COMPONENTS OF LIFE INSURANCE

 

Death benefit component: Death benefit is defined as the amount that is payable to a beneficiary when an insured person passes away. Death benefit proceeds can also be used for living expenses of the insured’s survivors. Permanent life insurance policies consist of a death benefit component as well as cash value / investment component.

Encourages and forces thrift: (Thrift – management of money/savings) A saving deposit can easily be withdrawn. However, life insurance premiums are considered nonvoidable and this bring about compulsory savings.

Cash value components: It provides a cash value or investment component that accumulates cash value that the policy holder may withdraw or borrow against.

Easy settlement and protection against creditors: The life insurance policy is the only financial instrument the proceeds of which can be protected against the claims of a creditor of the assured by effecting a valid assignment of the policy.

The owner insured: The owner is the person or entity that has the rights that are stipulated in the actual Life Insurance Policy contract. These rights include policy dividends, beneficiary name, right to surrender the policy for its cash value and to transfer its ownership of the policy.

The Insured is the person whose death will cause the insurance company to pay the death benefit proceeds to the beneficiary. The insured and the policy owner may be the same person.

Beneficiary: The beneficiary is the person or entity that is named in the policy who has the right to receive the death benefit proceeds if the insured should pass away while the policy is in force. It can be also a trust, an estate, business entity, etc.

Ready marketability and suitability for quick borrowing: A Life Insurance policy can, after a certain period of time, be surrendered for a cash value. The policy is also acceptable as a security for a commercial loan (e.g. student loan)

Accidental death benefit: Some policies pay an extra sum (typically equal to the sum assured) in case death occurs as a result of an accident.

Tax benefits: Under the Indian Income Tax Act 15% of the premium paid is allowed as a rebate from the total income tax liability. Also, 100% of the premium paid is deductible as an expenditure from business income. When these benefits are factored in it is found that most policies offer returns that are comparable or even better than other saving modes such as PPF, NSC, etc.

Superior to other plans: A life insurance policy affords full protection against the risk of death. In case of death of policy holder, the insurance company makes available the full sum assured to the policy holders near and dear ones.