TYPES OF LIFE INSURANCE POLICES

TYPES OF LIFE INSURANCE POLICIES

1. Whole life policies
2. Term Insurance
3. Endowment policies
4. Survivorship policies
WHOLE LIFE POLICIES
 Issued for life
 Policy amount will be paid at the death of the life assured

 The life assured, thus, cannot get the policy amount

during his life time; only his dependents will get
advantages of this policy.
 Assured get the sum assured amount after the age of 100
year.
WHOLE LIFE POLICIES

Ordinary whole life policy

Whole life with profit
Limited payment whole life policy
Single premium whole life
Convertible whole life policy
SOME POPULAR WHOLE LIFE POLICIES

1. ICICI Pru Whole Life

2. Max Life Whole Life Super
3. SBI Life Shubh Nivesh
4. LIC Whole Life Policy
TERM INSURANCE POLICIES
Term insurance plan is a form of life cover, it provides
coverage for defined period of time, and if the insured
expires during the term of the policy then death benefit is
payable to nominee. Term plans are specifically designed
to secure your family needs in case of death or
uncertainty. It provides specific amount of coverage for
specific period of time.
TYPES OF TERM INSURANCE
1. Straight term (Temporary) Insurance
2. Renewable Term Policies
3. Convertible term Policies
ENDOWMENT POLICY
 An Endowment policy is a life insurance to pay back a
lump sum amount after a specified term (on its
'maturity') or on death of the policy holder. It provides a
living benefit to the policyholder as periodic pay-outs
along with insurance coverage.
 Premium is higher as compared to whole life policy.
COMPARISON BETWEEN TERM PLAN &
ENDOWMENT PLAN

Benefits Term Plan Endowment Plan

Maturity Benefits No Yes
Death Benefits Yes Yes
Premium amount Low High
Liquidity No Yes
Investment Saving No Yes
Tax Benefits Yes Yes
TYPES ENDOWMENT POLICY
1. Ordinary endowment policy
2. Pure endowment policy
3. Joint life endowment policy
4. Triple benefit endowment policy
5. Educational endowment policy
6. Marriage endowment policy
7. Double endowment policy
8. Deffered endowment policy
(i) Fixed term marriage endowment plan
(ii) Educational policies
PURE ENDOWMENT POLICY
1. Payable:- Life assured survives
If dies:- Premium paid are returned
Minimum sum assured 5000 and Max. sum assured 25
years
2. Opposite to term policies
3. Pure endowment policies has the elements of investment
and the term policy has the elements of protection.
4. Pure endowment grants the protection against living
long.
ORDINARY ENDOWMENT POLICY
1. Policy for specific term
2. Ideal combination for:- Family Protection
Investment
3. Sum assured paid:- Death/ Maturity
4. Combination of term insurance and pure endowment.
5. Net premium rate is equal to net premium of term &
pure endowment policies issued at same age, for the
same period of time.
JOINT LIFE ENDOWMENT PLAN
 Issued to cover more than One life under single policy.
 Example:- Husband/ Wife, Partners in a partnership Firm

 Sum assured is payable on the expiry of the term or on

the death of any one of the lives.
TRIPLE BENEFIT ENDOWMENT PLAN
 Policy is generated for a fixed term 15,20,25 years.
 Policy is a combination of whole life limited payment
and pure endowment.
 Guaranteed annual Bonus

 Payable on the death or completion of the policy.

BENEFITS OF TRIPLE BENEFIT ENDOWMENT
PLAN
 15% to 20% of sum assured shall be payable upon death
of the assured & till the end of the endowment period
each year regularly to the family.
 Sum assured is also payable in addition to the above
provision at the end of the term of insurance.
 In case of assured survival upon the expiry of the expiry
of the endowment period, the sum assured shall be
payable.
EDUCATION ENDOWMENT POLICY
 Policy is taken out on the life of the father or guardian.
 Child = Beneficiary

 Aim of policy is to finance the education of children,

whether or not parents are alive.
 Premium is paid till the death of the life assured/agreed
period.
MARRIAGE ENDOWMENT POLICY
 Sum assured is payable:- at the end of a stipulated
period.
 Premium ceases:- death of policy holder occur earlier

 Policy will remain fully paid:- Maturity date

 Beneficiary can discount the policy before maturity

(Female Dependents)
 If child expires during the running of the term option:-
substitute the name of another child OR to accept the
total premium contributed so far minus first year’s
premium.
DOUBLE ENDOWMENT PLAN
 This is a value added endowment plan. In addition to
the usual benefits of an endowment plan, (i.e.
investment, liquidity) this plan offers double the life
cover as an additional benefit.
 Payment of sum assured if the assured dies during the
selected term
 If survives:- Double the sum assured is paid.

 Example: LIC Jeevan Mitra

DEFERRED ENDOWMENT POLICIES
 Fixed term marriage endowment plan
 Educational policies

 Premium ceases:- after death of assured

 Sum assured is paid after selected terms.

