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Chapter Four
Life Insurance Products
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Traditional Products
All plans are a combination of these two plans
Plans of Insurance
Term Product Pure Endowment
Risk Cover Only
No Survival Benefit
Survival Benefit only
No Risk Cover
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Types of Products
Participating Products/
With profits plans
They share in the profits of
the company .
These policies are paid Bonuses
And are also calledWith Profit Policies
Non-Participating Products/
Without profits plans
No Sharing in Profits
No Bonus
They are relativelyless expensive
Also called without profit plans
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Traditional Products
Term Insurance
Whole Life Insurance
Annuities
Endowment
Term Insurance
Endowment
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Term Plans
Pure Term Products
Term With Refund Of Premiums (RoP) Products
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Pure Term Products
Provide the Death Benefit if the Insured
dies within the specified period
Specified Term
Temporary Cover
High Risk CoverLow Cost
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How it works?
1 2 3 30
No of years the policy is in force
Death
benefit
50,000
100,000
150,000 Risk Cover
only
In case of death during the
policy term, the SA = 100,000 is
paid
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Types ofTerm insurance
Level Term Insurance
Increasing Term Insurance
Decreasing term Insurance
Renewable/ConvertibleTerm Insurance
Term Insurance
with return of premium
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Level Term Insurance
Level(unchanging)
premium and death
cover throughout the
term
If death occurs within
the term,Sum Assured
is paid
Most popular and
cheaper form of
Insurance
S.A
Term
Death
Death
B
enefit
B
enefit
Year Policy is inYear Policy is in
ForceForce
11 22 33 44 55
Level Term PolicyLevel Term Policy
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Decreasing Term Insurance
The benefit
decreases
periodically and is
payable only in
case of death withinterm.
It is suitable for
temporary need
which iscontinuously
reducing
Death
Benefit
Year Policy is in Force
1 2 3 4 5
Decreasing Term Policy
Appropriate as collateral to cover the outstanding loans
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Examples of Decreasing cover
Mortgage Redemption
Designed to repay
Mortgage loan(Balance loan of
Outstanding) in event
Of Death within term
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Increasing Term Insurance
The policy benefit andpremium increaseperiodically
The increase is a fixedpercentage which isagreed to in thebeginning
This type of Insurancecan be useful to fightinflation
Death
Benefit
Year Policy is in
Force
1 2 3 4 5
Increasing Term Insurance
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Renewable Insurance
Renewed
Provides right to renew policy
Without fresh
evidence
of insurability
5year
policy
5yearpolicy
Premium Increases at
Attained age(increased age)Entry age Attained Age
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Limitations of Renewable Term
Insurance
Renewals may only be for equal or smaller
sums assured
The number of renewals permitted may be
restricted
Premium rates may be higher than for
non-renewable policies
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Convertible Term Insurance
ConversionTerm Plan Endowment
Premium Increases at
Attained age(increased age)
Without fresh
evidence
Of insurability
Entry age Attained Age
Provides right to convert term plan into
a permanent policy
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Limitations of a Convertible
Term Insurance Conversion may not be possible beyond a
certain age
Conversion may not be possible after the policyhas been in force for say50% of the specifiedterm
The sum assured of the new plan will be limitedto that for the term insurance
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Term Assurance with Return
of Premium Sum Assured payable on death of the life
assured during the term
In case death does not occur then survival
benefit will be equal to premiums paid
without interest.
Cheaper form of Insurance
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Insurance cover till age 100 years.
Premium to be paid till death of the person or for a
specified term
Policies can be participating or non-participating.
Whole Life Plan
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Whole Life Plan
The sum assured becomes payable
only on the death of life assured.
Higher premiums than term insurance as
claims are definite
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Types of Whole Life Plan
Limited PaymentLimited PaymentPoliciesPolicies
Premiums arepayable until some
stated period expires
Date ofpolicy
purchase
End ofspecified
period
Premium Paying term is fixed
Premiums are payable
until the insureds death
ContinuousContinuous--PremiumPremiumPoliciesPolicies
Date ofpolicy
purchase
Insuredsdeath
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Types of Whole Life Plan
Whole Life SingleWhole Life SinglePremium PolicyPremium Policy
Single
Premium
Convertible Whole LifeConvertible Whole LifePolicyPolicy
After 5 years canbe converted to Endowment
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Benefits of a Whole Life Plan
Suitable for a person of moderate salary
Provides life cover over a long period
Can be switched to a savings plan at
some point in the future
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Endowment Policy
Term Pure Endowment
Endowment Policy
Combination of two basic plans
Since Pure Endowment
does not have any risk
cover-no medicals are
required
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Endowment Policy
Benefits of
Endowment
Money at survival
Maturity Benefit
Money in case of emergency
Surrender value
Money in case of death
Death Benefit
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How Endowment Policies Work?
