Page 116 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Unit 8: Insurance Sector

Among other things, the contract also provides for the payment of premium periodically to the Notes
Corporation by the policyholder. Life insurance is universally acknowledged to be an institution,
which eliminates 'risk', substituting certainty for uncertainty and comes to the timely aid of the
family in the unfortunate event of death of the breadwinner.
By and large, life insurance is civilisation's partial solution to the problems caused by death. Life
insurance, in short, is concerned with two hazards that stand across the life-path of every person:
1. That of dying and prematurely leaving a dependent family to fend for itself.
2. That of living till old age without visible means of support.

8.4.1 Calculation of Life Insurance Amount/Premium

Individuals getting a life insurance cover have to pay the monthly/quarterly/half yearly/
yearly premium/life insurance rate, which depends on the amount insured. The premium
amount also increases or decreases with different life insurance plans, age of the individual etc.
The company pays the full insurance amount either on the death of the individual or the expiry
of the policy which ever is earlier. Life insurance policy can be renewed after the expiry. Some
insurance companies offer a discount while renewing the policies of existing clients. The insurance
is done after a medical examination of the individual being insured.
8.4.2 Advantages

A good life insurance programme does more than just replace the loss of income that occurs if
the insured person dies. Life insurance offers following benefits:

Protection

Savings through life insurance guarantee full protection against risk of death of the saver. Also,
in case of demise, life insurance assures payment of the entire amount assured (with bonuses
wherever applicable) whereas in other savings schemes, only the amount saved (with interest)
is payable.

Aid to Thrift

Life insurance encourages 'thrift'. It allows long-term savings since payments can be made
effortlessly because of the 'easy installment' facility built into the scheme. (Premium payment
for insurance is monthly, quarterly, half yearly or yearly).

Example: The Salary Saving Scheme (of LIC) popularly known as SSS, provides a
convenient method of paying premium each month by deduction from one's salary. In this case
the employer directly pays the deducted premium to LIC.
Liquidity

In case of insurance, it is easy to acquire loans on the sole security of any policy that has acquired
loan value. Besides, a life insurance policy is also generally accepted as security, even for a
commercial loan.

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