1. Report on
DIFFERENT TYPES OF POLICIES IN INDIA
Term life insurance or term assurance is life insurance that provides coverage
at a fixed rate of payments for a limited period of time, the relevant term. After
that period expires, coverage at the previous rate of premiums is no longer
guaranteed and the client must either forgo coverage or potentially obtain
further coverage with different payments or conditions. If the life insured dies
during the term, the death benefit will be paid to the beneficiary. Term
insurance is the least expensive way to purchase a substantial death benefit on a
coverage amount per premium dollar basis over a specific period of time.
Term life insurance can be contrasted to permanent life insurance such as whole
life, universal life, and variable universal life, which guarantee coverage at fixed
premiums for the lifetime of the covered individual unless the policy owner
allows the policy to lapse. Term insurance is not generally used for estate
planning needs or charitable giving strategies but is used for pure income
replacement needs for an individual. Term insurance functions in a manner
similar to most other types of insurance in that it satisfies claims against what is
insured if the premiums are up to date and the contract has not expired, and does
not provide for a return of premium dollars if no claims are filed. As an
example, auto insurance will satisfy claims against the insured in the event of an
accident and a home owner policy will satisfy claims against the home if it is
damaged or destroyed by, for example, a fire. Whether or not these events will
occur is uncertain. If the policy holder discontinues coverage because he has
sold the insured car or home, the insurance company will not refund the full
premium. This is purely risk protection.
2. A term insurance policy is a pure risk cover policy that protects the
person insured for a specific period of time. In such type of a life
insurance policy, a fixed sum of money called the sum assured is paid to
the beneficiaries (family) if the policyholder expires within the policy
term. For instance, if a person buys a Rs 2 lakh policy for 15 years, his
family is entitled to the sum of Rs 2 lakh if he dies within that 15-year
If the policy holder survives the 15-year period, the premiums paid are
not returned back. The advantage, apart from the financial security for an
individual’s family is that the premiums paid are exempt from tax.
These insurance policies are designed to provide 100 per cent risk cover
and hence they do not have any additional charges other than the basic
ones. This makes premiums paid under such life insurance policies the
lowest in the life insurance category.
AIMS AND OBJECTIVES
Depending on their objectives, there are at least three types of life insurance
A life insurance policy could offer pure protection (insurance), another variant
could offer protection as well as investment while some others could offer only
investment. In India, life insurance has been used more for investment purposes
than for protection in one’s overall financial planning.
Let us check to see the different types of life insurance policies in India.
Pure Insurance Products
3. Term Plans
Unfortunately, in the pure insurance category, there is only one product
available which is called term insurance. Term insurance policy covers only the
risk of your dying. You pay premium year on year to the insurance company
and if you die, the insurance amount, called the Sum Assured, is paid out to the
nominees. If you survive, you don’t get anything and lose the yearly premiums
As the name goes, these are plans that provide insurance and along with it
return on investments.
Take a term plan and add an offer of some returns on the premiums you pay –
that is an endowment policy for you. If you survive the policy term, you get the
sum assured plus the returns and if you die during the policy tenure, you still get
the sum assured plus some returns. To get these returns along with the life
cover, you end up paying more premium.
Without-profit endowment plans : These plans do not participate in the
profits the insurance company makes each year. Apart from the sum assured,
you could possibly get a loyalty bonus, which is a onetime payout made in
appreciation of your sticking to the insurance company.
With-profit endowment plans : These plans share the profits the insurance
company makes each year with the policyholder. So they offer more returns
than without-profit endowment plans and are more expensive as well – that it,
for all parameters considered same, the premiums will be higher than without-
profit endowment plans.
4. Money-back plans
Money-back plans are variants of endowment plans with one difference – the
payout can be staggered through the policy term. Some part of the sum assured
is returned to the policy holder at periodic intervals through the policy tenure. In
case of death, the full sum assured is paid out irrespective of the payouts already
Term plans, endowment plans and money back plans offer insurance cover till a
specified age, generally 70 years. Whole-life plans provide cover throughout
your life. Usually, the policyholder is given an option to pay premiums till a
certain age or a specified period (called maturity age).