Policy purchased at age 30
30 35 40 45 50 55
SA
SA +Bonuses
50,000
100,000
150,000
Death
Benefit
Insureds Age
Death
Benefit
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How Endowment Policies Work?
Policy purchased at age 30
30 35 40 45 50 55
SA +Bonuses
50,000
100,000
150,000
Death
Benefit
Insureds Age
On death atage 45
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Interest Sensitive Plans/
Money back plans
Additional benefits accruing to the policy in
form of additions
Periodic returns of a portion of a sum assured
without reducing the death cover
Savings component is high hence called
Interest Sensitive Plans
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Interest Sensitive Plans
They are also called Modified anticipated
endowment plans
They are popularly known as Money back
plans
Loan facility is normally not available in
these policies
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Combination Plans
Double Cover Plan
For death during the term,double the sumassured is payable
If death does not occur,basic sum assuredpayable on maturity
Premium is slightly higher than for endowmentpolicy
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Joint Life Plan
Both purchase joint life
policy,
If one partner dies,
S.A .paid survivor and
policy continues
without payment of
premium on other lifeand second S.A. paid
on death of second life
or maturity which ever
is earlier.
Benefits paid to two or more persons until both or allpersons die
Life Partners
Business Partners
PARTNER APARTNER A PARTNER BPARTNER B PARTNER APARTNER A
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Joint Life Plan The SA is paid on the death of any of the insured
persons during the term or at the end of the term
Some plans also provide payment of SA on death
of one life, and the policy is continued to cover hesecond life till maturity without payment of further
premium.
If both the lives assured survive the date ofmaturity, only basic sum assured is paid
Bonus accrue on a single sum assured only
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Joint Life Plan
In case of partnership insurance, the partnership
deed will be examined to ascertain the nature of
financial interest of each partner
Each life will be underwritten separately
A joint life declaration is necessary to
create a joint interest in the policy
Joint
declaration
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Childrens Plans
Insurance can be taken out on children who areminors
Policy
Purchased
ChildsAge 1 ChildsAge 7
Risk Commences
At age 7 or2yrs from
Date of commencement
whichever is earlier
Policy
MaturesDeferment period
Policy vests in the childs name on attaining majority. This age is called
Vesting Age
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Marriage Endowment and
Educational Annuity
These plans serve two basic needsfor children
EducationMarriage
The plan gives
S.A at a stipulated
date which coincides
with the age of son or
daughter when money
is required
for
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Educational Annuity Plan
It is an ordinary endowment plan
The SA is paid in installmentscommencing from a date that coincides
with suitable age of child
It is purchased with higher education in
mind
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Policy issued for a selected term
Periodic payments at regular intervals
Balance on surviving the term.
Periodic payments do not reduce death
benefit
No loan.
Combination Of Whole Life
& Endowment Plan
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Industrial Assurance Plans
Designed for workers with low income
Sum assureds are small andPremiums are weekly
Both mortality and lapsation rates are highNot so popular any more
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Salary Saving Scheme Policies
Designed for the benefit of the workerclass
Arrangement is made by Insurer withemployer to deduct premium from salaryevery month
It is convenient for both the insurer and the
insured
Administrative costs are also low
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Riders Riders are add-on benefits that can be attached tothe basic policies.
They are relatively cheap
Are the most effective in enhancing the coverageunder the basic policy
Premiums for the riders are low, but there are no
maturity / surrender benefits under the riders.
Riders are non-participating - i.e. they do not share
in the profits of the company.