INSURANCE PREMIUM
INSURANCE PREMIUM
Acc. to J.B. Maclean:- Premium is the consideration which
the person insured pay to the insurance company for a
life insurance policy.
TYPES OF PREMIUM
1. NET PREMIUM
2. GROSS PREMIUM
 NET PREMIUM
Based on past experience, mortality and assumed rate of interest.
It should be equal to the claim paid either on death or due to the
maturity of the policy.
 GROSS PREMIUM

Based on the experience of mortality, assumed rate of interest

expense and the bonus loading. Loading charges various
according to type of policy, age of prosper, amount participating
or non- participating policy( in practice it is charged from
insured)
GROSS PREMIUM
 GROSS PREMIUM= Net premium + Loading(an
amount per Rs. 1000/- of insurance)
 Types of GROSS PREMIUM

1. Single premium: lump sum payment

2. Level premium: paid equally over the number of
insurance
FACTORS INFLUENCING COST OF
POLICY
1. MORTALITY
2. LOADING OR EXPENSE
3. INTEREST
MORTALITY

Cost of mortality is calculated based on rate on mortality

which means number of persons who are expected to die
at the end of certain period out of a given group of
persons. A mortality rate is usually expressed in terms of
number of death per thousand at a given end.
 MORTALITY TABLE
A mortality table is an instrument by which the probabilities of
living or dying is measured.

Age of entry No. of Living No. of death Mortality Survival rate

persons at during the rate
the beginning year
X LX DX QX PX
1 2 3 4 5
40 970718 2242 .00231 .99769
41 968476 2479 .00256 .99744
42 965337 2743 .00284 .99716
43 963254 3044 .00316 .99684
44 956840 3370 .00351 .99649
CONTD…
1. Age at entry X
2. No. of living at the beginning of the year LX
3. No. of dying the year DX
4. Mortality Rate: QX= DX/LX
Example: 2242/970718 = 0.00231
5. Survival rate:
No. of persons at the beginning of the subsequent year/
total number of living person at the end of the year
SOURCES OF MORTALITY INFORMATION
1. Population Statistics: it can be found from the
population statistics as to how many persons have died
at what age.
2. Records of insurer: insurers own records give accurate
figures because each death can be recorded correctly
and therefore correct number of the person living and
death for each age can be known.
3. Other sources: mortality tables can also be prepared
from the records kept by the hospitals in respect of the
patients and municipality records where births and
deaths are registered.
LOADING OR EXPENSE
In insurance various expenses are technically termed as
loading following expenses as known as loading:-
1. The cost of getting new policy holder
2. Expenses of collecting renewal premium
3. Administration cost
4. Management expenses
5. Commission of agent
6. Medical examination fees etc.
INTEREST
The insurer receive the premium in advance from the
various policyholder and these amount are invested to
earn some interest. The rate of interest earn by the
insurer is deducted from the premium. Insurer make
conservative calculation as actual interest is earned and
received in later year.
STEPS FOR CALCULATION OF PREMIUM
1. Determine what constitute claim
a. Death
b. Maturity
c. Both
2. Determine when claims are paid
a. At the beginning
b. At the end
c. During the year
3. Determine the duration of policy
4. Determine the number of insured
5. Determine the probable number of claim per year
CONTD….
6. Determine the value of claims per year
7. Determine the number of year interest involved and find
the value of money
8. Estimate the value of claim per year
9. Compute the future value of claims per year
10. Compute the net single premium divided by number of
assured for policy buying.
METHODS OF PREMIUM COMPUTATION
1. Assessment plan
2. Natural premium plan
3. Level premium plan
ASSESSMENT PLAN
Rate of premium are not fixed but are collected for
surviving members in order to pay for the sum assured to
the beneficiary. The methods was used in earlier stages
of insurance business.
Limitations:-
1. Uncertainty regarding contribution
2. It ignores the age of contributors
3. Uncertainty about compensation
NATURAL PREMIUM PLAN
 Better as compare to assessment plan. Under this
method, the individual contribution calculation was
based on the age of the insured. The older members were
playing higher premium than the younger one. As the
mortality table every year the amount of premium
changes, therefore it is called as “yearly renewable term
plan”
LEVEL PREMIUM PLAN
Under this plan the total premium payable is divided
equally over the number of years over which the policy
holder agrees to pay the premium based on mortality
table. This is the most suitable premium based on the
mortality table. This is the most suitable premium plan
because policyholder became aware of the rate of
premium since it is uniform throughout the insurance
period.
FIRE INSURANCE
An agreement, whereby one party in return for a
consideration undertakes to indemnify the other party
against financial loss which the latter may sustain by
reason of certain defined subject matter being damaged
or destroyed by fire or other defined perils up to an
agreed amount.
In fire insurance contract, there must satisfy two
conditions. First, there should be actual fire and second,
the fire must be fortuitions in its nature.
FIRE INSURANCE POLICIES
1. Valued Policy: In the event of loss value is limited to
sum assured irrespective of its market value.
2. Valuable Policy: In the event of loss, claim amount is
to be determined at the market price of the damaged
property.
3. Specific Policy: In the event of loss, the insurer will
pay entire loss to the policyholder. Indemnification is
set o the upper limit of loss compensation and it
doesn’t exceed sum assured.
4. Floating Policy: This policy is designed for traders or
manufacturers whose stock of goods might be lying at different
places. When quantity of goods fluctuate and cannot be
ascertained at the time of insurance a floating policy is taken.
5. Average policy: If the policy is insured for lesser amount then
the actual value, condition of under insurance will be
applicable at the event of loss.
Example: Property= 120000
Insurance= 80000
Loss= 48000
CLAIM= INSURED VALUE * ACTUAL LOSS
VALUE OF PROPERTY
claim= ( 80000*48000)/120000
claim= 32000
6. EXCESS POLICY: combination of floating and average
policy
Floating policy: Stock fluctuates, business has to pay higher
premium
Average policy: Insurer will bear only proportion of loss. Rest is
to be borne by insured
In this policy actual value of stock in excess is declared
every month and premium is charge on average monthly excess
amount.
7. RE-INSTATEMENT POLICY: This policy is also called “
NEW FOR OLD” because old property is replaced by new. It
represents actual principle of indemnity. It is meant for plant,
building and machinery not for stock or raw material. In other
types of policies only the market value of the damage or loss is
indemnity but, this policy under takes to reinstate the insured
property lost by fire to new condition irrespective of its value at
the time of loss.
8. COMPREHENSIVE POLICY: This is also known as “ALL
risk policy”. The risk covers are fire, burglary, theft, lightning,
flood etc.
9. SPRINKLER LEAKAGE POLICY: The policy protection to
subject matter due to water accidentally discharge from
automatic sprinklers installed in the factory which may cause
damages to the building or the goods lying in the building. It
doesn’t include discharge of water from repair, alteration of
building, war, earthquake, explosion etc.
10. CONSEQUENTIAL LOSS POLICY: When there is a fire
loss, it may result not only damages of property but there is a
reduction of business activities which result in the reduction in
profit also. The standing charges such as rent, rates, taxes and
salaries etc. remain burden on the businessman. The
consequential loss policy protects the insured.
11. TRANSIT POLICY: The risk is commenced with the loading
of goods on rail or motor truck and terminate as soon as they
are unloaded. Only transit risk caused b fire is covered under
this policy.
12. Maximum Value with discount policy: The insurance is
taken for maximum amount of stock and full premium is paid.
At the end of policy term, one third of the premium is
refunded in the form of discount.
FIRE INSURANCE POLICY CONDITIONS
1. Mis- description: There should be no mis-description,
mis-representation or non disclosure of material fact.
2. Payment of premium: No premium is accepted by the
insurer without receipt of properly filled form issued
by insurer.
3. Other Insurances: The purpose of this condition is to
know about the other insurer.
4. Excluded Losses: Following are not covered
I. Loss or damages due to natural heating
II. Loss by theft after occurrence of fire
III. Loss by burning of public authority