On reaching the maturity age, the policyholder has the option to continue the
cover till death without paying any premium or encashing the sum assured and
Unit-linked insurance plans (ULIP)
In all the above mentioned insurance-cum-investment products, you have no say
on where your money is invested. To keep your money safe, most of these
products will invest in debt. Unit-linked insurance plans give you greater
control on where your premium can be invested.
IMPORTANCE OF TOPIC
Insurance is an integral part of any personal financial plan. The type of
insurance and the amount of coverage you obtain all depends on your unique
financial and family circumstances, and must be evaluated carefully. When
considering purchasing coverage, you should review all the potential risks and
the financial impact of these risks on your financial health. This will help you
5. determine what options to look for and what questions to ask. What you need to
keep in mind is that you do not want to be underinsured or overinsured, which
means you have to do your homework before you buy. And as with any type of
financial product, you must read the fine print and consult with a competent
Let's review what we've learned:
Insurance is a form is risk management in which the insured transfers the
cost of potential loss to another entity in exchange for monetary
compensation known as the premium.
Insurance works by pooling risks. Because the number of insured
individuals is so large, insurance companies can use statistical analysis to
project what their actual losses will be within the given class. This allows
the insurance companies to operate profitably and at the same time pay
for claims that may arise.
Underwriting is the process of evaluating the risk to be insured. This is
done by the insurer when determining how likely it is that the loss will
occur, how much the loss could be and then using this information to
determine how much you should pay to insure against the risk.
The insurance contract is a legal document that spells out the coverage,
features, conditions and limitations of an insurance policy.
Property and casualty insurance is insurance that protects against property
losses to your business, home, or car and/or against legal liability that
may result from injury or damage to the property of others. This type of
insurance can protect a person or a business with an interest in the insured
physical property against losses.
6. An auto insurance policy typically covers you and your spouse, relatives
who live in your home and other licensed drivers to whom you give
permission to drive your car.
Homeowners insurance typically covers the dwelling (the structure),
personal property and contents, and some forms of personal liability. The
policy may cover direct and consequential loss resulting from damage to
the property itself, loss or damage to personal property, and liability for
unintentional acts arising out of the non-business, non-automobile
activities of the insured and members of that insured's household.
Umbrella insurance helps you protect your assets if you are sued.If you
are worried that the liability insurance coverage you have through your
auto or property policies is still not enough, you can consider adding an
Health insurance is a type of insurance that pays for medical expenses in
exchange for premiums. The way it works is that you pay your monthly
or annual premium and the insurance policy contracts healthcare
providers and hospitals to provide benefits to its members at a discounted
An indemnity plan, sometimes called a fee-for-service plan, is a type of
insurance that reimburses you according to a schedule for medical
expenses, regardless of who provides the service.
The HMO is the most common type of insurance policy people own and
the one most frequently provided by employers. HMOs provide a wide
range of comprehensive healthcare services to a group of subscribers in
return for a fixed periodic payment.
PPOs are a group of healthcare providers that contract with an insurance
company, third-party administrators, or others (like employers) to provide
medical care services at a reduced fee.
7. A point of service plan is a hybrid plan that combines aspects of an
HMO, PPO and indemnity plan. This type of plan is more flexible in that
it allows you to decide at the time you need services to elect to use the
POS plan's physician to arrange in-network care (HMO feature), or to go
outside the network or hospital and pay a higher portion of the cost.
Disability insurance can replace a portion of the salary you were making
before you became disabled and unable to work after a serious injury or
Disability insurance providers rate their premiums based on your job and
the level of risk involved in doing that job.
The reason to buy long term care insurance is to protect your assets in
case you need to pay for assisted living, home care or a nursing home
Life insurance provides you with the opportunity to protect yourself and
your family from personal risk exposures like repayment of debts after
death, providing for a surviving spouse and children, fulfilling other
economic goals (such as putting your kids through college), leaving a
charitable legacy, paying for funeral expenses, etc.
Whole life insurance provides guaranteed insurance protection for the
entire life of the insured, otherwise known as permanent coverage. These
policies carry a "cash value" component that grows tax deferred at a
contractually guaranteed amount (usually a low interest rate) until the
contract is surrendered.
