VARIOUS TYPES OF LIFE INSURANCE PRODUCTS Learning Objectives: To understand the various types of Insurance products that are offered by Insurance companies in the modern times.

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7.1 INTRODUCTION • As per Insurance Act, 1938, Life Insurance business means the business of effecting contracts of insurance upon human life, including any contract whereby the payment of money is assured on death ( accept death by accident only) or on happening of any contingency dependent on human life, and any contract which is subject to payment of premiums for a term dependent on human life and shall be deemed to include: • (a) the granting of disability and double and triple indemnity accident benefits, if so provided in the contract of insurance • (b) the granting of annuities upon human life and • (c) the granting of superannuation allowances and annuities payable out of any fund applicable solely to the relief and maintenance of persons engaged or who have been engaged in any particular profession, trade or employment or of the dependents of such persons. Chapter 7 Various types of Life Insurance Products

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Modern insurance products • A life insurance policy is not only a tool of protection from uncertainties but the modern insurance products also offer various elements of investment. • Term plans are typically low cost insurance plans that provide full protection and financial stability to the loved ones in case of any unforeseen events. Chapter 7 Various types of Life Insurance Products

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7.2 Types of Insurance Products

• Life Insurance policies can be categorized on the basis of various factors like: • (a) Duration of policy: • (b) Method of premium payments • (c) Participation in profit • (d) Number of lives covered • (e) Method of payment of claim amounts • (f) Non-conventional policies • (g) Insurance policies based on various stages of life • (h) Insurance policies based on protection needs Chapter 7 Various types of Life Insurance Products

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7.3 Term Plans • Term plan policies are the are the simplest form of insurance plans and are considered to be the cheapest polices. In this plan the life insurance company promises to pay a specified amount (sum insured) if the insured dies during the term of the plan. • If the life insured survives the entire duration of the plan then they will not be entitled to anything, meaning that there is no maturity benefit with such policies. Chapter 7 Various types of Life Insurance Products

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7.3 Term Plans contd. • A term insurance policy, charges you only for the cost of insurance. , Term plan policies are offered for a specified term. • Normally the term starts from 5 years and runs to 10, 15, 20, 25, 30 years or any other term chosen by the insured and agreed by the insurer.

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Main features of Term Plans • 1. Life insurance company promises to pay a specified amount (sum insured) if the insured dies during the term of the plan. • 2. If the life insured survives the entire duration of the plan then they will not be entitled to any maturity benefits

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Pure term plan • The simplest and cheapest of all, this one pays a fixed sum assured on the death of the policyholder. • However, if the policyholder survives the term, he gets back nothing. The premium on term plans depends on three factors: age, term of the policy and the sum assured you choose. • Even as term plans are the cheapest insurance product you get a further discount by buying them online. Chapter 7 Various types of Life Insurance Products

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Return of premium plan • Return of premium plans are slightly more expensive policies since they promise a return of premium. • The policyholder gets the part of the premium, or the entire premium, from the insurance company according to the terms of the policy. • Return of premium at the end of the term, but if the insured dies mid way, the nominee gets the sum assured. In another variant of term insurance plans, some companies also pay some interest along with the premium on the maturity of the plan if the life insured survives until maturity. Chapter 7 Various types of Life Insurance Products

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Decreasing plan • In this plan, the sum assured decreases every year, as does your outstanding loan amount, especially in mortgage products. • The premiums on these plans are lower than that of a level term plan since every year the sum assured decreases. • The amount of premium gets added to the total debt liability, which is paid by the borrower through an increased EMI. Chapter 7 Various types of Life Insurance Products

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Increasing plan • In this plan, the amount of cover increases by about 5% every year until the sum assured increase by 50% or doubles up in value. • The premiums are on the higher side as the insurer puts more money at risk every year.

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Convertible plans • This plan combines the benefits of a term plan with a savings plan. • Here, initially the insured buy’s a term plan, which can be converted into an investmentcum-insurance plan later. • The premium may change at the time of conversion.

