Page 118 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Unit 8: Insurance Sector

5. Annuities: Annuities are just opposite to life insurance. A person entering into an annuity Notes
contract agrees to pay a specified sum of capital (lump sum or by installments) to the
insurer. The insurer in return promises to pay the insured a series of payments until
insured's death. Generally, life annuity is opted by a person having surplus wealth and
wants to use this money after his retirement.
There are two types of annuities, namely:
(a) Immediate Annuity: In an immediate annuity, the insured pays a lump sum amount
(known as purchase price) and in return the insurer promises to pay him in
installments a specified sum on a monthly/quarterly/half-yearly/yearly basis.
(b) Deferred Annuity: A deferred annuity can be purchased by paying a single premium
or by way of installments. The insured starts receiving annuity payment after a
lapse of a selected period (also known as Deferment period).

6. Money Back Policy: Money back policy is a policy opted by people who want periodical
payments. A money back policy is generally issued for a particular period, and the sum
assured is paid through periodical payments to the insured, spread over this time period.
In case of death of the insured within the term of the policy, full sum assured along with
bonus accruing on it is payable by the insurance company to the nominee of the deceased.

Did u know? What are ULIPs ?
ULIPs (unit-linked insurance policies) are life insurance policies where the insurance
cover is bundled with an investment benefit under a single contract; the customer gets
insurance cover as well as investment returns based on market performance. As in mutual
funds, there are different options like predominantly equity-oriented investments, pure
debt investments, government securities investments, etc, which the customer can choose,
depending on his or her risk appetite. The most important point is that the risk under
ULIPs is borne by the policyholder.

The primary advantage of ULIPs is that the customer gets the advantages of both insurance
and mutual fund investment in a single contract. An in-house team invests and manages
the premiums and gets the customer a return. ULIPs also offer tax deduction of up to
1,00,000 from the gross total income under Section 80C of the Income Tax Act, 1961.
Returns from ULIPs are exempt from tax, subject to the conditions under Section 10(10D).
The downside is that, generally, there are limited guarantees, and market risks are passed
on to the customer completely. Returns could be lucrative if the market is upbeat, but the
unit value could decline if the market goes down.
IRDA has prescribed a minimum sum assured equal to 50 per cent of the total annualised
premium during the entire policy term or five times the annualised premium, whichever
is higher. This regulation is aimed at maintaining the basic characteristic of a life insurance
policy, where life cover should be the primary benefit. Till the policyholder turns
60 years old, the sum assured cannot be reduced by partial withdrawals. This is aimed at
protecting the life insurance cover.
Premium Holiday: If the policyholder stops paying premium instalments after paying
premiums for three years, the risk premiums and the applicable charges can be adjusted
from the balance in the account value, till such time as the balance in the account reduces
to one year's premium. This would help policyholders who are unable to pay premiums
owing to a temporary disruption in income because of change in employment, or any

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