Universal life insurance, also known as flexible premium or adjustable
life, is a variation of whole life insurance. Like whole life, it is also a
permanent policy providing cash value benefits based on current interest
Variable life insurance is designed to combine the traditional protection
and savings features of whole life insurance with the growth potential of
8. investment funds. This type of policy is comprised of two distinct
components: the general account and the separate account. The general
account is the reserve or liability account of the insurance provider, and is
not allocated to the individual policy. The separate account is comprised
of various investment funds within the insurance company's portfolio,
such as an equity fund, a money market fund, a bond fund, or some
combination of these.
METHOD AND METHODOLOGY
Because term life insurance is a pure death benefit, its primary use is to provide
coverage of financial responsibilities for the insured or his or her beneficiaries.
Such responsibilities may include, but are not limited to, consumer debt,
dependent care, university education for dependents, funeral costs, and
mortgages. Term life insurance may be chosen in favor of permanent life
insurance because term insurance is usually much less expensive (depending
on the length of the term), even if the applicant is an everyday smoker. For
example, an individual might choose to obtain a policy whose term expires near
his or her retirement age based on the premise that, by the time the individual
retires, he or she would have amassed sufficient funds in retirement savings to
provide financial security for the claims.
Payout likelihood and cost difference
Both term insurance and permanent insurance use the same mortality tables for
calculating the cost of insurance, and provide a death benefit which is income
tax free. However, the premium costs for term insurance are substantially lower
than those for permanent insurance.
The reason the costs are substantially lower is that term programs may expire
without paying out, while permanent programs must always pay out eventually.
9. To address this, some permanent programs have built in cash accumulation
vehicles to force the insured to "self-insure", making the programs many times
Pension plans are investment options that let you set up an income stream in
your post retirement years by giving away your savings to an insurance
company who invests it on your behalf for a fee. The returns you get depends on
a host of factors like how much you contributed and when is it that you started,
the number of years when you want the money to come to you and at what age
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. (see example below) Certain riders, such as Accidental Death benefit may
exist, which would potentially increase the benefit.
Hypothetical claims example
A person buys a whole life policy in 1974 at age 30, and names his or her
spouse as beneficiary. The person dies in 2004
Policy face amount $25,000 (includes cash value of $12,242)
Less outstanding loan - 8,144 ($5,000 loan, plus 10 years interest)
Plus dividend values + 16,300 (per original scale... actual dividends were
greater during this period)
Death benefit paid = $33,156 amount of check paid to spouse.
A whole life policy is said to "mature" at death or the maturity age of 100,
whichever comes first. To be more exact the maturity date will be the "policy
anniversary nearest age 100". The policy becomes a "matured endowment"
when the insured person lives past the stated maturity age. In that event the
policy owner receives the face amount in cash. With many modern whole life
policies, issued since approximately 2000, maturity ages have been increased to
120. Increased maturity ages have the advantage of preserving the tax-free
nature of the death benefit. In contrast, a matured endowment may have
substantial tax obligations.
Life insurance protection comes in many forms, and not all policies are created
equal, as you will soon discover. While the death benefit amounts may be the
same, the costs, structure, durations, etc. vary tremendously across the types of
Whole life insurance provides guaranteed insurance protection for the entire life
of the insured, otherwise known as permanent coverage. These policies carry a
"cash value" component that grows tax deferred at a contractually guaranteed
amount (usually a low interest rate) until the contract is surrendered. The
premiums are usually level for the life of the insured and the death benefit is
guaranteed for the insured's lifetime.
With whole life payments, part of your premium is applied toward the insurance
portion of your policy, another part of your premium goes toward administrative
expenses and the balance of your premium goes toward the investment, or cash,
11. portion of your policy. The interest you accumulate through the investment
portion of your policy is tax-free until you withdraw it (if that is allowed under
the terms of your policy). Any withdrawal you make will typically be tax free
up to your basis in the policy. Your basis is the amount of premiums you have
paid into the policy minus any prior dividends paid or previous withdrawals.
Any amounts withdrawn above your basis may be taxed as ordinary income. As
you might expect, given their permanent protection, these policies tend to have
a much higher initial premium than other types of life insurance. But, the cash
build up in the policy can be used toward premium payments, provided cash is
available. This is known as a participating whole life policy, which combines
the benefits of permanent life insurance protection with a savings component,
and provides the policy owner some additional payment flexibility.
