Month: May 2020

A motor insurance policy offers coverage to the insured vehicle against financial losses due to an accident or one resulting from other damages.
Motor insurance is an insurance policy that covers the policyholder in case of financial losses resulting from an accident or other damages sustained by the insured vehicle. A comprehensive motor insurance policy covers damages to third-party and third-party property along with compensating for own losses as well.

Is motor insurance mandatory?

Yes, it is. According to Sec 146 of the Motor Vehicles Act, 1988, it is imperative that you purchase motor insurance prior to taking your vehicle out on the roads. Should you not want to buy a comprehensive insurance plan, getting third-party policy coverage is the bare minimum that you are mandated to acquire for your vehicle to ply.

What does the policy cover?

With a motor insurance policy, you will be usually covered against the following:

• Damages and losses, resulting from natural calamities such as earthquake, floods, fire, lightning, landslide, hurricane, etc.
• Damages that result from human intervention, including burglary, theft, riots, strike or any other activity born of malicious intent.
• Third-party legal liabilities owing to damages (both bodily injuries and death) caused to third-party as well as financial losses to a third-party property.

What is the amount covered?

Usually, vehicles are insured at a fixed Insured Declared Value (IDV). In other terms, IDV is the current value of your vehicle in the market. IDV is higher for a new vehicle and with time it depreciates.

Factors affecting motor insurance premiums

Understanding some of the major factors that affect motor insurance premiums can lead you to make an informed decision:

1. Type of cover

A comprehensive insurance policy that covers both insured vehicle as well as a third-party would attach higher premiums as opposed to its third-party counterpart.

2. Geographical location

Your area of residence is one of the crucial determinants of motor insurance premiums in India. For instance, should you be a resident of a metropolitan city in the country, chances are vandalism and accidents would be more as compared to smaller Tier 2 and Tier 3 cities. This leads insurance providers to set increased premiums on your motor insurance policy.

3. Installed safety features

Should your vehicle be equipped with additional safety features, such as anti-theft devices, airbags, GPS tracking system, alarm and anti-lock braking features, insurers consider your efforts towards securing your car and set discounted (read affordable) premiums accordingly.

4. Ancillary modifications

Having installed expensive gadgets such as alloy wheels, roof rails and its likes in your vehicle, chances are you could be looking at increased premiums. Should you want coverage for these features as well, it is recommended that you get them installed by the respective car dealer at the time of purchase.

5. No Claim Bonus

No Claim Bonus (NCB) is the reward that you would be eligible for should you drive responsibly the year round and not file for damages. Also, it’s prudent to keep off claiming in case of minor damages fixing a broken windshield, for instance.

Motor insurance gives you peace of mind as you know you’ve a financial backing in case of damages suffered by your vehicle in case of any untoward incident.

Proposal Form

Insurance Proposal Form is completed by the policyholder when applying for insurance.

You will need to fill in information about the risk you are insuring e.g. the rebuild cost of your house or type of car you own.

The proposal in insurance means a request, from the proposer to the insurer, for giving protection against a risk.

This request may be made orally (face to face or over the telephone) or in writing through a letter or very formally through a printed proposal supplied by the insurers.

Even though a proposal may be made in either of the ways, a convention has developed for using insurer’s printed forms in case of fire, life and accident business and slips or declaration forms in case of marine.

For properly understanding the proposal form the student should try to go through the specimen forms of various branches of insurance.

In this post, an attempt shall be made to discuss in general terms the important common questions one is expected to find in any proposal form.

These are;

Insurance Proposal Form

1. Name

Name of proposer is very important for identification. It should be correctly and accurately written so that the policy can incorporate the correct name and identity.

2. Address

Address should be accurately given because of several reasons, such as, identity and communication, and sometimes this is important for rating purpose, e, g., motor, burglary etc.

3. Occupation

Information as to occupation is particularly important in case of life insurance, personal accident insurance and liability insurance as this will influence the rate or decision of an underwriter.

4. Subject-matter

This is the subject-matter of insurance and, therefore, should be properly described so that correct insertion can be made on the policy.

5. Sum-insured

The amount for which insurance cover is required should be adequately mentioned.

This is the limit of the insurer’s liability. It must represent the actual value of the property or the subject-matter of insurance.

6. Claims History

This has an influence on underwriter’s decision and must, therefore, be truthfully answered. Details of all previous related losses, whether insured or not, must be correctly given.

