Page 147 - DCOM309_INSURANCE_LAWS_AND_PRACTICES

Insurance Laws and Practices

Notes enlightenment of the employers, employees are being provided with support after they
retire. Group Gratuity Schemes, Group Superannuation Schemes, Group Term Insurance,
and Group Saving Linked Insurance Schemes are popular in India. But such benefits are
available to salaried permanent employees and not for temporary or contractual
employees.
3. Social Security Schemes: Some schemes have been evolved so far with the active
contribution of the Government to provide for the retirement benefits for people who
have crossed their working age. In less developed countries, the Governments cannot
afford to provide social security benefits. Even those who try these schemes are considerably
inadequate.
4. Annuity Contracts: Businessmen and professionals have to make arrangements on their
own for the days when they will not be able to work actively. Annuity policies meet the
needs of people not covered or inadequately covered under other schemes and are expected
to become more and more popular.
Annuities are also an important means of insurance and are based on the same fundamental
principles. Both utilize and compute the probabilities of death and survival as reflected through
mortality tables. Both pay the public from the common fund created through pooling of resources
during better days.

In true sense, both are insurance. Life insurance protects against the absence of income in the
event of premature death of the bread earner or disability. An Annuity protects against the
absence of income to those afflicted with undue longevity. Dying too soon and living too long,
both are the present day problems.

Task Prepare a slideshow on the meaning and need of annuity contracts with the help of
real life examples.
8.4.2 Difference between Annuity Contract and Life Insurance Policies

You will find it interesting to note that there are some differences in life insurance and annuity
contracts. Some people even call annuity as the reverse application of the life insurance principle.

1. Annuity is protection against living too long whereas the life insurance contract is protection
against living too short.

2. The annuity contract liquidates gradually the accumulated funds whereas the life insurance
contract gradually accumulates funds.
3. Payment generally stops at death in case of annuity contracts whereas in life insurance, the
payment is usually given at death.
4. The premium in annuity contract is calculated on the basis of longevity of the annuitant
whereas in life insurance, the premium is based on the policy-holders mortality estimate.
5. The annuity contract is taken for one’s own benefit whereas the life assurance is generally
for benefits of the dependents.
Thus, one can say that annuity is opposite concept of life insurance. Both of these contracts
complete the economic programme of an individual. Where life insurance stops, the annuity
contract comes to the rescue of an individual. No doubt they are complimentary.

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