Universal life insurance, also known as flexible premium or adjustable life, is a
variation of whole life insurance. Like whole life, it is also a permanent policy
providing cash value benefits based on current interest rates. The feature that
distinguishes this policy from its whole life cousin is that the premiums, cash
values and level amount of protection can each be adjusted up or down during
the contract term as the insured's needs change. Cash values earn an interest rate
that is set periodically by the insurance company and is generally guaranteed
not to drop below a certain level.
Variable life insurance is designed to combine the traditional protection and
savings features of whole life insurance with the growth potential of investment
funds. This type of policy is comprised of two distinct components: the general
account and the separate account. The general account is the reserve or liability
12. account of the insurance provider, and is not allocated to the individual policy.
The separate account is comprised of various investment funds within the
insurance company's portfolio, such as an equity fund, a money market fund, a
bond fund, or some combination of these. Because of this underlying
investment feature, the value of the cash and death benefit may fluctuate, thus
the name "variable life". Variable
13. Universal Life
Variable universal life insurance combines the features of universal life with
variable life and gives the consumer the flexibility of adjusting premiums, death
benefits and the selection of investment choices. These policies are technically
classified as securities and are therefore subject to Securities and Exchange
Commission (SEC) regulation and the oversight of the state insurance
commissioner. Unfortunately, all the investment risk lies with the policy owner;
as a result, the death benefit value may rise or fall depending on the success of
the policy's underlying investments. However, policies may provide some type
of guarantee that at least a minimum death benefit will be paid to beneficiaries.
One of the most commonly used policies is term life insurance. Term insurance
can help protect your beneficiaries against financial loss resulting from your
death; it pays the face amount of the policy, but only provides protection for a
definite, but limited, amount of time. Term policies do not build cash values and
the maximum term period is usually 30 years. Term policies are useful when
there is a limited time needed for protection and when the dollars available for
coverage are limited. The premiums for these types of policies are significantly
lower than the costs for whole life. They also (initially) provide more insurance
protection per dollar spent than any form of permanent policies. Unfortunately,
the cost of premiums increases as the policy owner gets older and as the end of
the specified term nears.
Term polices can have some variations, including, but not limited to:
Annual Renewable and Convertible Term: This policy provides protection for
one year, but allows the insured to renew the policy for successive periods
thereafter, but at higher premiums without having to furnish evidence of
14. insurability. These policies may also be converted into whole life policies
without any additional underwriting.
Level Term: This policy has an initial guaranteed premium level for specified
periods; the longer the guarantee, the greater the cost to the buyer (but usually
still far more affordable than permanent policies). These policies may be
renewed after the guarantee period, but the premiums do increase as the insured
Decreasing Term: This policy has a level premium, but the amount of the death
benefit decreases with time. This is often used in conjunction with mortgage
Many term life insurance policies have major features that provide additional
flexibility for the insured/policyholder. A renewability feature, perhaps the most
important feature associated with term policies, guarantees that the insured can
renew the policy for a limited number of years (ie. a term between 5 and 30
years) based on attained age. Convertibility provisions permit the policy owner
to exchange a term contract for permanent coverage within a specific time
frame without providing additional evidence of insurability.
Food for Thought
Many insurance consumers only need to replace their income until they've
reached retirement age, have accumulated a fair amount of wealth, or their
dependents are old enough to take care of themselves. When evaluating life
insurance policies for you and your family, you must carefully consider the
purchase of temporary versus permanent coverage. As you have just read, there
are many differences in how policies may be structured and how death benefits
15. are determined. There are also vast differences in their pricing and in the
duration of life insurance protection.
Many consumers opt to buy term insurance as a temporary risk protection and
then invest the savings (the difference between the cost of term and what they
would have paid for permanent coverage) into an alternative investment, such as
a brokerage account, mutual fund or retirement plan.
In India, insurance has a deep-rooted history. Insurance in various forms has
been mentioned in the writings of Manu (Manusmrithi), Yagnavalkya
(Dharmashastra) and Kautilya (Arthashastra). The fundamental basis of the
historical reference to insurance in these ancient Indian texts is the same i.e.
pooling of resources that could be re-distributed in times of calamities such as
fire, floods, epidemics and famine. The early references to Insurance in these
texts have reference to marine trade loans and carriers' contracts.