7. Other Insurances

Information as to other past or present related insurances is required to be given. This is important for applying contribution amongst various policies wherever applicable.

This is also important for assessing the moral hazard of the proposer since it might indicate the reason for effecting numbers of policies. Information as to other insurances also enables the insurer to make necessary queries with other insurers about the proposer.

8. Declinature

The insurer would like to know whether any insurance of this proposer was previously declined by any other insurers. This information would enable the insurer to find out from other insurers the cause of declinature.

9. Declaration

Every proposal form contains a declaration to the effect that;

The answers given in the proposal form are true and nothing has been concealed or misrepresented.

The proposer agrees to pay the premium and accept a policy that is usually issued by the insurer for that class of business.

The proposal form and the declaration shall form the basis of the contract.

10. Signature

The proposal is required to be signed by the proposer or by the authorized person when the proposer is not an individual.

11. Date

The signature is to be dated.

By comparing various specimen proposal forms the students would realize that apart from the above common type questions, there are numbers of other types of questions peculiar to various branches and different policies.

Insurance Policy

In insurance, the insurance policy is a contract (generally a standard form contract) between the insurer and the insured, known as the policyholder, which determines the claims which the insurer is legally required to pay. In exchange for an initial payment, known as the premium, the insurer promises to pay for loss caused by perils covered under the policy language.

Insurance contracts are designed to meet specific needs and thus have many features not found in many other types of contracts. Since insurance policies are standard forms, they feature boilerplate language which is similar across a wide variety of different types of insurance policies.

The insurance policy is generally an integrated contract, meaning that it includes all forms associated with the agreement between the insured and insurer. In some cases, however, supplementary writings such as letters sent after the final agreement can make the insurance policy a non-integrated contract. One insurance textbook states that generally “courts consider all prior negotiations or agreements … every contractual term in the policy at the time of delivery, as well as those written afterward as policy riders and endorsements … with both parties’ consent, are part of the written policy”. The textbook also states that the policy must refer to all papers which are part of the policy. Oral agreements are subject to the parol evidence rule, and may not be considered part of the policy if the contract appears to be whole. Advertising materials and circulars are typically not part of a policy. Oral contracts pending the issuance of a written policy can occur.

https://www.irdai.gov.in/ADMINCMS/cms/Uploadedfiles/TAC1617/121L085V03.pdf

An insurance claim is a formal request by a policyholder to an insurance company for coverage or compensation for a covered loss or policy event. The insurance company validates the claim and, once approved, issues payment to the insured or an approved interested party on behalf of the insured.

Insurance claims cover everything from death benefits on life insurance policies to routine and comprehensive medical exams. In many cases, third-parties file claims on behalf of the insured person, but usually, only the person(s) listed on the policy is entitled to claim payments.

How an Insurance Claim Works?

A paid insurance claim serves to indemnify a policyholder against financial loss. An individual or group pays premiums as consideration for completion of an insurance contract between the insured party and an insurance carrier. The most common insurance claims involve costs for medical goods and services, physical damage and liability resulting from the operation of automobiles, property damage and liability for dwellings (homeowners, landlords, and renters), and the loss of life.

For property and causality insurance policies, regardless of the scope of an accident or who was at fault, the number of insurance claims you file has a direct impact on your rates. The greater the number of claims filed, the greater the likelihood of a rate hike. File too many claims and the insurance company may not renew your policy.

If the claim is being filed based on the damage you caused, your rates will almost surely rise. On the other hand, if you aren’t at fault, your rates may or may not increase. Getting hit from behind when your car is parked or having siding blow off your house during a storm are clearly not your fault and may not result in rate hikes, but this isn’t always the case. Mitigating circumstances, such as the number of previous claims you have filed, the number of speeding tickets you have received, the frequency of natural disasters in your area (earthquakes, hurricanes, floods) and even a low credit rating can all cause your rates to go up, even if the latest claim was made for damage you didn’t cause.

When it comes to rate hikes, not all claims are created equal. Dog bites, slip-and-fall personal injury claims, water damage, and mold are red flag items to insurers. These items tend to have a negative impact on your rates and on your insurer’s willingness to continue providing coverage. Surprisingly, the much-dreaded speeding ticket may not cause a rate hike at all. Many companies forgive the first ticket. The same goes for a minor automobile accident or a small claim against your homeowner’s insurance policy.

