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1.
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What is Life Insurance?
Life Insurance is a contract between an insured person and a life insurance company,
which provides him a pre-determined amount at the end of a specified term or to
his beneficiary (nominated person) with a pre-determined amount in case of his death
during the contract term.
Life insurance is must if you are the main earning member of your family. In case
of your unfortunate premature demise, your family can remain financially secure
because of the life insurance policy that you have purchased.
Today, life insurance also helps you to plan effectively for your future years,
your retirement, and your family’s future needs.
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2.
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What are the various types of Life insurances?
There are numerous companies offering life insurance policies. Though the bottom
line of the policies is to ensure a safe future to policy holder's survivors yet
different companies have different classifications. The most basic classification
is:
a. Endowment Policy
An endowment policy covers risk for a specified period, at the end of which the
sum assured is paid back to the policyholder, along with the bonus accumulated during
the term of the policy.
b. Whole Life Policy
A whole life policy runs as long as the policyholder is alive. The risk is covered
for the entire life of the policyholder.
c. Term Life Policy
Term life policy covers risk only during the selected term period. If the policyholder
survives the term, the risk cover comes to an end.
d. Money back Policy
In money back policies, the policy holder gets periodic "survivance payments" during
the term of the policy and a lump-sum amount on surviving the term. In the event
of death during the term of the policy, the beneficiary gets the full
sum assured.
e. Joint Life Policy
Joint life insurance policies are similar to endowment policies as they too offer
maturity benefits to the policy holders, apart from covering risks like all life
insurance policies.
f. Group Insurance Policy
Group insurance policy offers life insurance protection under group policies to
various groups such as employers-employees, professionals, co-operatives, etc.
g. Loan Cover Term Assurance Policy
Loan cover term assurance policy is an insurance policy which covers a home loan.
Such a policy covers the individual's home loan amount in case of an eventuality.
h. Pension Plan or Annuities
A pension plan or an annuity is an investment that is made either in a single lump
sum payment or through installments paid over a certain number of years.
i. Unit Linked Insurance Plan
Unit linked insurance plan (ULIP) is a life insurance solution that provides for
the benefits of risk protection and flexibility in investment.
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3.
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How do I choose length of coverage?
Your coverage length will depend on case-by-case circumstances. Factors you should
consider include your age, your spouse's age, your children's ages, the duration
of your financial obligations (e.g. mortgage and student loans) and the number of
years until retirement. You will want to choose a term period that covers all the
above factors.
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4.
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What happens if I fail to make the required premium payments?
If you miss a premium payment, you typically have a 30 day grace period during which
you can pay the premium with no interest charged.
If you own a term policy and fail to pay your premium within the grace period, your
insurance company will typically terminate the policy.
If you own a permanent policy and fail to pay your premium within the grace period,
your insurance company, with your authorization, can draw from your policy's cash
value to keep the policy in force.
In some flexible-premium policies, premiums may be reduced or skipped as long as
sufficient cash values remain in the policy. However, this will result in lower
cash values and a shortened coverage period.
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5.
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Is the sum assured of a policy the same as the maturity value?
No, the sum assured of the policy is not necessarily the same as the maturity value.
The sum assured refers to the minimum benefit payable under an insurance policy
under circumstances defined within the policy (usually it represents the amount
payable on death) whereas the maturity value of a policy (paid at the time of maturation
of your policy) depends totally on the type of policy purchased.
In the case of money back and endowment polices, the maturity value will include
the sum assured plus bonuses/profits/guaranteed additions.
In case of Unit linked plans, the maturity value will be the fund value at the time
of maturity (plus any additional benefit as per the terms of the policy) and in
case of pure term plans, there are no maturity benefits attached.
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6.
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What are riders? How do they work?
Riders are the low cost add-ons available to enhance your life insurance policies.
These riders provide additional protection against risk and can be added on to a
policy just by paying a minimal amount along with your regular premium. These riders
work along with the main policy; they cannot be taken alone. The sum assured for
these riders can be the same or less than the main protection component.
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7.
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Will my policy's premiums ever be increased?
It depends upon the type of policy you have. Many policies have fixed premiums that
can never be increased, while other policies have fixed premium increases.
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8.
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What are the different premium paying options?
You can pay yearly, half yearly or quarterly.
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9.
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What happens if I get a loan from my life insurance policy and never pay back the
interest?
Unpaid interest is added to the loan balance. If the loan balance ever grows to
exceed the amount of policy cash value, the contract will terminate without value.
Furthermore, if you die before paying back any loans made against the cash value
of your policy, the outstanding loan balance will be subtracted from the death proceeds.
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10.
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Is it true that anyone can insure your life?
No. In order to purchase a life insurance policy on anyone, there must be an insurable
interest. A relative who might suffer financial loss if you die, a debtor who may
be at risk of repayment, a business partner, a spouse, son, daughter, or parents
are examples of those who may have an insurable interest.
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11.
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Can an insured increase his life insurance coverage?
Generally, an insured person can increase his coverage with a new policy or by adding
a rider to the existing policy. However, a universal life policy can be increased
without a rider or new policy. All coverage increases demand evidence of insurability
to your insurer.
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12.
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By using medical tests, are insurers trying to eliminate any applicant likely to
develop a serious health condition?
Medical tests provide accurate and current information about an applicant's health,
thus enabling insurers to charge premiums that reflect the level of risk an applicant
represents. Because some health conditions are easily managed through proper medication,
therapy or lifestyle changes, medical information makes it possible for insurers
to cover applicants with certain health conditions. More serious or incurable conditions
present a very significant risk that some insurers simply may not want to assume.
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13.
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How safe is it to purchase insurance from a foreign insurance company?
It is safe to purchase insurance from foreign insurance companies. Since 1999-2000,
many foreign insurance companies have established their offices in India. All these
companies are required to strictly follow the guidelines released by the Insurance
Regulatory and Development Authority of India (IRDA). Moreover, all these companies
have a minimum paid up capital of Rs 100 crore. This paid up capital ensures that
all your investments through these companies are safe.
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14.
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Will my final premium rates be the same as the rates you quoted on the Web site?
It is certainly possible, but not guaranteed. Your final rates will be determined
by the insurance company through a process called underwriting. Underwriting includes
a review of your current health status, medical history, family history and driving
record among other things. Underwriting will determine your final rating class,
which will establish your final premium rates. Your rating class may or may not
be the same as that quoted on our Web site. With your assistance, we provide the
most accurate quote possible up front.
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