IV. Loss or damage caused by radiation

V. Loss or damages caused by contamination of radio actives.

5. Excluded perils: standard fire policy doesn’t cover the
I. War and Civil war
II. Earthquake
III. Volcanic eruption

IV. Military action

V. Cyclone
6. Alteration Clause: any alteration of the following should be
informed to the insurer as soon as possible.
I. Any change in the subject matter which may increase the
risk of loss by fire.
II. If the property insured is removed at a place other than
stated.
III. If the building insured or containing insured property is
unoccupied for a period more than 30 days.
IV. If there is a change in interest in the property insured.
7. Marine Clause: the property is insured under fire and marine
policy, payment will be made from marine policy first and any
balance left will be met out by the fire policy.
8. Procedure of claim: As and when a loss arise under the policy,
a notice thereof must be given. A proof of loss and a written
statement of particulars of the property lost, destroyed or
damaged should follow it. No claim under this policy shall be
payable unless all the terms and conditions have been complied
with.
9. Right of the insurer on Loss:
I. To enter in the premises
II. To take in possession the insured property
III. To sell the property on behalf of insured

IV. salvage (to restore) the insured’s property

10. Fraudulent claim: when there is any fraudulent claim or
willful loss to the insured’s property the insurer may forfeit
the claim.
11. Reinstatement Clause: at the event of loss insurer’s liability
is to pay either in cash or to reinstate the property. The
reinstatement is at the option of the insurer.
12. Subrogation: The principle is a supplement to the principle
of indemnity. The insurer substitute himself in place of the
insured and gets all the rights against the third parties.
Whatever remains after settlements of claims, is the
property of the insurer and not of the insured, otherwise the
insured will make profit out of a contact of insurance.
13. Contribution: this condition provides that where there are
two or more policies covering the same subject matter the
insurer shall call upon the other insurer to contribute rate ably.
As for example,
Property worth= 80000 insured with A
Property worth = 120000 insured with B
There is a loss of 40000
Claim from insurer A= (80000*40000)/200000
= 16000
Claim from insure B= (120000*40000)/200000
= 24000
14. Arbitration Condition: In the event of any dispute between
the insurer and the insured regarding settlement of claim, such
dispute shall be referred to an Arbitrator to be appointed by
both the parties and his decision shall be final unless there is
any legal interpretation required from the court of law.