When you take a insurance policy there are lots of papers as the policy document, with lots of ifs and buts. could be at the first glance you may not be able to follow all that is written. But the policy document should be filed properly as it is required for quite a long time. Lets have a look at the insurance policy and try to understand it.
In a valid insurance contract
The insurance policy starts with a offer from you and the insurance company accepting that offer by either accepting the proposal form you fill and send them or accepting it after making a few changes.
The insurer then gets in touch with you for the premium or the future premiums that you have to pay to the company. For insurers, this also refers to the money paid out to you should you file an insurance claim.
You need to be legally competent to enter into an agreement with your insurer. This means that you need to be a major and in sound health to avail of an insurance contract.
Most insurance contracts are indemnity contracts that apply to insurance where the loss suffered can be measured in terms of money.
Additional factors like under insurance and excess clauses that create situations in which the full value of an insured asset is not remunerated, must also be read through carefully before you sign.
Also remember that not all insurance contracts are indemnity contracts. Life insurance contracts and most personal accident insurance contracts are non indemnity contracts.
it is your legal right to insure any property or event that may cause financial loss or create a legal liability. This is called insurable interest. Insurable interest also allows married couples to take out insurance policies on the lives of their spouses.
Mostly people rely on the insurance advisor for everything while purchasing the insurance policy. But it is always handy to know the familiar words and understand the meaning before taking a policy. There are many sites defining the terms as its better to have a homework done before you take a policy.
Ok lets have a look at the needful before you buy a life insurance policy. Before having a insurance policy, find out how much cover you need. An insurance plan must be able to replace the policy holder's income. The amount payable to a policy holder's nominees is based on the rule that a healthy 35 year old male should be between 5 and 7 times his annual income. The exact cover level depends or could vary on the number of dependants and also the other alternate investments.
Term insurance plans work best i you need a huge cover but you cannot afford to pay a heavy premium. A 30 year old person can have a insurance cover for Rs 10 lakhs for as long as 20 years and he will have to pay only Rs3000 a year. If the policy holder lives more than that then he gets nothing.
Now analyzing how long you will be able to pay the premium. If you have a large amount in your hand then you can go for a single premium policy by which you can pay the premium upfront. You can also pay the premium in installments in the year. rising can be opted for if your income grows faster than the liabilities.
The premiums should be paid on time. The policy lapses if the policy holder fails to pay 2 premiums. Also by delayed payments will have penalties. Check for the surrender costs.. Insurers return 35-50 percent of the premium collected for a policy that is surrended. The Unit linked insurance plans (ULIPS) pay the market value of the investments at the time of surrender without penalizing for a premature exit after 5 years of buying the policy. insurance policies also carry hidden charges like administration, fund management and mortality charges. So take that into account also.
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The endowments plans double up as a retirement option since they yield a lump sum amount on maturity. One can use them to accumulate their wealth for any future expenses. Whole life policies pay a sum on maturity and also provides death cover to the policy holder until he turns 100 years of age. Money backs on the other hand pay fixed sums at regular intervals and are not a good retirement option as the regular payment do not allow the corpus to grow. In ULIPs a portion of the premium goes into buying insurance cover and the rest is invested in a fund, equity, balanced or debit. before buying a ULIP check for iuts death cover. Some ulips pay the market value of the investment so f the fund at the time of the demise of the policy holder. A ulip must pay both the sum assured as well as the returns for the investments.
Policies with riders offer added benefits. Riders are not add ons they carry extra charges. but they also enhance the value of a staid life policy. The death cover is normally paid only at the demise of the policy holder. but arider , in case of a critical illness, allows one to one claim the sum assured on being afflicted by any ailments covered. So the death cover can be availed to bear the cost of treatment. Even if after 90 days of claiming the death cover a policy holder succumbs to illness, his nominees can claim the sum assured. hence check out for all the details about the policy before finalizing one.