Page 44 - IC23 life insurance application

In the western countries, particularly USA the insurance companies keep the basic

benefits of a plan extremely minimum. The prospect is given the option to select

certain extra benefits, like double cover on death, and/or health cover or survival

benefit after a certain period. These subsequent additional benefits are called riders

and each one costs additional premium. There are plans available which are so

flexible that one can change the proportion of risk element and investment element

from time to time during the duration of a policy. Many experts think that these are

merely gimmicks and rarely exercised by a policyholder. However the cost for such

flexibility remains in built.

In case of pension plans, the premium or what is called consideration for annuity,

also has a mortality content, in as much as the annuity stops on death. Many

annuitants feel the need of a plan, where annuity should be paid during life time, but

the capital or the cash option should be returned to the nominee on death of the

annuitant. When seen in the background of the Indian ethos with a strong bias for

family bondage, such a need can be easily understood.

LIC has therefore, revised the premium of most of the existing annuity plans with the

option of return of capital and consequently revised the premium upward.

Annuity amount also depends upon whether the annuity is to be paid for life or

guaranteed for a certain period and thereafter for life. Guarantee, as said above

comes at a cost. Therefore greater the period of guaranteed annuity payment, lesser

is the annuity amount.

Annuity rate has a strong interest content and therefore is likely to be revised after a

certain period. It is therefore wise to opt for annuity rate at the prevailing rate.

Copyright Dr Rakesh Agarwal Sashi Publications Private Limited

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