Peculiarities of Life Insurance Product and the Classification

The average penetration and density of life insurance in India is a measly 2.76%. There have been improvements in this arena but overall the growth has been rather slow in India. Not many people are aware of the benefits of life insurance and the numbers for penetration are an indicator of the same.

Accidents and mishaps are strong indicators of how fragile human life can be and how we need to systemically insure our lives. It is an important tool for providing an individual’s family with safety and security. It acts as a protective cover to safeguard the insured’s dependents. In the event individuals do not insure their lives, their dependents end up facing the tragic loss of their loved one along with a whole host of liabilities such as rent, loans, EMI’s and child services.

Features of Life Insurance Plans

1. Policyholder

Policyholder is the individual who pays the premium for the life insurance policy and signs a life insurance contract with a life insurance company.

2. Premium

A premium is the cost the policyholder pays the life insurance company for covering his/her life.

3. Maturity

Maturity is the stage at which the policy term is completed and the life insurance contract ends.

4. Insured

Insured is the individual whose life is secured via the life insurance. After his/her death the insurance company is accountable to provide a financial amount to the dependents.

5. Sum Assured

The amount the insurance company pays the dependents of the insured if those events occur which are specified in the life insurance contract.

6. Policy Term

Policy term is the specified duration (listed in the life insurance contract) for which the insurance company provides a life cover and the time period during which the contract is active (listed in the life insurance contract).

7. Nominee

A nominee is an individual listed in the life insurance contract who is entitled to receive the predetermined compensation, as a part of the policy.

8. Claim

On the insured’s demise, the nominees can file a claim with the insurance provider in order to receive the predetermined payout amount.

Classification of life insurance policy

1. Whole life insurance policy

Whole life insurance policy is defined as an insurance in which the insured person pays the premium in the installment basis for full duration of his/her life. After the death of insured, his/her nominee receives the insured amount.

There are 3 types of whole life insurance policy

• Ordinary whole life insurance policy. In this policy, insured person has to pay the premium to his/her concerned insurance company till his/her death. The insured person can’t utilize the insured amount because this amount will be returned after his/her nominee
• Limited premium whole life insurance policy: Under this policy, the insured person has to pay the premium for limited time and the insured amount will be returned after the death of insured person to his/her nominee
• Convertible whole life insurance policy: It is that type of policy which can be converted to endowment life insurance policy after a certain time. It is suitable for those people who have lower income at present, and they hope for increment in income in the near future.

2. Endowment life insurance policy

It is defined as that type of insurance in which the insured person pays the premium for a certain time and after certain time they receive insured amount. If she/he dies before the insured period his/her nominee receives the insured amount. Generally endowment life insurance policy is done for 10, 15 20 years and more. The insured has to pay the premium either till the end of insured period or till the death of insured which ever is earlier.

• Ordinary endowment life insurance policy: Under this policy, time will be fixed for a certain period and insured person have to pay either till the end of insured period or till his/her death. If he/she dies earlier before insured period, his/her nominee receive the amount. And if she/he is alive than himself/herself go and receive the amount.
• Joint endowment life insurance policy: In this policy, two or more persons are involves s the insured person. The premium amount should be paid till the insured person’s death like in ordinary endowment life insurance policy.
• Double endowment life insurance policy: Under this policy, the insured person receives double of the insured amount is she/he is alive till the end of the maturity time. If she/he dies before the insured person his/her nominee receive only single insured amount.
• Pure endowment life insurance policy: Under this policy, insured person receive the insured amount after the certain time when he/she is alive. If the insured person dies before the end of maturity time the insurer becomes free from its liability.

3. Term life insurance policy

Straight term life insurance policy: Under this policy premium is paid as lump sum money. The insured time maturity period is not more than 2 year. Therefore, it is known as temporary term life insurance policy. If the insured person dies before the insured period his/her nominee receives the insured amount. But if he/she is alive then he/she doesn’t receive anything.

• Straight term life insurance policy: Under this policy premium is paid as lump sum money. The insured time maturity period is not more than 2 year. Therefore, it is known as temporary term life insurance policy. If the insured person dies before the insured period his/her nominee receives the insured amount. But if he/she is alive then he/she doesn’t receive anything.
• Renewal term life insurance policy: Under this period the insurance can be renewed after the maturity of the insured period. Second rate of premium may be higher than the first-rate of premium. Because the age of the person also increases with renew of insurance. It doesn’t need a new health report or any sort of gent report for renewal.
• Convertible term life insurance policy: It is generally done for 5, 6 or 7 years like term life insurance policy. If the insured person want to convert this insurance policy in whole life insurance policy and endowment life insurance policy it can easily be converted.

