Page 90 - BFSI CHRONICLE 10 th Issue (2nd Annual Issue ) .indd

BFSI Chronicle, 2 Annual Issue, 10 Edition July 2022
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products have come handy for canvassing balance is carefully invested by the Insurance
life insurance with the general emphasis on Company in Government and Government
maturity benefits under the policy and making approved Securities as per the Investment
a veiled reference to the death benefit as well. Regulations. As the investment returns under
So, over a period of time, life insurance plans the Government and Government approved
are seen as saving products akin to small securities are not very high, a new type of
savings schemes of the Post Office and the policies has emerged, called Unit Linked
Fixed Deposits of the Banks. The core benefit Insurance Plans, more popularly known as
of financial cover in case of unfortunate death ‘ULIPs”. The ULIPs are akin to Endowment
of the insured remained under-appreciated or Type Policies with the basic difference that
not-appreciated at all. Endowment Products the investment risk is entirely borne by the
obviously charge a higher premium than term Insured where the Insurance Company
assurance products. Over a period of time, the offers a bouquet of investment options with
endowment type of products have become the Equity, Debt and money market instruments
mainstay of life insurance companies. in various proportions and the Insured can
choose his investment portfolio based on his/
In life insurance policies, the policyholder her risk appetite. Higher risk means obviously,
has to pay the consideration, called premium. higher exposure to the Equity Markets. It is
In endowment type of plans, the insurance widely believed that long term investment in
companies have to pay the maturity value with equity portfolio gives a higher return than the
or without bonus depending on the nature of
government securities. Thus, ULIPs have taken
plan chosen by the insured. The amount for care of both the aspects of life cover and a better
which insurance cover is granted is called return, provided, the insured keeps paying the
“Sum Assured” in life insurance contracts. premium and stays invested throughout the
Sum Assured is the amount payable, only in entire term of the policy. It is always prudent to
case of death of the insured during the term
opt for long term insurance covers rather than
of the policy in case of Term Insurance Plans for short term insurance covers because, long
while it is the amount payable either during term insurance cover offers lower premium
the term of the policy in case of unfortunate and better returns, particularly under ULIPs.
death of the insured or at the end of the term
of the policy [called maturity value], if the With this brief background and without getting
insured is alive as on the date of maturity of into further technicalities, let us understand
the policy. Thus, the payment of sum assured is some important aspects of Insurance Laws.
a definite obligation under endowment type of Though there were many legislations governing
policies either during the term of the policy [if insurance in India, the most notable legislation
the insured dies] or at the end of the term, if the was the Insurance Act, 1938. Subsequently,
insured is alive. Hence, in Endowment type of many provisions of the said Act have been
policies, investment portfolio becomes a very amended in December 2014 by an Ordinance
critical and crucial portfolio for a life insurance and the Insurance Laws [Amendment Act],
company. 2015 was gazetted on March 23, 2015. As per the
Short title and commencement, the amended
In Endowment type of policies, part of the
Act shall be deemed to have come into force on
premium is used as risk premium and the
26th Day of December, 2014.

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