Life Insurance And Its Types In Nepal
INVESTOPAPER
There are basically three types of insurance.
1. Life insurance business
2. Non-life insurance business
3. Reinsurance business
Life insurance
What is Life Insurance?
Life insurance is the insurance against the risk associated with a person’s life. It is a way to reduce or manage risk. It provides financial protection in the event of a disaster. Life insurance plans are also a way to save in the long run.
Life Insurance is a type of financial agreement between an insurance company and an individual for a fixed period. The person making the agreement acts through himself or his representative subject to the terms or conditions of the insurance company and the insurance company promises to cover the risk as per its terms in return for the payment of premium.
According to the Insurance Act, 2049, life insurance business means a contractual business in which a person receives a certain amount in case of his/her death or a sizable amount after the maturity from the insurance if s/he pays a certain amount in installments based on his/her age.
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Agreement Between Parties
In the field of insurance, the insurance company is called the insurer. The person who takes the insurance policy is called the insured. And the middlemen or representative is called the agent. Once the term for life insurance is fixed, the insured decides the amount to be insured as per the agreement for the entire period. It is up to the insured to decide how much to insure.
In order to insure life, an insurance contract must be signed with a life insurance company. The contract is usually for a minimum of five years. The premium is determined based on the age of the insured, the sum insured, health condition, etc. The higher the probability of death of the insured, the higher the premium to be paid. It can be paid annually, quarterly, monthly as per the wish of the insured.
The insurance process begins with the insurance proposal form and personal health details. One can obtain such forms from the concerned insurance companies. Insured person himself/herself or through the insurance agent can submit these forms. After analyzing all the details in these forms, the agreement is signed between the insurer and the insured.
Why Life Insurance?
Life insurance is for the financial security of an individual or his/her family. After the end of the insurance period, the person will be able to receive the lump sum amount specified in the policy and the additional amount received during that period. The extra amount received in this way is called ‘bonus’ in insurance terms.
There are many kinds of calamities in human life. The greatest of these calamities is death. Premature death can occur due to disease, accident or any other reason. In such a case, insurance becomes a means of providing financial support to the family of the deceased. The benefits of getting insurance vary according to the type of insurance. In general, in lieu of the premium received from the insured, the insurance company pays a pre-determined lump sum to the rightful claimant in accordance with the law if the insured survives during the insurance period or if the insured dies during the insurance period.
In case the insured survives, s/he receives the pre-determined amount along with the bonus from the profits earned by the insurer. If the insured dies within the insurance period, even if s/he has paid partial premium, his/her heir receives the pre-determined sum insured with bonus.
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Types Of Life Insurance
Life insurance can be basically classified as follows
(A) Whole Life Insurance
(B) Endowment Life Insurance
(C) Term Life Insurance
(D) Annuity Insurance
Whole Life insurance
Whole life insurance is the insurance in which the nominee of the the insured receives the sum insured only after the death of the insured person, if s/he has made payment of installments up to a fixed period of time. Such insurance is cheaper than other insurances.
When taking whole life insurance, the insured pays the premium till the date fixed at the beginning, if the insured dies before the expiration of the term, the dependent will get the full sum insured without having to pay the subsequent premium.
Under this plan, unlike the term life insurance plan, the insured does not get the sum assured during his / her lifetime. The life insurance plan can also be changed to a term or term life insurance plan as per the rules of the insurer. Whole Life insurance plans can be purchased in both cases with or without the share of the insured’s profit (bonus amount).
Endowment Life Insurance
Endowment life insurance is the insurance in which the insured (if s/he is alive) or the nominee (if the insured dies) receives the sizable insured sum along with bonus after the expiration of the policy term. For this, the insured has to make the payment of premiums in installments for a specified period of time. Such insurance is usually for a period of five to fifty years. This insurance is most popular in developing countries like Nepal.
Term Life Insurance
Term Life Insurance is the type of insurance in which the nominee of the insured receives the sum if the insured person dies during a specified term. This type of insurance has no savings benefit as in whole life or endowment life policies. Hence, the premium amount is relatively lower.
Annuity insurance
Annuity insurance is a policy that pays a monthly, quarterly, half-yearly or yearly income to the insured for whole life or a fixed period of time after the end of the insurance period (similar as pension). The insurance company creates a stream of income or payments for the insured in return for the premium payment during the insurance period.
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