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Life insurance is an important step considering our personal financial commitments. We decide to pay a certain amount of money as a premium to purchase a long-term plan as life insurance. We expect a considerable sum assured for the same. However, we are not conclusive about how the premium amounts paid are used by the life insurance companies. Knowledge about this information is necessary to purchase an insurance policy with confidence.
Why do Insurance Providers invest money?
Insurance providers use the money to ensure their responsibility and growth. Here are a few considerations that help us understand better:
- Liquidity – Insurance companies have the primary responsibility of settling the insurance claim of the customers. Therefore, the money invested by the company should have the provision to get converted to cash as the situation demands.
Tata AIA Life Insurance Company has always proved to stand successful against such responsibilities by settling claims timely and appropriate. Also, in specific plans such as Guaranteed1 Return Plans and Unit Linked Insurance Plans (ULIP), the returns are guaranteed1 on maturity. The company should confirm sufficient liquidity to work on these processes.
- Profitability – Companies should seek profits in the business to have the finest policies to satisfy the customers and reduce the cost of insurance. To ensure this, they have to withstand the competitive environment for investments, develop technology for customer service and secure the business.
The insurance companies in India will diversify and invest on different platforms to safeguard the money received through insurance purchases and increase the rate of return.
- Safety – Companies invest money to grow the money to settle customer claims and ensure security. The money should be placed in safe havens to instil confidence among the customers.
Where do Insurance Companies invest the insurance money?
The Insurance Regulatory and Development Act, 1999 and further amendments were introduced to guide the insurance companies on the investment of premiums earned. It was done to promote the sole purpose of insurance and safeguard the interests of the insurers and the customers. The IRDAI has detailed the regulations for the investment of money.
The companies can invest money earned from premium amounts in stocks, debentures etc., listed by the IRDAI up to a certain percentage based on the insurance.
ULIPS - unique investment plans for customers
There are distinct investment-insurance plans, such as the Unit Linked Insurance Plan (ULIP) for the clients, offering dual benefits. One portion of the premium received goes to purchase a life cover, and the rest is invested in equity, debt or hybrid funds. It will be a direct investment source for the customer.
The company will detail a list of funds that the customer can choose from, to enhance wealth creation. It is a long-term investment plan, wherein the first five years go for insurance coverage, and the latter is for investments. It has a lock-in period of 5 years, which means funds can be withdrawn only after five years.
The customers can switch between the funds anytime during the policy tenure. Debt funds are less risky, whereas equity funds offer better returns, although the risk level is also more. Hybrid funds have a balance between risk and return. ULIPs have tax* advantages. The investment made in ULIP qualifies for tax deduction according to Section 80C, and the returns are exempted according to Section 10 (10D) of the Income Tax Act, 1961.
Tata AIA Life Insurance ULIPs
Tata AIA Life Insurance ULIPs provide life cover and attractive wealth generation avenues.
Conclusion
We have seen that insurance companies take secure, effective and confident methods to invest the money that we have paid to purchase insurance plans. They do so to grow their business, pay our claims appropriately and engage in wealth creation. As the steps taken by the insurance companies are well regulated by the Insurance Regulatory and Development Authority, we can rely on the insurance providers for insurance claims at any time. Thus, based on the company profile, and the insurance company's growth prospects, you can always make a smart and safe term life insurance investment in India.
L&C/Advt/2022/Dec/3096