Insurance in its current form has its history dating back until 1818, when
Oriental Life Insurance Company was started by Anita Bhavsar in Kolkata to
cater to the needs of European community. The pre-independence era in India
saw discrimination between the lives of foreigners (English) and Indians with
higher premiums being charged for the latter. In 1870, BombayMutualLife
Assurance Society became the first Indian insurer.
At the dawn of the twentieth century, many insurance companies were founded.
In the year 1912, the Life Insurance Companies Act and the Provident Fund Act
were passed to regulate the insurance business. The Life Insurance Companies
Act, 1912 made it necessary that the premium-rate tables and periodical
valuations of companies should be certified by an actuary. However, the
disparity still existed as discrimination between Indian and foreign companies.
16. The oldest existing insurance company in India is the National Insurance
Company , which was founded in 1906, and is still in business.
The Government of India issued an Ordinance on 19 January 1956 nationalising
the Life Insurance sectorand Life Insurance Corporation came into existence in
the same year. The Life Insurance Corporation (LIC) absorbed 154 Indian, 16
non-Indian insurers as also 75 provident societies—245 Indian and foreign
insurers in all. In 1972 with the General Insurance Business (Nationalisation)
Act was passed by the Indian Parliament, and consequently, General Insurance
business was nationalized with effect from 1 January 1973. 107 insurers were
amalgamated and grouped into four companies, namely National Insurance
Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance
Company Ltd and the United India Insurance Company Ltd. The General
Insurance Corporation of India was incorporated as a company in 1971 and it
commence business on 1 January 1973.
The LIC had monopoly till the late 90s when the Insurance sectorwas reopened
to the private sector. Before that, the industry consisted of only two state
insurers: Life Insurers (Life Insurance Corporation of India, LIC) and General
Insurers (General Insurance Corporation of India, GIC). GIC had four
subsidiary companies. With effect from December 2000, these subsidiaries have
been de-linked from the parent company and were set up as independent
insurance companies: Oriental Insurance Company Limited, New India
Assurance Company Limited, National Insurance Company Limited and United
India Insurance Company Limited.
By 2012 Indian Insurance is a US$72 billion industry. However, only two
million people (0.2% of the total population of 1 billion) are covered under
17. Mediclaim, whereas in developed nations like USA about 75% of the total
population are covered under some insurance scheme. With more and more
private companies in the sector, this situation is expected to change. ECGC,
ESIC and AIC provide insurance services for niche markets. So, their scopeis
limited by legislation but enjoy some special powers.
On 16 September 2013, IRDA launched 'Insurance Repository' services in
India. It is a unique conceptand first to be introduced in India. This system
enables policy holders to buy and keep insurance policies in dematerialized or
electronic form. Policy holders can hold all their insurance policies in an
electronic format in a single account called electronic insurance account(eIA).
Insurance Regulatory and Development Authority of India has issued licenses to
five entities to act as Insurance Repository:
CDSL Insurance RepositoryLimited ( CDSL IR ) , SHCIL Projects Limited
Karvy Insurance repository Limited NSDL Database Management Limited
CAMS RepositoryServices Limited
The insurance sectorwent through a full circle of phases from being
unregulated to completely regulated and then currently being partly deregulated.
It is governed by a number of acts.
The Insurance Act of 1938 was the first legislation governing all forms of
insurance to provide strict state control over insurance business.Life insurance
in India was completely nationalized on 19 January 1956, through the Life
Insurance Corporation Act. All 245 insurance companies operating then in the
country were merged into one entity, the Life Insurance Corporation of India.
18. The General Insurance Business Act of 1972 was enacted to nationalize about
100 general insurance companies then and subsequently merging them into four
companies. All the companies were amalgamated into National Insurance, New
India Assurance, Oriental Insurance and United India Insurance, which were
headquartered in each of the four metropolitan cities.Until 1999, there were no
private insurance companies in India. The government then introduced the
Insurance Regulatory and Development Authority Act in 1999, thereby de-
regulating the insurance sectorand allowing private companies. Furthermore,
foreign investment was also allowed and capped at 26% holding in the Indian
In 2006, the Actuaries Act was passed by parliament to give the profession
statutory status on par with Chartered Accountants, Notaries, Cost& Works
Accountants, Advocates, Architects and Company Secretaries.A minimum
capital of US$80 million(Rs.400 Crore) is required by legislation to set up an
The primary regulator for insurance in India is the Insurance Regulatory and
Development Authority of India (IRDAI) which was established in 1999 under
the government legislation called the InsuranceRegulatory and Development
Authority Act, 1999.
