LIFE INSURANCE - ENDOWMENT POLICY

Life Insurance

Definition

Plans for endowment insurance are designed to offer a significant payout in the case of death together with, if necessary, survival, maturity, and profit sharing.

Policy term

The Policy Term is the period for which the Insurance Company is at risk and signifies the existence of a valid policy contract. 

Premium paying term

The Premium Paying Period is the period of time that the policyholder must continue making premium payments in order to keep the contract in force. The length of the insurance term is equal to the normal premium payment period. Yet, certain insurance agreements could let the insured choose a premium payment schedule shorter than the policy’s duration. The period of the policy shall not exceed the term of the policy. Under no circumstances may the Insurance Term exceed the Premium Paying Term.

Regarding the Policy Term and the Premium Payment Period, the codification marks a significant departure from the prior regime. According to the revised Regulations:
•A minimum policy term of five years is required.
•All plans, excluding single premium policies, must have a minimum premium-paying duration of five years. Single premium insurance is the only exception, which is necessary to collect all premiums at once.

As long as the minimum Premium Paying Term (single premium policies are exceptions) is at least 5 years, there are no restrictions on the flexibility that can be offered in Limited Premium Paying Terms with regard to the Policy Term.

There is a good rationale for the regulation's existence. The Insurance Act prohibits commissions on single-premium insurance policies to be more than 2%. It is clear that this percentage is not enough to attract distributors' attention. The Act also enables an extremely high commission charge for insurance with recurring premiums. Even if some businesses promoted single premium plans that were conceptually viewed as non-single premiums, a higher rate of the commission may be paid out. As a result, the Insurance Act was violated.

The portion of the premiums to be used as the commission was decided. Commissions had no obvious connection to any criteria prior to this. The recommended maximum rates were often followed. The IRDA has linked the commission rate to how long premiums are paid in accordance with the new legislation in order to promote the sale of longer-term plans. The commission will, as previously indicated, be a percentage of the premium paid; normally, the percentage is calculated as three times the term for which the premium is being paid; single premium policies are nevertheless subject to a 2% commission rate on premiums. The commissions paid in the upcoming years won't alter at all. Brokers and new insurance companies face slightly different conditions. Pension products have various rates, which we will examine separately.

Before making a purchase, every buyer should properly research any insurance policy and compare all insurance plans offered by various insurance firms.

“It's crucial to take into account how much cash you'll need for long-term objectives, insurance, and the living expenses for your family in the event of your death.”

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