Rajeshwar Nath Gupta filed an appeal against the decision of ABC Life Insurance Company relating to non-settlement of death claim of his sister's pension policy. The claimant stated that his sister had purchased a Deferr

What is an Annuity? Annuity is a Life insurance Policy which covers the risk of living longer as against a Pure Term Policy which covers the risk of dying early. Like Term Policy, mortality tables (which include survival rates for each age) is utilised to calculate the premiums payable under an Annuity Policy. Further, Annuity Policy also takes care of investment risk by guaranteeing monthly annuity amounts for longer periods. Thus Annuity Policy takes care of 2 risks: (a) Risk of living longer (Longevity risk) and (b) Risk of fall in interest rates (Investment risk). Thus under an Annuity Policy, in consideration of a lump sum, the Life insurer undertakes to pay a periodic usually fixed and monthly amounts, to the Annuitant till he/ she is alive. Types of Annuity: Fixed Rate Annuity: A fixed rate annuity is an annuity in which the insurance company agrees to pay a guaranteed amount of annuity based on the investment for life. Variable Annuity: A Variable Annuity means that the monthly income provided by the Policy may vary according to the actual investment experience of the insurer. Variable annuities are much like an investment in mutual funds because the variable annuities offer a collection of securities. The customer can decide how the investment will be allocated among the various choices. Equity Indexed Annuity: Equity indexed Annuity is an annuity that earns interest that is linked to a stock or other equity index. An equity-indexed annuity is different from other fixed annuities because of the way it credits interest. Equity- linked annuities credit interest using a formula based on changes in the index to which the annuity is linked. The formula decides who the additional interest, if any, is calculated and credited. Settlement options (Payment terms) under an Annuity Policy: Life Annuity: This is the most popular form of Annuity and under this option, the Annuitant receives a specified amount of income for his or her life, whether the period of the annuitant's life is 1 year or many years. Once the annuitant dies, there are no more payments to the state or family. Annuity Certain: Annuity Certain provides a specified amount of monthly income for a specified period of years, without consideration of any life contingency. IF an individual buys an annuity certain for 10 years, he is sure to get the annuity payments for 10 years if he is alive or if he dies during the period of 10 years, his beneficiary will receive the annuity for the residual period. Joint Life Annuity: Joint Life Annuity is issued on 2 individuals under which payments continue in whole or in part until both individuals die. It is also called Joint Life Last Survivor Annuity. Annuity with Return of Purchase Price: These are annuities which pay back the purchase price of the annuity after a certain period or on death as per the terms of the Policy. Increasing Annuity: Annuity increases at the rate of 1% or 2% or 3% per annum as the case may be and payable during the life of the annuitant. This is intended to take care of the increased cost of living. Insurable Interest in Life Insurance Policies: In Life insurance Policies, unlike general insurance policies, continuance of insurable interest is not necessary after the policy is issued and hence freely assignable. The principal of insurable states that the person getting insured must have insurable interest in the object of insurance. A person has an insurable interest when the physical existence of the insured object gives him some gain but its non-existence will give him a loss. In simple words, the insured person must suffer some financial loss by the damage of the insured object. Assignments and nomination under Insurance policies (Section 38 & 39 of Insurance Act, 1938): Assignments: Assignments are transfers of Insurance policies from Policy holder to another with or without a valid consideration. Nomination: Nomination is effected by the person taking the policy on his own life, to decide the person who will receive the benefits upon the death of the policyholder (since the policyholder will not be alive at that time). For minor nominees, a Guardian (called "appointee"), other than the policyholder himself, needs to be appointed. In order to be effective, the name of the nominee must be incorporated in the policy document itself, based on the name of the nominee mentioned in the Proposal form (application for life insurance). However, a nomination, if not made at the proposal stage, can be made by way of an endorsement in the policy by the Insurer subsequently, for which a notice has to be given by the Policyholder to the insurer. Upon receipt of such notice, the insurer shall register the nomination and make an endorsement on the Policy document. Similar process is adopted for change of nominations as well. An assignment under a policy shall automatically cancel a nomination subsisting on the date of assignment. This is because nomination is valid only for policies taken on one's own life. Upon assignment, the policyholder becomes a person different from life assured and assignee is the only person entitled to receive any benefit upon death of the life assured (assignor).