Question: What is a Life Annuity?

Answer: A life annuity may be defined as a contract whereby the insurance company agrees, in consideration of a certain payment of payments, to pay to the beneficiary, a fixed regular income during a given status. The status may be the duration of one or more than one life. The person, during whose life the annuity is paid, is called the annuitant or nominee. The prince of the annuity paid by the annuitant at the beginning of the contract is called premium, consideration or purchase money. The periodical payment to be made by the insurance company is called the annuity.

Question: What are the main needs that a life insurance policy serves?

Answer: Life Insurance protects against financial losses resulting from pre-matured death. When an insured person dies, the proceeds of the policy are paid to the beneficiary designated in the policy Annuities protect against losses produced by economic death upon reaching retirement age. They p[ay retirement income as long as the annuitant lives.

Life Insurance basically covers life risk. If a youth on the threshold of commencing his career takes a life insurance policy, it fairly covers the following purposes:

Savings: A habit of thrift and savings is introduced to him right from the onset of his earning. A small portion of his income grows to the extent of the sum assured to mature after a long term say, ten, fifteen, twenty or twenty five years. He will get the sum assured along with near like amount as bonus, at the hours of need in the mid or eve of his life. He can even plan a policy tenor to match the specific need that is going to arise in future say, children's education or marriage etc.

Tax Plan: Policyholders enjoy income tax concessions to the extent of the premium paid on their annual income during the currency of the policy.

Security: The paid-up value of a life policy is well accepted as an assuring and sure security for creating a temporary loan or long tenn credit such as Housing or Education Loan.

Life Cover: The dependents of the policyholder get the sum assured in case the policyholder dies during the live tenor of the policy. It helps the dependents who have been enjoying the fruit of his income all along, not to feel left in a lurch, but to consolidate their position until they arrange for an alternative source of income.

So a life policy serves as an avenue for savings, tool for tax planning, and acceptable security for creating a loan and a solace at the time of distress to the dependents of the policy holder in the eventuality of his death.

Thus life insurance is a different and somewhat superior product to general insurance with the following distinct differences:

  1. In general insurance, the insured amount is payable only on the occurrence of an event whereas life insurance has a definite maturity on the expiry of the policy tenor or the death of the insured in between.
  2. The beneficiaries in case of general insurance may even be third parties-suffering damages on account of accident, whereas in case of life insurance only the surviving insured or his surviving nominee gets the benefit.
  3. Occurrence of damage or loss is mandatory for claiming insured amount under general insurance, whereas a life insurance policy mostly self liquidates on maturity of the policy. Life insurance is an improved version of general insurance, in addition to suitable features satisfying the multifaceted needs of modem society. The success of the insurance industry depends upon meeting the rising expectations of the policyholders, who are the real kings in the liberalized insurance market.)

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