific maturity date. Should an unfortunate event by way of death or disability occur to you during the period, the Sum Assured will be paid to your beneficiaries. On your surviving the term, the maturity proceeds on the policy become payable.

Money back plans or cash back plans:

Under this plan, certain percent of the sum assured is returned to the insured person periodically as survival benefit. On the expiry of the term, the balance amount is paid as maturity value. The life risk may be covered for the full sum assured during the term of the policy irrespective of the survival benefits paid.

Children Policies:

These types of policies are taken on the life of the parent/children for the benefit of the child. By such policy the parent can plan to get funds when the child attains various stages in life. Some insurers offer waiver of premiums in case of unfortunate death of the parent/proposer during the term of the policy.

Annuity (Pension) Plans:

When an employee retires he no longer gets his salary while his need for a regular income continues. Retirement benefits like Provident Fund and gratuity are paid in lump sum which are often spent too quickly or not invested prudently with the result that the employee finds himself without regular income in his post - retirement days. Pension is therefore an ideal method of retirement provision because the benefit is in the form of regular income. It is wise to provide for old age, when we have regular income during our earning period to take care of rainy days. Financial independence during old age is a must for everybody.

There are two types of annuities (pension plans):
  • Immediate Annuity

    In case of immediate Annuity, the Annuity payment from the Insurance Company starts immediately. Purchase price (premium) for immediate Annuity is to be paid in Iumpsum in one instalment only.

  • Deferred Annuity

    Under deferred Annuity policy, the person pays regular contributions to the Insurance Company, till the vesting age/vesting date. He has the option to pay as single premium also. The fund will accumulate with interest and fund will be available on the vesting date. The insurance company will take care of the investment of funds and the policyholder has the option to encash 1/3rd of this corpus fund on the vesting age / vesting date tax free. The balance amount of 2/3rd of the fund will be utilized for purchase of Annuity (pension) to the Annuitant.

 Unit Linked Insurance Policy

Unit Linked Insurance Policy

    Unit linked insurance policies (ulips) offer a combination of investment and protection and allow you the flexibility and choice on how your premiums are invested.In unit linked plans, the investment risk portfolio is borne by you as you are the investor typically, the policy will provide you with a choice of funds in which you may invest. you also have the flexibility to switch between different funds during the life of the policy.

    The value of a ulip is linked to the prevailing value of units you have invested in the fund, which in turn depends on the fund's performance. in the event of death or permanent disability, the policy will provide the sum assured (to the extent you are covered) so that you can take comfort in knowing that your family is protected from sudden financial loss. a ulip has varying degrees of risk and rewards. there are various charges applicable for unit linked policies and the balance amount out of the premium is only invested in the fund/funds chosen by you. it is important to ask your insurer or agent or broker questions to understand the sum total of charges that you have to incur.

    It is important to assess your risk appetite and investment horizon before deciding to buy a ulip policy. you must also read the terms and conditions of the policy carefully to understand the features of the policy including the lock-in period, surrender value, surrender charges etc. all the types of plans mentioned above can be offered under ulip plans.

Life Insurance: Some Dos and Don’ts

Your life and your earning ability are the biggest assets you and your family have. A life insurance policy is the best way to take care of your family even after your lifetime.

Here are some Dos and Don’ts for buying Life insurance

dos

Think through why you are buying insurance and what core requirements and expectations

Seek and receive advice and options patiently
Be open-minded but cautious about the advice and information you gather Ask lots of questions about the policy options to see what fits your needs Find out policy details like: Whether it is a Single Premium or Regular Premium policy Which is the best premium payment frequency that suits you eg: Annual, quarterly etc. Whether there is an ECS (Electronic Clearing Service) payment option to make your premium payment safe and easy

Fill the proposal form very carefully and personally
Fill it completely and truthfully, Remember you are responsible for its contents Make sure that the information you give cannot be disputed during a claim Ensure you fill Nomination details If the form is in one language and you are answering the questions in a different language Ensure the questions are explained correctly to you and That you have understood them completely Remember you have to give a declaration to this effect in the proposal form

Keep a copy of the completed proposal form you sign and any declarations and terms agreed upon mutually for your records

If you are buying Unit Linked Insurance Policies (ULIPs) ask specific questions about:

  • Various charges
  • Fund options
  • Switching of funds
  • Benefits if you
    • Discontinue the policy
    • Surrender the policy
    • Make a partial withdrawal of funds

don’ts

Do not leave any column blank in the proposal form

Do not let anyone else fill it up

Do not conceal or misstate any facts as this could lead to disputes at the time of a claim

Do not miss or delay your premium payment