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8/3/2019 4 Irda Chapter Products

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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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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



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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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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



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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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