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Renewable plans • This plan enables the policy holder to renew the term policy at the expiry of the term without additional period medical examination. • The premium may change according to the age attained at the time of renewal. This policy is suitable for those whose health is deteriorating and will be uninsurable at an advanced age. Chapter 7 Various types of Life Insurance Products

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PRADHAN MANTRI JEEVAN JYOTI BIMA YOJANA • Offers life insurance cover for death due to any reason. • The scheme will be a one year cover, renewable from year to year and would be would be offered / administered through LIC and other Life Insurance companies willing to offer the product on similar terms with necessary approvals and tie ups with Banks for this purpose. • Participating banks will be free to engage any such life insurance company for implementing the scheme for their subscribers. All savings bank account holders in the age 18 to 50 years in participating banks will be entitled to join. Chapter 7 Various types of Life Insurance Products

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PRADHAN MANTRI JEEVAN JYOTI BIMA YOJANA contd. • Benefits: Rs.2 lakhs is payable on member’s death due to any reason. • Premium: Rs.330/- per annum per member. The premium will be deducted from the account holder’s savings bank account through ‘auto debit’ facility in one installment, as per the option given, on or before 31st May of each annual coverage period under the scheme. • Master Policy Holder: Participating Banks will be the Master policy holders. A simple and subscriber friendly administration & claim settlement process shall be finalized by LIC / other insurance company in consultation with the participating bank.

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PRADHAN MANTRI JEEVAN JYOTI BIMA YOJANA contd. • • • •

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Termination of assurance: The assurance on the life of the member shall terminate on any of the following events and no benefit will become payable there under: 1) On attaining age 55 years (age near birth day) subject to annual renewal up to that date (entry, however, will not be possible beyond the age of 50 years). 2) Closure of account with the Bank or insufficiency of balance to keep the insurance in force. 3) In case a member is covered under PMJJBY with LIC of India / other company through more than one account and premium is received by LIC / other company inadvertently, insurance cover will be restricted to Rs. 2 Lakh and the premium shall be liable to be forfeited. 4) If the insurance cover is ceased due to any technical reasons such as insufficient balance on due date or due to any administrative issues, the same can be reinstated on receipt of full annual premium and a satisfactory statement of good health. 5) Participating Banks shall remit the premium to insurance companies in case of regular enrolment on or before 30th of June every year and in other cases in the same month when received.

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PRADHAN MANTRI JEEVAN JYOTI BIMA YOJANA contd. • Appropriation of Premium: • 1) Insurance Premium to LIC / insurance company : Rs.289/- per annum per member • 2) Reimbursement of Expenses to BC/Micro/Corporate/Agent : Rs.30/- per annum per member • 3) Reimbursement of Administrative expenses to participating Bank: Rs.11/- per annum per member Chapter 7 Various types of Life Insurance Products

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7.4 Endowment Plans • An Endowment Plan is designed to pay back a lump sum amount after a specified term or on death of the policyholder. It provides a living benefit to the policyholder as periodic payouts along with insurance coverage. • It pays back the face value to the insured either at death or after certain years of the premium payment. Chapter 7 Various types of Life Insurance Products

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7.4 Endowment Plans contd. • An endowment plan allows the policyholder to add riders for critical illnesses, major surgical assistance, etc. • Policies are typically traditional with-profits or unit-linked (including those with unitized withprofits funds). Endowments can be cashed in early (or surrendered) and the holder then receives the surrender value which is determined by the insurance company depending on how long the policy has been running and how much has been paid into it. Chapter 7 Various types of Life Insurance Products

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Pure endowment plan • Pure endowment plan is the opposite of a term insurance plan. • In this plan the life insurance company promises to pay the life insured a specified amount (sum insured) only if they survive the term of the plan. • If the life insured dies during the tenure of the plan then they will not be entitled to anything. This plan offers only maturity benefit in the event of the life insured surviving the entire tenure of the plan. There is no death cover. • A pure endowment plan has the elements of investment and grants protection against living long. It can be a great boon for old age protection. This policy can be useful for persons who do not want to undergo medical examination. Chapter 7 Various types of Life Insurance Products

