Differences Between Term and Permanent Life Insurance

Life insurance is an essential financial product with the life of the insured being the subject of protection. There are two types of life insurance: term and permanent. Term life insurance begins a low premium that increases upon renewal and pays a death benefit to the beneficiaries only if the insured dies within the policy term. On the other hand, permanent life insurance has a fixed premium and is designed to offer coverage for the insured’ s entire life. Both the insurance company will pay a death benefit to the designated beneficiary after the death of an insured. Although term and permanent life insurance behave as protections to ensure the beneficiary’s benefit, they have different features: convertibility, cost, and cash surrender value.… Read the rest

Difference Between Defined Benefit and Defined Contribution Pension Schemes

Pension is a fund that is built during the working life of the employee and then used to secure the income after retirement. These funds can be operated by employer (occupational pension) who invests over time or alternatively employee can invest in a fund of their choice (private pension scheme). Both of these schemes generate income after retirement.

Pension schemes are of two major types:

  1. Defined Benefit Scheme
  2. Defined Contribution Scheme
1. Defined Benefit Scheme

Defined benefit scheme is a type of pension scheme which ensures a particular level of income/benefit after retirement. Most of the cost of the benefit and risk of the investment is borne by the employer however in the contributory define benefit scheme employees also make compulsory contributions.… Read the rest

Understanding the Insurance Underwriting Process

In order for the insurance companies to make profit and charge the appropriate rate for an insured, they undergo the underwriting process. In simpler words, insurance underwriting is a process of risk classification. The purpose of insurance underwriting is to spread risk among a pool of insured in a way that is both profitable for the insurer and fair to the customer. Insurance companies need to make a profit like many other businesses. Therefore, it doesn’t make sense if they sell insurance for everyone who applies for it. They may not want to charge an excessive high rate to the customer and also it is not good for them to charge the same premium to every policyholder.… Read the rest

Catastrophe Bonds or CAT Bonds

Catastrophe Bonds (or CAT Bonds) are high-yield, risk-linked securities used to transfer explicitly to the capital markets major catastrophe exposures such as low  probability disastrous losses due to hurricanes and earthquakes.  It has a special condition that states that if the issuer (Insurance or Reinsurance Company) suffers a particular predefined catastrophe loss, then payment of interest and/or repayment of principal is either deferred or completely waived.  These bonds were first introduced as a solution to problems resulting from traditional  insurance market capacity constraints, excessive insurance premia, and insolvency risk  due to catastrophic losses.

Catastrophe Bonds or CAT Bonds are complex financial tools which transfer peril specific risks  to the capital markets instead of an insurance company.

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Bancassurance – Meaning, Need and Advantages

With the opening up of the insurance sector and with so many players entering the Indian insurance industry, it is required by the insurance companies to come up with innovative products, create more consumer awareness about their products and offer them at a competitive price. New entrants in the insurance sector had no difficulty in matching their products with the customers’ needs and offering them at a price acceptable to the customer. But, insurance not being an off the shelf product and one which requiring personal counseling and persuasion, distribution posed a major challenge for the insurance companies. Further insurable population of over one billion spread all over the country has made the traditional channels of the insurance companies costlier.… Read the rest

Group Insurance

Under the  Group Insurance Scheme, the principle involved is more or less same as in the case of Life Insurance but  the scheme is taken for a group of persons employed in an undertaking. In this scheme, the contract of life  insurance can be summed up as an undertaking to pay specified amounts of money on the happening of  certain contingencies in exchange for a previously agreed series of payments called premiums. This  contract is between an employer and the Insurance Company and the contingencies where the death of  employee in service or on survival to the retirement date. In the latter event the employer would possibly  want some pension to be given for the post retirement life time of the employee.… Read the rest