Tag - life insurance

November 2012

Understand : What is Paid Up Value in your Insurance Policy

What is Paid Up Value , Insurance Policy, Surrender Value, Life Insurance Concepts, Policy Lapse, Assignment, Nomination, .

Awareness precedes success

Most of the Insurance Policy Holders are unaware of the concept of Surrender Value and Paid  Up Value in case of lapse of a policy for any reason. This note with an example will help understand the concept. 

Guaranteed Surrender Value 

Under Sec 113 of Insurance Act 1938 if a person discontinues a policy, the insurer will not be allowed to forfeit all premiums paid. In every premium there will be an element of savings element accruing in a reserve fund. Insurance Act 1938 stipulates that the insurer should pay a guaranteed surrender value, if the premiums are paid for a minimum period of 3 years. Some Insurers pay more than the amount stipulated by the Act and this is called Special Surrender values. 

Paid Up Value 

When policy lapses after 3 years the Insurer will reduce the sum assured to a sum in the same ratio as the number of years premiums paid, bearers to total number of years in term of the policy. 

If Mr X. had taken a policy for 32 years for 10 Lakhs and he has paid the premium for 8 years only, then he would have paid for the term only. The Insurer offers to pay the Sum Assured, due payable on the maturity date or death if earlier as Paid up value that is Rs. 2,50,000. 

Reduced Sum Assured (RSA is the Reduced Sum Assured or the Paid up value) =
(Total number of years premium paid X sum assured) / (Total term of the policy)

Policies are with Profits or Participating polices wherein the policy holder will be eligible to get share of surplus of insurer called the bonus. 

No bonuses will be added to the sum assured of policies without profits or non – participating policies. 

 In case of policies wherein bonus eligibility is available, the sum total of Reduced Sum Assured + bonus allocated, shall be the Paid up Value. 

Where there is no bonus eligibility for the policy, the Reduced Sum Assured shall be the paid up value. 

Premiums are paid in advance in Insurance transaction. So the policy will be in force for the term depending on the mode of payment. Obviously, a monthly mode will keep the policy alive for 1 month, in quarterly it will be for 3 months, Half yearly for 6 months and yearly for 1 year.

Mr. X had taken a Half yearly mode of payment for 10 Lakhs with profits for 32 years term. The policy had commenced on 28th March 2002. He paid the premiums due on 28th September 2009. Due to certain financial constraints he could not pay further. Upon lapse of his policy due to non payment of premiums, not all of the money paid is lost.

What is Paid Up Value , Insurance Policy, Surrender Value, Life Insurance Concepts, Policy Lapse, Assignment, Nomination,

 

 

 

 

Reduced Sum Assured = Rs 2,50,000
Add Bonus Accrued = say 1,60,000
Total Paid Up = Rs 4,10,000

How much Life insurance is another article which you will find useful….

July 2012

IRDA Consumer Education website ~ Insurance ~ Educating Customers

insurance, IRDA, consumer education, life insurance, health insurance, car insurance, plans, Insurance is a sophisticated financial instrument which requires a fairly high level of involvement on the part of the consumer to make it effective. Yet insurance is also a basic requirement that every person should have. This universal need coupled with its complexity makes for a difficult combination since there is a mismatch between the perceptions of the customer and the reality of the product. It is this perception-reality gap that consumer education bridges.

The best protection for a consumer is education.

The IRDA website appears to be a sincere effort in this direction. Make use of the resources given in the website. It is useful.

You can access the site here : IRDA Consumer Education website

June 2012

Components of Life Insurance Premium for Endowment Plan

In many parts of the world, Insurance policies get sold. They do not get bought.

Almost 70-80% of the Insurance Policies which get sold in India comprise of the Non-Term Life Variety (means that approx 80% policies are not pure risk cover).

Do you know the components of the premium which gets paid periodically. Many agents miss-sell and never disclose the breakup of the premium components.

It makes a lot of sense to be aware of the breakup and make a wise decision when buying a life insurance policy (whole/endowment etc)

Components ,Life Insurance ,Premium , Endowment Plan, Insurance, Tutorials, Understand Concepts

 

Next time be sure to ask your agent. Here is an example.

e.g. Annual Premium = Rs.100000, Sum Assured = 25,00,000, 15 yr Endowment policy for a 35 year old
Then (these are approximate figures, meant only for illustration purposes)
Mortality Premium = Rs. 10000
Agent Commission Expense = Rs. 25000
Operational Expense = Rs. 10000
Profit/ Loss = Rs. 5000
Policy Holder Fund ( Investible Surplus) = 100000 – 10000-25000  – 5000         = Rs. 50000
 
Mortality premium is the pure risk premium in case of a fatal event on the life of the insured. This is same premium which will be paid when one insures using a pure term policy for a sum assured of 25,00,000. 
 
Agent Commission/Operational Expense … self explanatory
 
The Investible surplus is the amount which can be invested by the insurance company in G-secs (Government securities)/ Bonds. 90% of the interest generated is distributed in the forms of bonuses. 
 
More on Insurance Primer…