Life Insurance Claim Process

The main purpose of taking an insurance policy is that it should come in use in the times of crises. In this article, we will look at the different types of life insurance claims and how the settlement process works.

Selection of the right policy from a good life insurance company with a healthy claim settlement ratio is the main requirement for buying a life insurance. The main function of an insurance company is to ensure easy and timely settlement of a valid claim in return for the premium paid by the insurer/ policy holder.

Before intimating the insurance company, the nominee/claimant should check some basic facts:

• If the insurance policy is active and all the premiums have been paid?
• Does the particular situation for which the claim is being made is covered in the policy?
• Exclusions of the policy

1. Death claim settlement process

Step One: Intimation to the insurance company about the Claim

The nominee should inform the insurance company as soon as possible to enable the insurance company to start with the claim process. The details required for intimation are policy number, name of the insured, date of death, cause of death, place of death, name of the nominee etc. The claim intimation form can be obtained from the nearest insurance company branch or even by downloading it from the insurance company website. Alternatively, many insurance companies also have online forms these days on their website for claim intimation.

Step Two: Documents required

The nominee will be asked to furnish the following documents:

• Death certificate
• Age of the life insured (if not already given)
• Original Policy document
• Any other document as per requirement of the particular insurer or case related

For early death claims i.e the claim that has arisen within three years of the policy being in force the company will do extra investigation to ensure it is a genuine claim. They might do the following:

• Check with the hospital if the deceased was admitted to hospital.
• In case of an air crash confirmation from the airline authorities check if the policy holder was a passenger on the plane.
• In case of death from medical causes, the insurance company will ask the hospital to provide doctor’s certificate, treatment records etc If the policy holder dies due to murder, suicide, accident then police FIR report, panchanama, post mortem report etc shall be required.

Step Three: Submission of required Documents for Claim Processing

For quicker claim processing, it is essential that the nominee submits complete documentation as early as possible and any other documents that the company needs to pass the claim.

Step Four: Settlement of Claim

As per the regulation 8 of the IRDAI (Policy holder’s Interest) Regulations, 2002, the insurer is obligated to settle a claim within 30 days of receipt of all necessary documents including extra documents sought by the insurer. If the claim requires further investigation, the insurer needs to complete its procedures within 6 months from receiving the written intimation of claim.

2. Maturity & Survival Claims

The payment made by the insurance company on completion of term of policy or maturity date is called maturity payment. The amount payable consists of sum assured plus any bonus/incentives.

The insurance company informs the policy holder in advance by sending bank discharge form for filling details in it. The form needs to be returned back to the insurance company with original policy document, ID proof, Cancelled Cheque and copy of pass book.

3. Rider Claims

Different riders can be attached to the base life insurance policy for enhanced protection. The riders can be accidental rider, critical illness rider, waiver of premium rider etc. For different riders, different claim proceedings are required. Some riders may be valid with the death claim like accidental death rider or some riders need to processed standalone like waiver of premium rider in case of disability.

For Critical Illness Rider- necessary medical documents such as first diagnosis report, Doctor’s report, etc are required. For Accidental disability rider – copy of FIR, Certificate of disability by the treating doctor, doctor’s report etc are required.

In many cases, life insurance claims have been delayed or denied due to lack of proper documentation or simply because the proper claim process was not followed. Hence, it is recommended that the claimant should be aware of the claim process in order to have a hassle-free claim settlement process during the emotionally draining time especially while filing a death claim. Coverfox has taken a great initiative in NASPRO (Nominee Assistance Program) which is specially aimed at assisting nominees to have a smooth claim settlement experience.

Characteristics of Group Insurance

“Life insurance offered by an employer or large-scale entity (i.e. association or labor organization) to its workers or members. Group life insurance is typically offered as a piece of a larger employer or membership benefit package. By purchasing coverage through a provider on a ‘wholesale’ basis for its members, the coverage costs each individual worker/member much less than if they had to purchase an individual policy. People who elect coverage through the group policy receive a ‘certificate of credible coverage’ which will be necessary to provide to a subsequent insurance company in the event that the individual leaves the company or organization and terminates their coverage.”

Thus we can infer the following characteristics of Group Life Insurance, which also apply to other group insurances:

• There must be a group of people to be insured who have something in common other than the purpose of obtaining insurance
• To save administrative costs, there is often a Master Policy Holder who will retain the documentation on behalf of the members, and may deal with the members on behalf of the insurer
• Such covers are typically available at a discount to the respective individual rates, as administration and expected claims costs are lower.