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Endowment insurance plan • Endowment insurance plan is a combination of a term insurance plan and a pure endowment plan. • It offers death cover if the life insured dies during the term of the policy or survival benefit if the life insured survives until the maturity of the policy. • Thus this policy serves both purposes i.e. family protection and the investment. • The term of the policy is specified and the sum assured is payable either on the life assured’s death during the period or on his survival to the end of the period. • Premiums are paid throughout the term of the policy or to a limited period or till the death of the life assured. Chapter 7 Various types of Life Insurance Products

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Participating and non-participating policies • Most endowment policies have a savings element included in the premium. This amount is invested by the insurance company on behalf of the policyholders and earns a profit on it which is again distributed back to the policyholders in the form of bonuses. • Such plans where the policyholders are entitled to participate in the profits of the insurance company are known as ‘with-profits’ plans or ‘participating’ plans. Most endowment, moneyback and whole life plans are participating plans. Chapter 7 Various types of Life Insurance Products

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Endowment - Without profit or Term products • Endowment - Without profit products offer the nominee the sum assured only, upon death of the insured. • Upon surviving the term of the policy or upon maturity, the insured may receive the sum assured or a portion of the sum assured or a refund of the premium only. Typically, such policies are low-cost policies. Chapter 7 Various types of Life Insurance Products

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Endowment with profit policies • Upon death of the insured, the nominee receives sum assured plus bonus for the number of years the policy was in force. • Upon surviving the term of the policy or upon maturity, the insured receives sum assured plus bonus for the term of the policy. The amount receivable upon maturity is tax-free. • Many people prefer to buy such policies for terms that mature during their retirement period. Often, the maturity amount is utilized to supplement the pension income (pension income is taxable). Chapter 7 Various types of Life Insurance Products

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Joint Life Endowment Policy • A Joint Life Endowment Policy covers more than one life under a single policy. The sum assured is payable on the expiry of the term or on the death of one of the assured lives during the endowment period. • The premium is calculated with some modification according to the age of all insured partners. This policy is suitable and beneficial the to partners of a firm and a couple. The ceiling on the sum assured is determined by the earned income and previous insurance held. Chapter 7 Various types of Life Insurance Products

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Double Endowment Policy • 1. If the life assured dies during the endowment period, the basic sum assured is payable • 2. If the life assured survives to the end of the term, double of the sum assured is payable. • 3. Premiums are quoted according to the endowment period, irrespective of the age at entry. • 4. Maturity age is not beyond 65 • 5. Beneficial to the person who are confident of living long but would like to have some cover in the event of their death. Chapter 7 Various types of Life Insurance Products

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Triple Benefit Plan • 1. Guaranteed and steadily increasing family provision during the selected period along with old age • 2. Premiums are payable throughout the term or till the death of the life assured • 3. The provision for the family does not terminate when the old age benefit is paid at the end of the period. • 4. If the death occurs within the stipulated period, the sum assured is payable to the dependents along with a guaranteed bonus per annum for each year’s premium paid excluding the first year’s premium. • 5. On survival to the selected term, the basic sum assured is paid along with a paid up whole life assurance for a like amount payable at death thereafter. Chapter 7 Various types of Life Insurance Products

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Fixed Term Marriage Endowment Plan • 1. The sum assured is payable at the end of a stipulated period. • 2. Premium payment ceases after the death of the policy holder during the policy period, but the policy will remain fully paid until the maturity date • 3. This plan is issued without profit basis • 4. Suitable for those who want to make a provision of certain sum for marriage of a female dependent. • 5. There is loan available under this plan. Chapter 7 Various types of Life Insurance Products