4. On the basis of profit distribution

• With profit policy: Under this policy the insured person receive the insured amount with the profit of insurance company. In other words if the insured person dies before the term of insured period his/her nominee receive only insured amount not the profit o the company. But if he/she is alive then with the amount of premium the portion of profit of the insurance company is also received by the insurer.
• Without profit policy: Under this policy the insured person doesn’t receive the insured amount with the profit of insurance company. In other words if the insured person dies before the term of insured period or remains alive till the end his/her nominee or himself/herself receive only insured amount not the profit o the company.

5. On the basis of number of insured

• Single life insurance policy: Under this policy there is only one individual as an insured person. In other words, the life of a single person is done insurance. Single life insurance policy is applied in whole life insurance policy, endowment life insurance policy and term life insurance policy.
• Joint/ multiple life insurance policy: Under this policy two or more than 2 people are involved as husband and wife, partners of partnership firm and other people may conduct the joint life insurance policy. It may be applied in whole life insurance policy and endowment life insurance policy.

6. On the basis premium payment

• Single premium life insurance policy: Under this policy, insured person pay the premium to the insurance company at the beginning in the lump sum amount. There is no tension to pay the premium timely later on. It is mostly used in that case when a person wins a lottery.
• Regular premium life insurance policy: under this policy the insured person pay the premium up to his/her death for a certain time. In other words, the insured person pays the premium to insurance company regularly or timely.
• Limited payment premium life insurance policy: under this policy the insured person pay the premium up to his/her death for a certain time. The time is however less than the insured period.

7. On the basis of payment of insured mount

• Lump sum payment policy: Under this policy the insured person receives the total insured amount. Even all premiums have not been paid total insured amount is received by the nominee of the insured person and if the total amount has been paid she/he receives the total insured amount himself or herself.
• Installment payment policy: Under this policy, the insured person and nominee receive the insured amount in the installment basis. It is useful to those individual who are old and lump sum mount may be misused.

Advantages of life Insurance Policy in India

1. Death Benefits

Life insurance enables individuals to protect themselves and their families, in case of any unfortunate happening in the life of the insurer. The insurer pays an amount equivalent to the sum assured as specified in the contract along with applicable bonuses. This is know as the death benefit.

2. Investment Components

Certain whole life insurance policies offer two-pronged benefits of both insurance and investment. While one half of your premium is paid toward insurance, the other half is invested in equity, debt or combinations of both. You get the best of both worlds with a protective covering as well as high returns on your investments. You can make the most of this component by investing in funds that align with your investment horizon and risk appetite. Certain policies allow you to switch between funds as per your evolving goals. The Invest 4G plan offered by Canara HSBC Oriental Bank of Commerce gives you the option of choosing from a range of 7 unit-linked funds and 4 different portfolio management options as per your preference.

3. Maturity Benefits

Life insurance policies can also double as a savings instrument by offering maturity benefits. If the insured survives the policy term and no claims have been made, the total premiums paid are returned at the time of maturity of the policy. In this manner, your life insurance plan can have a savings component, while also offering a protective cover.

4. Tax Benefits

Under the umbrella of Section 80C of the Income Tax Act (ITA), individuals can reduce their tax liabilities by investing in specific instruments. Term insurance is one of them. Under section 80C, the premium paid for your life insurance policy is eligible to attain a maximum tax deduction for up to Rs. 1.5 lakh. In addition to this, under Section 10(10D), any payouts you receive from your insurance policy are completely tax-free (provided your premium does not exceed 10% of your Sum Assured, annually). If you have opted for a health-related rider, such as a critical illness or surgical care rider, you can also avail tax deductions under 80D of the ITA.

5. Coverage Against Liabilities

To fulfill your dreams and attain your goals, you may have required a certain amount of financial support – in the form of loans, mortgages and other types of debt. Be it student loans or credit card debt, dealing with such liabilities can be a source of great financial strain, without a steady stream of income. While you may have the funds to pay off a part of your loans now, your family may find it difficult to manage such liabilities in the event of your unfortunate demise, owing to the loss of income. Thus, taking a life insurance policy ensures that your family has the financial means to steadily meet your loan and mortgage repayments, even in your absence.

6. Riders

You can opt for riders to enhance your life insurance coverage. A number of riders, ranging from Critical Illness to Accidental Total Permanent Disability are available and help protect you and your loved ones against instances wherein your life cover may not come into play.

Life insurance and life insurance plans are an absolute necessity today. life insurance is a risk minimization and protection tool that can help insured and their dependents in multiple ways while dealing with a variety of life events. By understanding the key features and benefits of a life insurance policy, you can make an informed decision.