Insurable Groups can broadly be classified as mainly two types” employer – employee ” groups where all members work for the employer proposing to cover them or “affinity” groups, whose members have a commonality other than employment say deposit holders of a bank.

The Master Policy Holder of a Group Life Insurance Plan in the case of an “Employer Employee Group” is basically the Employer and for other groups would be the entity that has an insurable interest in the lives of its members. So in the case of a bank it could be said to have an insurable interest in the lives of its members who hold a deposit or have taken a loan. The Master Policy Holder also ensures each member gets their certificate of coverage stating the details of the premium paid, cover available, term of the cover and the claims process.

Types of Group Insurance Policies available in India

1. Group Term Life Cover

This type of policy offers a life cover to each member (insured) working in the group (organization). The premium is collected from the group owner which can be deducted from the salary of the employees on a monthly basis.

2. Group Health Cover

The group medical cover is to meet the unpredictable medical needs of each group member. This plan also covers pre-existing diseases along with the diagnosis costs. In some cases, it covers the maternity expanses, visionary treatment, and dental checkups too. This may function in the form of cashless card form or the reimbursement of medical expense up to the limit specified.

3. Group Personal Accident Insurance Cover

This policy compensates the insured group’s members in case they meet with an accident during their employment.

4. Workers Compensation Insurance

This policy covers all the employer’s liabilities under the Workers’ Compensation Act 1987. Employers like the construction units and manufacturing hubs must have this insurance policy, as workers (even if the number is less than 20) operate at a high risk of a fatal accident which may follow the partial or even complete disablement of their own selves.

5. Group Pension/Superannuation Plans

The pension plans are said to the best insurance cover because they promise the sense of safety and security. Something which promises a regular monthly income even after 60 is worth sharing the pride. There are different formats of a pension plan are the Provident fund, Gratuity, and Superannuation.

6. Public Liability Insurance

This is suitable for groups which are involved in direct public dealing or provide professional services to individuals. Such individuals can be held responsible for the results of their decisions made while providing the service and may face legal scrutiny and penalties. This insurance covers such expenses incurred by the insured group or its members.

7. Group Travel Insurance

Covers the hazards faced by travelers, including theft of documents and luggage. Can also include health cover for the group members.

The average penetration and density of life insurance in India is a measly 2.76%. There have been improvements in this arena but overall the growth has been rather slow in India. Not many people are aware of the benefits of life insurance and the numbers for penetration are an indicator of the same.

Accidents and mishaps are strong indicators of how fragile human life can be and how we need to systemically insure our lives. It is an important tool for providing an individual’s family with safety and security. It acts as a protective cover to safeguard the insured’s dependents. In the event individuals do not insure their lives, their dependents end up facing the tragic loss of their loved one along with a whole host of liabilities such as rent, loans, EMI’s and child services.

Features of Life Insurance Plans

1. Policyholder

Policyholder is the individual who pays the premium for the life insurance policy and signs a life insurance contract with a life insurance company.

2. Premium

A premium is the cost the policyholder pays the life insurance company for covering his/her life.

3. Maturity

Maturity is the stage at which the policy term is completed and the life insurance contract ends.

4. Insured

Insured is the individual whose life is secured via the life insurance. After his/her death the insurance company is accountable to provide a financial amount to the dependents.

5. Sum Assured

The amount the insurance company pays the dependents of the insured if those events occur which are specified in the life insurance contract.

6. Policy Term

Policy term is the specified duration (listed in the life insurance contract) for which the insurance company provides a life cover and the time period during which the contract is active (listed in the life insurance contract).

7. Nominee

A nominee is an individual listed in the life insurance contract who is entitled to receive the predetermined compensation, as a part of the policy.

8. Claim

On the insured’s demise, the nominees can file a claim with the insurance provider in order to receive the predetermined payout amount.

Classification of life insurance policy

1. Whole life insurance policy

Whole life insurance policy is defined as an insurance in which the insured person pays the premium in the installment basis for full duration of his/her life. After the death of insured, his/her nominee receives the insured amount.

There are 3 types of whole life insurance policy

• Ordinary whole life insurance policy. In this policy, insured person has to pay the premium to his/her concerned insurance company till his/her death. The insured person can’t utilize the insured amount because this amount will be returned after his/her nominee
• Limited premium whole life insurance policy: Under this policy, the insured person has to pay the premium for limited time and the insured amount will be returned after the death of insured person to his/her nominee
• Convertible whole life insurance policy: It is that type of policy which can be converted to endowment life insurance policy after a certain time. It is suitable for those people who have lower income at present, and they hope for increment in income in the near future.