The industry recognises examinations conducted by IAI (for 280 actuaries), III
(for 2.2 million individual agents, 680 corporate agents, 380 brokers and 29
third-party administrators) and IIISLA (for 8,200 surveyors and loss assessors).
There are 9 licensed Web aggregators. TAC is the sole data repository for the
non-life industry. IBAI gives voice to brokers while GI Council and LI Council
are platforms for insurers. AIGIEA, AIIEA, AIIEF, AILICEF, AILIEA,
19. FLICOA, GIEAIA, GIEU and NFIFWI cater to the employees of the insurers.
In addition, there are a dozen Ombudsman offices to address client grievances.
Buying life insurance should be simple but has been made complex by the
different types of life insurance polices available and heavy mis-selling by
insurance agents. The investor should check to see what suits his overall
requirement and then buy one with a clear focus.
Whole life insurance, or whole of life assurance (in the Commonwealth of
Nations), sometimes called "straight life" or "ordinary life," 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. Premiums are
fixed, based on the age of issue, and usually do not increase with age. The
insured party normally pays premiums until death, except for limited pay
policies which may be paid-up in 10 years, 20 years, or at age 65. Whole life
insurance belongs to the cash value category of life insurance, which also
includes universal life, variable life, and endowment policies.
The other major form of life insurance is term life, which may be individual
term policies or group term certificates. As a general rule, term life is intended
for temporary use and has no cash value.
Buying life insurance is NOT a one-time event. Life changes and so do your life
insurance needs. In fact, experts suggest reviewing your life insurance needs
every few years, or when a major life event occurs.
At AccuQuote, our comprehensive, FREE life insurance policy review and
analysis will allow you to make an educated decision about your current life
20. Reasons why you should consider reviewing your current life insurance
You want to make sure your family is adequately protected
You wonder if you can find a more affordable life insurance rate
You would like to see a term vs. permanent life insurance comparison
Your health has changed for the better, or worse
You would like to learn more about exercising the conversion option that
may be available on your existing term life insurance policy
Keep in mind a life insurance policy review and analysis is an excellent time to
revisit all of your life insurance needs. AccuQuote is here to help! We have a
portfolio of products and services, which includes Disability, Long-Term Care,
Accidental Death, Critical Illness Care and Final Expense life insurance that
may fit into your family's overall financial plan.
Not sure if your life insurance coverage provides adequate protection?
We encourage you to conduct a quick life insurance reality check. You may be
surprised at the amount of coverage you currently have compared to what you
For a FREE life insurance policy review, call your lifetime AccuQuote agents at
800-589-0465. During our conversation, we will provide you with the
information you need to make an educated decision about your current and
future life insurance needs. We will determine additional coverage and product
needs for the entire family.
Decision and Risk Analysis
Expert risk analysis services can help you make better-informed decisions. Our
probabilistic decision models quantify risk and provide deep insight into real-
21. world systems where uncertainty can significantly affect possible outcomes.
Our quantitative models also identify inputs of particular sensitivity — where
small changes in values can have a disproportionate effect on end outcomes.
Your KCIC team will work with your data and your particular problem logic to
create an appropriate decision or risk model, which will accurately represent the
uncertainties in your model inputs and data.
Our specific capabilities include:
Analysis of variance: For inputs with available data, we provide in-depth
statistical analysis and insight into the factors most responsible for
variances within the data.
Sensitivity analysis: We provide quantitative measurements of the
sensitivity of possible outcomes to variation of uncertain inputs. This can
assist in determining the most crucial inputs to the model.
Forecasting: For inputs with available data, we construct stochastic time-
series or regression analysis models to predict future values and to
identify current trends in the uncertain input data.
Intro To Insurance: Conclusion | Investopedia
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