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Riders
Accidental Death Benefit
Accidental Death & Dismemberment
Wavier of Premium
Critical illness/Medical Riders
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Riders
MEDICAL / HOSPITALISATION RIDERS
These are benefits payable upon hospitalization
of the insured. The benefits can be fixed in
nature or on reimbursement basis. Medical Reimbursement (MR)rider
Hospitalization & Surgical(H*S) Rider
Surgery Rider
Intensive Care Unit (ICU) Rider
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Disability Riders
These Are Benefits Payable Upon Total &
Permanent Disability of the Insured.
Waiver of Premium (WP) Rider
Accidental Death & Dismemberment Rider
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CRITICAL ILLNESS RIDER
These are benefits payable upon diagnosis of
any of the listed critical illness (E.G. Cancer, first
heart attack, kidney failure etc) Acceleration Rider- The Basic Policys Sum
Assured Is Advanced Upon Diagnosis of the
Critical Illness.
Stand Alone Rider- The Basic Policys SumAssured Is Not Affected and the Rider Benefit Is
on a Stand Alone Basis
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Plans forHandicapped Persons
PhysicallyHandicapped persons can beinsured
Extras are charged in some cases like,lossof both arms,deaf in both ears,blind in botheyes
Partially handicapped persons are mostlyaccepted without extra premium
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Annuities
Contract under which insurer makes series ofperiodic payments in exchange for annuityconsiderations
Insurer
Annuity
Benefit Payments
Periodic Payments
Premiums
Insured
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Annuities
Vesting Age
Accumulation Period
Annuity Period
Accumulated Value
Purchase Price CommutedValue
75%
Of accumulated value
25%
Of accumulated value
pension Taxable
Tax Benefits
Under 80c
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Annuities
Purchase price is used to purchase thedesired annuity plan
Commuted value is given to the annuitanttax free
The annuities are paid out in installmentsie., Yearly, halfyearly quarterly andmonthly
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Annuities
Annual Annuity Begins after1year from Date of Purchase Half-yearly Annuity after 6 months Quarterly Annuity after3 months Monthly Annuity after1 month
Vesting Age
3 months
6 months
1year
Annuity payments
begin aftercompletion ofvesting age
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Deferred Annuity
PurchaseDate
Deferment period
Period between purchase
and beginning of benefit
payments
Payout Period
Period during which
insurer makes benefit
payments
Vesting AgePremiums/Consideration Annuity payments
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Immediate Annuity
ImmediateAnnuity
Benefit (Annuity payments) beginone year after purchase price
2001 2002
Purchase Date Payments Begin
Purchase pricein Lump sum
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Features Of Annuity
Attractive to old people with no living
dependents
Cannot be taken away /cheated by
relatives
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Types of Annuities
Duration of Benefits
LifeAnnuity
Benefitpayments forat least the
lifetime of anamedperson
Annuity
Certain
Benefitpayments fora time period
stated inannuitycontract
Joint life
Annuity
Benefitpayments for
Annuitant tilltheylive and to
their spouseafter
that
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Types of Annuities
They can be participating policies, in whichcase, there will be bonus additions from timeto time.
Annuities are also offered as with profitpolicies.
These bonuses may not be the same as the
bonuses declared on traditional policies.More without profit annuity policies are soldthan with-profit annuity policies.
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Types of Annuities
Just as insurers insist that the S.A. in
any plan should be at least a stated
minimum, there may be minimum limits
about the annuity payable annually. if
rs. 3000 per annum is the minimum
limit specified, the quarterly annuity
will be rs. 750 and the monthly annuitywill be rs. 250
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Life Insurance Vs Annuity
Life insurance covers the risk of dying
too early
Annuity covers the risk ofliving too
long
Annuity is the reverse oflife insurance
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Group Insurance
Group insurancecovers a large number
of people under a
single policy called
Master Policy.
Master Policy
Important feature of group insurance is that risk ofindividuallives are not assessed.
The Government uses
group Insurance for
social welfare as the life
insurance business has a
powerful socialdimension
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Group Insurance
The Insurance contract iswith a body that representsthe individuals, the employeror the association
InsurerBody of Individuals
The Body is the Policy Holder
Individuals are the
beneficiaries. They
play no role in
negotiation of terms
of Contract
Benefits determined on uniform
bases
Group Insurance How it
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Group Insurance How it
works
The Policy holder pays the premium who may or
may not recover it from the individuals
If Individuals pay it could be deducted from their
salaries
Individuals contribute in thepremium
Fully or Partially
Individuals don't contribute in the
premium
Group Insurance How it
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Group Insurance How it
works
The ownership of the policy is with the employer
and not employee.