2. Endowment life insurance policy

It is defined as that type of insurance in which the insured person pays the premium for a certain time and after certain time they receive insured amount. If she/he dies before the insured period his/her nominee receives the insured amount. Generally endowment life insurance policy is done for 10, 15 20 years and more. The insured has to pay the premium either till the end of insured period or till the death of insured which ever is earlier.

• Ordinary endowment life insurance policy: Under this policy, time will be fixed for a certain period and insured person have to pay either till the end of insured period or till his/her death. If he/she dies earlier before insured period, his/her nominee receive the amount. And if she/he is alive than himself/herself go and receive the amount.
• Joint endowment life insurance policy: In this policy, two or more persons are involves s the insured person. The premium amount should be paid till the insured person’s death like in ordinary endowment life insurance policy.
• Double endowment life insurance policy: Under this policy, the insured person receives double of the insured amount is she/he is alive till the end of the maturity time. If she/he dies before the insured person his/her nominee receive only single insured amount.
• Pure endowment life insurance policy: Under this policy, insured person receive the insured amount after the certain time when he/she is alive. If the insured person dies before the end of maturity time the insurer becomes free from its liability.

3. Term life insurance policy

Straight term life insurance policy: Under this policy premium is paid as lump sum money. The insured time maturity period is not more than 2 year. Therefore, it is known as temporary term life insurance policy. If the insured person dies before the insured period his/her nominee receives the insured amount. But if he/she is alive then he/she doesn’t receive anything.

• Straight term life insurance policy: Under this policy premium is paid as lump sum money. The insured time maturity period is not more than 2 year. Therefore, it is known as temporary term life insurance policy. If the insured person dies before the insured period his/her nominee receives the insured amount. But if he/she is alive then he/she doesn’t receive anything.
• Renewal term life insurance policy: Under this period the insurance can be renewed after the maturity of the insured period. Second rate of premium may be higher than the first-rate of premium. Because the age of the person also increases with renew of insurance. It doesn’t need a new health report or any sort of gent report for renewal.
• Convertible term life insurance policy: It is generally done for 5, 6 or 7 years like term life insurance policy. If the insured person want to convert this insurance policy in whole life insurance policy and endowment life insurance policy it can easily be converted.

4. On the basis of profit distribution

• With profit policy: Under this policy the insured person receive the insured amount with the profit of insurance company. In other words if the insured person dies before the term of insured period his/her nominee receive only insured amount not the profit o the company. But if he/she is alive then with the amount of premium the portion of profit of the insurance company is also received by the insurer.
• Without profit policy: Under this policy the insured person doesn’t receive the insured amount with the profit of insurance company. In other words if the insured person dies before the term of insured period or remains alive till the end his/her nominee or himself/herself receive only insured amount not the profit o the company.

5. On the basis of number of insured

• Single life insurance policy: Under this policy there is only one individual as an insured person. In other words, the life of a single person is done insurance. Single life insurance policy is applied in whole life insurance policy, endowment life insurance policy and term life insurance policy.
• Joint/ multiple life insurance policy: Under this policy two or more than 2 people are involved as husband and wife, partners of partnership firm and other people may conduct the joint life insurance policy. It may be applied in whole life insurance policy and endowment life insurance policy.

6. On the basis premium payment

• Single premium life insurance policy: Under this policy, insured person pay the premium to the insurance company at the beginning in the lump sum amount. There is no tension to pay the premium timely later on. It is mostly used in that case when a person wins a lottery.
• Regular premium life insurance policy: under this policy the insured person pay the premium up to his/her death for a certain time. In other words, the insured person pays the premium to insurance company regularly or timely.
• Limited payment premium life insurance policy: under this policy the insured person pay the premium up to his/her death for a certain time. The time is however less than the insured period.

7. On the basis of payment of insured mount

• Lump sum payment policy: Under this policy the insured person receives the total insured amount. Even all premiums have not been paid total insured amount is received by the nominee of the insured person and if the total amount has been paid she/he receives the total insured amount himself or herself.
• Installment payment policy: Under this policy, the insured person and nominee receive the insured amount in the installment basis. It is useful to those individual who are old and lump sum mount may be misused.

