Page 137 - DCOM309_INSURANCE_LAWS_AND_PRACTICES

Insurance Laws and Practices

Notes Annuities

Annuities are annual payments made by the Insurer to the Annuitant in return for a lump-sum
or periodical payment made by the other. The annuities can be purchased in two ways:

1. Immediate Annuity: Here the purchaser pays a single one-time payment to the Insurer
and desires that annuity to flow immediately.
2. Deferred Annuity: Here the purchase price is paid by the buyer in instalments and annuity
starts after the corpus is built.
The annuitant can desire the payment of annuity in respect of the above in any of the following
ways:
1. Life Annuity: Here the Insurer pays annuity instalments as long as the annuitant is alive

2. Annuity certain: The annuity is paid for the selected number of years irrespective whether
the annuitant is alive or not.
3. Annuity certain and life thereafter: The annuity is paid for the selected number of years
and if the annuity is alive at the end of the term, it will continue for the lifetime of the
annuitant.

Notes It should be remembered that the annuity can be selected either to make yearly,
half yearly, and quarterly or monthly.

Pension Plans

The life insurance industry has come out with policies, which serve the provision of pension
linked with risk cover. In this type, risk on the life of the assured is covered on a notional sum
assured and such notional amount is made use to buy annuity as explained above. But in case of
death of the assured within the term, the nominee will be entitled to family pension based on
the notional sum assured. There is an option of commutation also.
Difference between annuity and Life Insurance:

Those who are afraid of living too long and Life Insurance by those who are afraid of
premature death purchase annuity.

In annuity there is self-selection by the annuitant and in Life Insurance there is selection
by the Insurer.
By concept wise in Life Insurance payments start at death and in case of annuity the
payments stops at death, both works on the theory of large numbers.
Life Insurance is based on rate of Mortality and Annuity is based on probability of survival.

8.3.5 Group Insurance

You will find it interesting to note that group insurance is a device by which members belonging
to a homogeneous group can be given insurance cover under a single contract. The development
of group insurance in India is of recent origin and now lot of emphasis is given on wide
coverage in view of its simplicity and affordable cost.

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