The extent of cover and the terms are determined
by the employer and not by the individual.
Two things to remember
f G
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Essential Features of Group Insurance
schemes
The entry and exit
from group must be
for some other
reason thanavailability of cover
The group must alreadybe in existence and
should not be formed only
to take insurance
ABC LtdABC Ltd
New members
entering the group
Members exiting the
group
There must be
a minimum noof people in
the group e.g.
25.No upper
limit.
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Group Insurance
Many people will be covered under single contract hence
administrative cost will be low
no Individual choices hence adverse selection is also low
Medical Exam is more Liberal. There is a free insurability
limit up to which there is no medical examination
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Group Selection
The individual will not have a choice about being covered
and the amount of insurance for each individual is
determined by a formula.
The individuallives are notassessed separately for risk
separately there is group
selection
The individuals do not have a choice in being included in
the group cover, if they fulfill the criteria they have to join the
group
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Group Insurance Schemes
Simplest and Cheapest
of all schemes
Offered to Employers for theBenefit of the Employees
One year Renewable group
Term Insurance Scheme
Provides good risk cover as
well as cover againstMortgage and liabilities
Group-Savings Linked
Scheme
Provides good risk cover as
well as has savings element
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Group Gratuity schemes
Payment of gratuity under Payment ofGratuityAct,1972 iscompulsory.
The employer may pay
gratuity to his employees
As and when it falls due
By creating aninternal
reserve
By setting a Trust and Trustees
May opt for Insurance Scheme
Ad t f G
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Advantages of Group
Gratuity Scheme
Group gratuity scheme of insurance companyprovides for gratuity payments larger than thenormal gratuity rules particularly in the case of
employees who die.
It makes easier to fund the gratuity liability for theEmployer
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Group Superannuation Schemes
Fixed Contribution
from Employer
These Schemes are offered to Employers and arerelated to payment of pensions to employees
As pension is a preferred
retirement benefit
Fixed Benefit
given to Employees
Benefit to employees will be
equal to this contribution-
Appropriate Contribution
is collected
Premium under group Insurance
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Premium under group Insurance
The premium under the group insurance policyWill change from year to year because the group size will
change because of the exits and entrants
20012002 2003
The premium will also change depending on the
mortality experience of the group
If the experience is better then the premium can be reduced this is
called profit sharing
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Group Superannuation Schemes
The employer can manage the pension
liabilities in different ways.
The group Superannuation schemes help theEmployer in administer the funds in a much
better way due to easier administration and
availability of Actuarial and investment
expertise.
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Employees deposit linked insurance(EDLI)
The Employees Deposit Linked Insurance(EDLI) scheme is applicable to allestablishments and undertakingscontributing towards provident fund under
the Employees Provident Fund andMiscellaneous Provisions Act, 1952, witheffect from 1.8.1976, unless exempted undersection 17(2A) of the Act.
The scheme provides for an insurance coverto an employee linked to his balance in theprovident fund account, subject to amaximum of Rs.60,000/-.
G L E h t
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Group Leave Encashment
Scheme(GLES)
As per the amendments to the CompaniesAct made in 1988 and the accountingstandards, employers have to fund theliability in respect of the leave encashmentfacility. The group scheme makes possiblesuch funding by the company.
In addition, the scheme can also haveprovision foe payment of Sum assured to thefamilies of employees who die while inservice.
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Retirement Schemes
According to various studies conducted the peopleare now living longer as compared to the lastdecade,This is constantly increasing the burden of
retired people on the Government
An Employer provides its employees with a lifetime
income benefit that begins at retirement.
They purchase annuities from insurers for this
purpose
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Retirement Schemes
Lifetime income payments begin after retirement
Employed Retired
2001 2002 2003 2004 20062005 2007 20092008 2010
After purchase annuities will be paid directly to thepensioners by the insurer
The purchase price would be decided by
the employer according to the policy and
the terms of employment
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Health Insurances
As per the Law Health insurance is a part of
Non-Life Business
Life insurers are catering to this need by
way of riders attached to individual Life
insurance policies
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Thank You
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