Advantages of life Insurance Policy in India

1. Death Benefits

Life insurance enables individuals to protect themselves and their families, in case of any unfortunate happening in the life of the insurer. The insurer pays an amount equivalent to the sum assured as specified in the contract along with applicable bonuses. This is know as the death benefit.

2. Investment Components

Certain whole life insurance policies offer two-pronged benefits of both insurance and investment. While one half of your premium is paid toward insurance, the other half is invested in equity, debt or combinations of both. You get the best of both worlds with a protective covering as well as high returns on your investments. You can make the most of this component by investing in funds that align with your investment horizon and risk appetite. Certain policies allow you to switch between funds as per your evolving goals. The Invest 4G plan offered by Canara HSBC Oriental Bank of Commerce gives you the option of choosing from a range of 7 unit-linked funds and 4 different portfolio management options as per your preference.

3. Maturity Benefits

Life insurance policies can also double as a savings instrument by offering maturity benefits. If the insured survives the policy term and no claims have been made, the total premiums paid are returned at the time of maturity of the policy. In this manner, your life insurance plan can have a savings component, while also offering a protective cover.

4. Tax Benefits

Under the umbrella of Section 80C of the Income Tax Act (ITA), individuals can reduce their tax liabilities by investing in specific instruments. Term insurance is one of them. Under section 80C, the premium paid for your life insurance policy is eligible to attain a maximum tax deduction for up to Rs. 1.5 lakh. In addition to this, under Section 10(10D), any payouts you receive from your insurance policy are completely tax-free (provided your premium does not exceed 10% of your Sum Assured, annually). If you have opted for a health-related rider, such as a critical illness or surgical care rider, you can also avail tax deductions under 80D of the ITA.

5. Coverage Against Liabilities

To fulfill your dreams and attain your goals, you may have required a certain amount of financial support – in the form of loans, mortgages and other types of debt. Be it student loans or credit card debt, dealing with such liabilities can be a source of great financial strain, without a steady stream of income. While you may have the funds to pay off a part of your loans now, your family may find it difficult to manage such liabilities in the event of your unfortunate demise, owing to the loss of income. Thus, taking a life insurance policy ensures that your family has the financial means to steadily meet your loan and mortgage repayments, even in your absence.

6. Riders

You can opt for riders to enhance your life insurance coverage. A number of riders, ranging from Critical Illness to Accidental Total Permanent Disability are available and help protect you and your loved ones against instances wherein your life cover may not come into play.

Life insurance and life insurance plans are an absolute necessity today. life insurance is a risk minimization and protection tool that can help insured and their dependents in multiple ways while dealing with a variety of life events. By understanding the key features and benefits of a life insurance policy, you can make an informed decision.

Basically, your life insurance premium consists of four key elements:

• Mortality amount (“natural premium”)
• Expenses element
• Investment element
• Contingency provision

1. Mortality

Life insurance operates on actuarial basis that considers the probability of death occurring at certain ages or age groups. Put in a layman’s language, we all expect older people to die before younger ones. The   same concept applies to life insurance. The older someone is, the higher is the probability of his death.  Apart from age, the  state  of  health, occupation,  habits, and  pastimes of an individual  can  have significant  effects on  his/her  likelihood of dying  early.   All these put together form the mortality aspect of an insurance company’s life insurance premium.

In order to make things easier, insurance companies make use of mortality tables constructed by actuaries. These mortality tables show, for each age, what the probability is that a person of that age would die before his or her next birthday. So, using this table, an insurance company can determine the probability of someone surviving any particular year of age, and the remaining life expectancy for people at different ages.  The  premium derived  from  using  the mortality table  is known  as the “natural  premium”  and  it  is the first and major part  of  the entire premium that  a  policyholder pays.

At its early stages, life insurance was actually operated in form of mutual societies that run on guilds basis. A bookseller called John Hartley started one of those societies in London in 1705 in which he restricted membership to only those within the ages of 12 and 45. Under Hartley’s scheme, members paid the same premium irrespective of age and, at the end of the year, fund was shared by dependants of members who died during the year. Two years after the commencement of the scheme, the society introduced a fixed benefit of £125 for each member.

In one of my presentations, a gentleman had signified his intention to speak and I asked him to go ahead. While making his contribution, he erroneously addressed me as an “Undertaker.” Of course, I had to correct him that we are “Underwriters,” not “Undertakers.” But the man might not be totally wrong when one traces the history of mortality tables further.

