Life insurance is popularly referred to as life assurance. In the case of life insurance, the underwriter agrees to pay the assured or his heirs, a certain sum of money on death or on the happening of an event dependent upon human life in consideration of premiums paid by the assured.
Section 2(11) of the Insurance Act, 1938 defines Life Insurance business as follows: “Life Insurance Business” is the business of effecting contracts of insurance upon human life, including any contract whereby the payment of money is assured on death (except death by accident only) or the happening of any contingency dependant on human life and any contract which is subject to the payment of premiums for a term dependant on human life and shall be deemed to include:
(a) The granting of disability and double or triple indemnity accident benefits if so provided in the contract of insurance.
(b) The granting of annuities on 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 in any particular profession, trade or employment or of the dependants of such persons”.
The important types of life insurance policies are:
- Whole Life Policy
- Endowment Policy
- Joint Life Endowment Policy
- Family Protection Policy
- Multipurpose Policy
- Convertible Whole Life Policy
- Money Back Policy
1. Whole Life Policy
- Whole Life Assurance: This is the purest form of permanent contract. Premiums are payable throughout the Life time of the life assured and the sum assured is payable only at his death. The element of protection of dependants is the dominating element and that of provision for old age is totally absent. This type of assurance provides a larger amount of “life cover” than any other permanent type of life assurance and it is therefore the most inexpensive form of permanent protection for dependants. It has the disadvantage that premiums continue in old age when the ability to pay them may be lessened by contraction of income. To obviate this difficulty the Corporation had decided that under these tables premiums are now limited to a maximum number and are payable either till age 80 or till 35 annual premiums are paid whichever is later. For example a person aged 30 has to pay premiums for a maximum period of 50 years if he survives this period while a person aged 50 will have to pay for a maximum period of 35 years (i.e. not till age 80 but also beyond if he survives beyond age 80). With this benefit extended to all policies including those issued by the previous Insurers, the Corporation has no whole life assurance contract where under premiums are payable indefinitely throughout life.
- Whole Life Assurance by Limited Premiums: Under this type of policy, it can be arranged that premiums cease at retirement age so that the difficulties of maintaining the premiums in old age are removed. When the premium cease, the policy becomes fully paid-up. “With profits” policies continue to participate in profits till the claim arises even though the premiums have ceased.
2. Endowment Policy
This is undoubtedly the most popular form of assurance at the present time. Under this class of contract, the sum assured is payable at the expiration of a fixed term of years or at death should that occur previously. This type of policy is really a combination of Life assurance and investment. In the case of policies running for long terms the assurance element predominates while in the case of assurances maturing at the end of comparatively shorter terms the actual cost of the life assurance is very small the bulk of the premium being required for the investment portion.
3. Joint Life Endowment Policy
Under this plan, two lives are simultaneously insured and 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 premiums are payable throughout the endowment period or till the prior death of either of the lives assured. It should be noted that one payment of the sum assured is envisaged even though two lives are insured; two payments on two deaths are not contemplated as the first death will determine the contract.
4. Family Protection Policy
Many different names are given to describe policies such as “Family Protection”, “Family Safeguard”, “Planned Protection” etc., but most of them incorporate the idea of protecting or safeguarding the family while the family members are young. The policy provides that when the assured die during a fixed period, from the outset annual instalments or yearly income usually 10% to 12% of the basic sum assured shall be paid for the balance of the period. In addition the basic sum assured is paid either at the time of death or at the expiration of the fixed period or in varying proportion at both points of time. In the event of the life assured’s surviving the specified term, only the basic sum assured is payable either at death or at maturity depending on the main plan of assurance. Premiums under this plan are generally payable for a fixed term of years or till death.
5. Multipurpose Policy
Under the multi-purpose policy the basic assurance is a type of family income policy under the endowment assurance scheme. The following benefits can be taken under the policy by paying appropriate extra premium:
- School Education Provision
- College Education Provision
- Marriage Provision for Daughter
6. Convertible Whole Life Policy
This plan is essentially a whole life assurance with the option to convert after 5 years from commencement, into an endowment assurance effective from inception. This plan is suitable for a young man earning a modest income for the time being but with good prospects of higher income after a short period. The object is to provide maximum assurance protection at minimum immediate cost and at the same time to offer a flexible contract which can be altered to an endowment assurance at the end of 5 years from the commencement of the policy by which time it is expected that there would be a rise in his income which would enable him to pay the larger premium payable after conversion. If the conversion option is not exercised the policy would continue as whole life assurance.
7. Money Back Policy
This plan is suitable for those who besides providing for their old age and family, need lump sum benefit at periodic intervals. The sum assured is paid in suitable instalments. Yet throughout the period of assurance, the dependents are guaranteed the benefit of the full sum assured protection in the event of the death of the assured, irrespective of the instalments that might have been paid. The policy is available for 4 terms – 12 years, 15 years, 20 years and 25 years to suit one’s best convenience. No loan is granted under this plan.