The basic elements of life insurance products, how the products are constructed. The different kinds of life insurance products offered. The rationales for the variations.
→ Life insurance products are usually referred to as plans of insurance. These plans have two basic elements. One is the “Death Cover” providing for the benefit being paid on the death of the insured person within a specified period. The other is the “Survival Benefit” providing for the benefit being paid on survival of a specified period.
→ Plans of insurance that provide only death cover are called “Term Assurance” Plans. Those that provide only survival benefits are called “Pure Endowment” Plans. If the insured does not die within the specified period, no payment is made under a term assurance plan. Similarly, if the insured dies within the specified period, no payment is made under a pure Endowment plan. The premiums paid may be returned. In full or partly. Both these are like fire insurance policies. If the specified contingency does not happen, the policyholder does not get anything from the insurer.
→ All traditional life insurance plans are combinations of these two basic plans. A term assurance plan with an unspecified period is called a “whole life policy” under which the sum Assured (SA) is paid on death, whenever it may occur. A term assurance plan along with a pure endowment plan, when offered as a single product is called an Endowment Assurance plan, under which the SA is paid on survival of the specified period or on earlier death.
→ A term assurance plan with a pure endowment plan of double the value is called a double Endowment Assurance plan under which the amount payable on survival is double the amount payable on death. What is called a money back or anticipated endowment policy, under which, say 20% of SA is paid on survival every five years and 40% on survival for 20 Years and full SA on death at any time within the 20 years, is effectively a combination of a term assurance plan for 20 years for full SA and 4 different pure endowment plans 20% SA for 5 years. 20% SA for 10 years, 20% SA for 15 years and 40% SA for 20 years.
→ In recent times. Linked policies have become popular. These are very different from the traditional plans of insurance. A traditional plan of assurance will have the following some of them, any number of plans can be developed.
→ Who can be insured? The various possibilities are individual adults, children two or more persons jointly under one policy.
→ What can be the SA? Some plans stipulate a minimum SA. There can be maximum limits also for SA as well as certain benefits, like accident benefits. In what contingency would the SA be payable? Could be on death or on survival.
→ When would the SA be payable? On the contingency happening or some other dates. How would the SA be payable? Could be in one lump sum or in installments.
→ What would be the term duration of the policy? This determines the period during which the specified event should occur for the SA to be payable. Some plans provide for benefits even beyond the term.
→ When would the premium be payable? Variations are in the frequency of payment monthly, quarterly, half yearly or yearly, as well as the period during which it is payable. Some plans provide for premiums to be paid for a period less than the term.
→ Does the SA increase? This can happen because of participation in surpluses and bonus additions or because of guaranteed increases in SA.
→ Are there additional benefits? These, also called supplementary benefits and may be provided by way of riders, in addition to the basic covers.