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Education Annuity Plan • 1. Premium needs to be paid till maturity or earlier death. • 2. There are inbuilt benefits like Premium Waiver Benefit and Accidental Death Benefit. • 3. There are additional riders like Critical Illness Benefit and Term Benefit riders. • 4. The sum assured is payable in equal installments over a period of time • 5. Installments are payable in half yearly installments for a specified term • 6. Suitable for those who want to make a provision for the education of children • 7. The father or guardian undergoes a medical examination Chapter 7 Various types of Life Insurance Products

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Progressive protection Plan with profits • 1. Provides additional insurance benefits for additional responsibilities • 2. Only first class lives are accepted under this plan • 3. This policy will be deemed to be for double the sum assured for non medical scheme • 4. The sum assured increases automatically by half the initial sum assured at the end of five years and again half the initial sum assured at the end of ten years, irrespective of the state of health of the policy holder at that time. • 5. Premiums will be payable for the initial sum assured for the first five years and at the end of five years and again at the end of ten years, the premiums will increase with the increase in the sum assured. • 6. Bonus will be paid at the end of the selected term or at the death of the life assured • 7. Maximum age at entry is 45 years and the maturity age is 65 years

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Mortgage Redemption Assurance Policy The Mortgage Redemption Assurance policy (without profits) plan is

• 1. designed to meet the requirements of the policy holding individual who seeks to ensure that all his outstanding loans and debts are automatically paid up in the event of his demise. • 2. The policies are usually issued only to male lives aged 50 years or lesser and the proponent has to undergo a medical examination. • 3. The insurance cover would not extend beyond 65 years and all loans must be liquidated by the time the borrower attains the age of 65 • 4. The policies bear no surrender value. • 5. Survival benefits are nil but all outstanding loans declared at the beginning of the financial year would be payable on death of the life assured. • 6. The minimum sum assured is Rs50000 and maximum sum assured will be Rs.10 lakhs • 7. No loan is available on a Mortgage Redemption Assurance Policy. • 8. Middle-aged to elderly professionals whose dependents might need assistance in clearing their debts in case of their unexpected demise are most suited for the Mortgage Redemption Assurance policy. Chapter 7 Various types of Life Insurance Products

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Children’s Deferred Endowment Assurance Plan • 1. A parent or a guardian or near relative of a child takes an insurance policy on the life of the child under which the premium is paid by the proposer during the first few years and by the life assured thereafter. • 2. This endowment plan allows payment of a lower premium period since the premium paying period is significantly more. • 3. An assurance for a relatively large amount is secured for the child, at a substantially small premium amount • 4. An option is available as regards the age at commencement of risk on the life of the child which may be 18 years (complete) or 21 years (complete). On the deferment date the child should have attained majority. • 5. The period from the commencement of the policy to the age at which it vests i.e. risk commences, is called Deferred period

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Children’s Deferred Endowment Assurance Plan contd. • 6. On expiry of deferred period the policy automatically vests on life assured. The life assured receives the full sum assured on survival to date of maturity or on early death • 7. No medical exam is required where the deferment period is 10 years or more. • 8. In case the child happens to die before the deferred date i.e. before the policy vests, the premiums paid are refunded. • 9. In case, the proposer i.e. the parent happens to die during the deferment period, the policy has to be continued by regular payment of premiums. The policy allows a waiver of premiums on the death of the proposer by payment of an additional premium. • 10. Before the expiry of the deferred period, the proposer can receive the cash option available under the policy by making a request in writing.