A guy called James Dodson, a Mathematics teacher, was refused entry into John Hartley’s scheme because he was 46 – a year older than the maximum entry age. For that reason, James Dodson, being a mathematician, headed for the graveyards to compile a mortality table. His table showed number of deaths at each age between 1756 and 1759 and this actually became the first scientifically constructed mortality table ever. Dodson’s table made it possible for each member to pay a fixed amount of premium till date of death when the sum assured became payable to dependants. It also marked the commencement of what is today known as “level premium” for life insurance policies.

2. Expenses

The premium rate also includes a figure for the expenses that an insurance company incurs in writing your policy. These expenses will include the commission paid to the agent who sells the policy to you, the cost of printing your policy document, and other overhead expenses of the insurance company. But don’t worry. Because there are thousands or millions of other people buying the same insurance product from the company, the cost is thinly spread so the impact is not that much on the total premium you pay as an individual. That’s why you don’t usually notice this aspect in your premium computation. But it is actually there. This further confirms the basic concept of “Law of Large Numbers” in life insurance.

3. Investment

Call it “Savings element,” “Investment element,” or “Profit element;” you will be right. The premium charged by your life office includes a percentage for investment. This portion of the premium is invested by the company and it is  from  it  that  bonuses, cash  values,  policy loans  etc  are paid  to  policyholders  who buy  permanent life  policies.  Of course, this statement presupposes that investment element is ONLY included in the premiums for policies that are of permanent nature (e.g. endowment and whole life).  That is quite true but not totally accurate. Irrespective of the type of policy issued, an insurance company will expect to make some profit as a business enterprise. For this reason, the investment aspect of a life assurance premium includes an allowance for the moderate profit of a life office. It is just the same way any manufacturer would include a profit margin in the cost of his product.

4. Contingency

What if some of the assumptions of a life office fail? What if, instead of the assumption that 20 policyholders would die in a year, the company ends up with 200 deaths? What if something drastic happens in the economy that has a negative effect on the company’s investment? What if it initially made wrong projections on the expected number of would-be buyers of its product? What if the company’s cost of doing business doubles unexpectedly? What if….? We can continue to list possible occurrences that could make nonsense of a life office’s computations.

In the light of all these possible unforeseen circumstances, the life office usually includes a percentage in its premium that is solely reserved for contingencies. Like the expense element, the contingency allowance is not weighty on each individual policyholder because of the large pool of people that are covered by the life office. That, again, is why we say in life insurance that “the larger the pool, the cheaper the premium.”

A mortality table, also known as a life table or actuarial table, shows the rate of deaths occurring in a defined population during a selected time interval, or survival rates from birth to death. A mortality table typically shows the general probability of a person’s death before their next birthday, based on their current age. These tables are typically used in order to inform the construction of insurance policies and other forms of liability management.

How a Mortality Table Works?

Mortality tables are mathematically complex grids of numbers that show the probability of death for members of a given population within a defined period of time, based on a large number of factored variables. Mortality tables tend to differ in their construction when being catered to men and women are usually constructed separately for men and women.

Other characteristics can also be included to distinguish different risks, such as smoking status, occupation, and socio-economic class. There are even actuarial tables that determine longevity in relation to weight.

The life insurance industry relies heavily on mortality tables, as does the U.S. Social Security Administration. Both use mortality tables in order to best establish details surrounding their coverage policies based on the individuals they will cover.

Types of Morality Tables

Morality tables are of two types:

1. Cohort or Generation Life Table

The Cohort or Generation Life Table “summarises the age specific mortality experience of a given birth cohort (a group of persons all born at the same time) for its life and thus extends over many calender years.”

2. Period Life Table

On the other hand, the “Period Life Table summarises the age specific mortality conditions pertaining to a given or other short time period.”

Importance of Life Table

Life tables have been constructed by Graunt, Reed and Merrell, Keyfitz, Greville and other demographers for estimating population trends regarding death rates, average expectation of life, migration rates, etc.