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What is a Money Back plan? • Money-back policies combine the dual benefits of savings and insurance, and are somewhat similar to endowment plans in terms of features. • Unlike endowment plans, in money back policies, the policy holder gets “periodic partial payments" during the term of the policy and a lump sum amount on surviving its term in fixed proportions or variable proportions during the policy term as per the terms and conditions of the policy. In the event of death during the term of the policy, the beneficiary gets the full sum assured, without any deductions for the amounts paid till date, and no further premiums are required to be paid. • These type of policies are very popular, since they can be tailored to get large amounts at specific periods as per the needs of the policy holder. The benefits received by the policyholder at specific intervals are tax-free according to prevailing tax laws. Chapter 7 Various types of Life Insurance Products

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7.5 Whole Life Policies • Whole life insurance, is a life insurance policy which is guaranteed to remain in force for the insured's entire lifetime, provided required premiums are paid, or to the maturity date. The life assured cannot get the policy amount during his life time, but his dependents will get the benefits of this policy. • The death benefit of a whole life policy is normally the stated face amount. However, if the policy is "participating", the death benefit will be increased by any accumulated dividend values and/or decreased by any outstanding policy loans Chapter 7 Various types of Life Insurance Products

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7.6 Survivorship Plans • Survivorship policies insure two lives, typically a husband and wife, under one life insurance policy and pays a death benefit on the death of the surviving insured. The Death Benefit is generally used to help pay estate taxes and other estate settlement costs. • The sum assured is payable if the life assured dies before another specified person or counter life. If the counter life dies first, nothing is payable and the contract ceases. • The rate of premium depends upon the age of the insured and counter life. Chapter 7 Various types of Life Insurance Products

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7.7 Single Premium Policy • Single-premium policy is a type of life insurance policy in which a lump sum of money is paid into the policy at the beginning of the policy, in return for a death benefit that is guaranteed to remain paid-up until you die. • The single premium is costlier in comparison to annual premium payable, but as compared to aggregate of all annual premium payable, it is much smaller. Insurer has the advantage in receiving all the premium in advance and can earn additional income on the advance receipt of premiums. • These type of policy can be afforded by those who have a lumpsum income to spare.

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7.8 Level premium policy • A type of term life insurance for which the premiums remain the same throughout the duration of the contract. • Level premium is lesser than single premium as it is spread over the entire period. • The equal installments can be paid monthly, quarterly, half yearly and yearly. • The level premium does not increase with age but remains constant throughout the contract period. Chapter 7 Various types of Life Insurance Products

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7.9 Policies according to the number of persons insured • (i) Single Life Policy : A 'single' life insurance policy covers one person only, and pays out the chosen amount of cover if that person dies during the length of the policy. • (ii) Multiple Life Policy: • (a) Joint Life Policy : A 'joint' life insurance policy cover two lives, usually on a 'first death' basis. This means the chosen amount of cover is paid out if the first person dies, during the length of the policy, after which the policy would end. • (b) Last survivorship Policy : Under Last survivorship Policy, the claim amount is not paid till the last death which means so long as any one of the insured is alive, no payment is made. Chapter 7 Various types of Life Insurance Products

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7.10 Policies according to the payment of claim/policy amount • A formal request to an insurance company asking for a payment based on the terms of the insurance policy happens after the happening of the insured event defined in the policy or at the maturity of the policy. • Accordingly the policy amount may be paid in lumpsum or in installments. Policy amount is generally paid in lumpsum after the happening of the event defined in the policy or at the maturity of the policy. However if the policy amount is payable in installments for the benefit of the insured in old age, such policies are generally termed as annuity policies. Chapter 7 Various types of Life Insurance Products

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7.11 Non-Conventional Policies • The conventional or traditional policies focus more on attributes of protection at early death or living too long. • The non-conventional policies or nontraditional plans are not bound by traditional methods of underwriting; because they are marketed to a specific category of people. Lots and innovation and creativity is injected to design and market non-conventional policies e.g newer plans may not insist of medical exams, may take higher risk, provide graded benefits and guarantees etc Chapter 7 Various types of Life Insurance Products

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VARIOUS TYPES OF LIFE INSURANCE PRODUCTS With this, we complete our session on Chapter 7 VARIOUS TYPES OF LIFE INSURANCE PRODUCTS

Next, we move to Chapter 8 Special types of Insurance Plans Chapter 7 Various types of Life Insurance Products

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