We detail below the uses of life tables:

1. Life table is used to project future population on the basis of the present death rate.
2. It helps in determining the average expectation of life based on age specific death rates.
3. The method of constructing a life table can be followed to estimate the cause of specific death rates, male and female death rates, etc.
4. The survival rates in a life table can be used to calculate the net migration rate on the basis of age distribution at 5 or 10 year interval.
5. Life tables can be used to compare population trends at national and international levels.
6. By constructing a life table based on the age at marriage, marriage patterns and changes in them can be estimated.
7. Instead of a single life table, multiple decrement life tables relating to cause specific death rate, male and female death rates, etc. can be constructed for analysing socio-economic data in a country.
8. Life tables are particularly used for formulating family planning programmes relating to infant mortality, maternal deaths, health programmes, etc. They can also be used for evaluating family planning programmes.
9. Now a days, life tables are used by life insurance companies in order to estimate the average life expectancy of persons, separately for males and females. They help in determining the amount of premium to be paid by a person falling in a specific age group.

Besides, if an insured person dies before the policy matures, the life table provides economic support to the insurance company without facing financial loss and it is able to give the insured amount to the legal heirs of the deceased.

Assumptions of Morality Table

A life table is based on the following assumptions:

1. A hypothetical cohort of life table usually comprises of 1,000 or 10,000 or 1,00,000 births.
2. The deaths are equally distributed throughout the year.
3. The cohort of people diminish gradually by death only.
4. The cohort is closed to the in-migration and out-migration.
5. The death rate is related to a pre-determined age specific death rate.
6. The cohort of persons die at a fixed age which does not change.
7. There is no change in death rates overtime.
8. The cohort of life tables are generally constructed separately for males and females.

• Mortality tables show the rate of death within a specific population.
• Mortality tables use a large number of factors to predict the likelihood of death in an individual within the current year.
• Mortality tables are used heavily by insurance companies and the U.S. Social Security Administration.
• Mortality tables are generally split into “period” life tables and “cohort” life tables.
• For the purposes of actuaries, “cohort” tables are most often used.

Life insurance plans help the insured’s family take care of their financial responsibilities and live a normal life after the demise of the policyholder. This means, when the policyholder passes away, the insurance provider will pay an accumulated amount to the loved ones of the deceased. However, there are some exemptions in this plan the beneficiary may not receive a death benefit if the insured dies after trying suicide, getting involved in violent activities and adventurous games.

A principle is a fundamental truth or statement upon which other truths or statements depend. Understanding the basic principles of life insurance allow you to know general truths about all life insurance policies, which in turn will help you make better decisions about the types of policies you buy and how you use your life insurance contract before you die. It can also help you make better decisions about how you save, spend, and invest your money.

The ultimate or primary purpose of life insurance is to create certainty out of the greatest uncertainty confronting an individual. Namely, the fact that almost everything in life (and even life itself) is a speculation and difficult (or impossible) to predict accurately When will you die? Will you die before you’ve accomplished everything you want to accomplish? Will your business succeed? Will you accumulate enough savings to retire comfortably? Will your investments pan out as you hope? Will you save enough money to send your child to college or get them into a trade school? Will you have enough money for a vacation next year? Will your computer last another year before dying? Will you get into a car accident (totaling your vehicle) before it’s paid off? Will you be able to afford your insurance deductibles? Will you become temporarily or permanently disabled and unable to work? Will you develop a degenerative disease and be unable to work? Will you. Life insurance levels these financial uncertainties by providing a guaranteed sum of money now and for your future.

Life insurance is for any productive individual who values their earning potential, income, and savings and believes it’s worth protecting against loss, whether from disability, illness, or death.

Basic Principles of Life Insurance

1. Principle of Indemnity

Applicable as well as not! Paradox right? Indemnity means to make good the losses or to pay back what is the loss amount. In case of a life insurance, you cant measure a persons life’s worth hence the payout is not on calculation basis of loss assessment as in case of general insurance but the full Sum Insured is payable at death. There could be multiple policies covering the same life and they all are liable to pay.

2. Principle of Contribution

This again will not apply for Life insurance as in case of trigger of policy, the insurer has to pay the full amount. Also, in the event of death, if insured had taken multiple policies, they all have to pay the nominees the full amount.

3. Principle of Subrogation

Essentially it means that loss to one can be claimed by insurance company and the company can in turn claim it from the loss maker. But again in Life insurance it does not hold true and damages and insurance cover is payable to insured/deceased.

4. Principle of Mitigation of loss

Just as in case of General insurance, here too the insured has to take utmost care of himself and should not indulge in activity that can harm his health or cause death.

5. Causa Proxima

The Latin term for nearest cause holds true for life insurance just as in the case of general insurance. The nearest cause of death is found and if it is not covered under the policy the total SI is not payable.