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Most of the products offered by Indian life insurers
are developed and structured around these "basic"
policies and are usually an extension or a combination
of these policies. So, what are these policies
and how do they differ from each other?
| Term
Insurance Policy |
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- A term insurance policy is a pure risk
cover for a specified period of time. What
this means is that the sum assured is payable
only if the policyholder dies within the policy
term. For instance, if a person buys Rs 2 lakh
policy for 15-years, his family is entitled
to the money if he dies within that 15-year
period.
- What if he survives the 15-year period? Well,
then he is not entitled to any payment; the
insurance company keeps the entire premium paid
during the 15-year period.
- So, there is no element of savings or investment
in such a policy. It is a 100 per cent risk
cover. It simply means that a person pays a
certain premium to protect his family against
his sudden death. He forfeits the amount if
he outlives the period of the policy. This explains
why the Term Insurance Policy comes at the lowest
cost.
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Whole Life Policy |
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- As the name suggests, a Whole Life Policy
is an insurance cover against death, irrespective
of when it happens.
- Under this plan, the policyholder pays regular
premiums until his death, following which the
money is handed over to his family.
This policy, however, fails to address the additional
needs of the insured during his post-retirement
years. It doesn't take into account a person's
increasing needs either. While the insured buys
the policy at a young age, his requirements increase
over time. By the time he dies, the value of the
sum assured is too low to meet his family's needs.
As a result of these drawbacks, insurance firms
now offer either a modified Whole Life Policy
or combine in with another type of policy
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Endowment Policy |
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Combining risk cover with financial savings,
endowment policies is the most popular policies
in the world of life insurance.
- In an Endowment Policy, the sum assured is
payable even if the insured survives the policy
term.
- If the insured dies during the tenure of the
policy, the insurance firm has to pay the sum
assured just as any other pure risk cover.
- A pure endowment policy is also a form of
financial saving, whereby if the person covered
remains alive beyond the tenure of the policy,
he gets back the sum assured with some other
investment benefits.
In addition to the basic policy, insurers offer
various benefits such as double endowment and
marriage/ education endowment plans. The cost
of such a policy is slightly higher but worth
its value.
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Money Back Policy |
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- These policies are structured to provide sums
required as anticipated expenses (marriage,
education, etc) over a stipulated period of
time. With inflation becoming a big issue, companies
have realized that sometimes the money value
of the policy is eroded. That is why with-profit
policies are also being introduced to offset
some of the losses incurred on account of inflation.
- A portion of the sum assured is payable at
regular intervals. On survival the remainder
of the sum assured is payable.
- In case of death, the full sum assured is
payable to the insured.
- The premium is payable for a particular period
of time.
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Annuities And Pension |
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In an annuity, the insurer agrees to pay the
insured a stipulated sum of money periodically.
The purpose of an annuity is to protect against
risk as well as provide money in the form of pension
at regular intervals.
Over the years, insurers have added various
features to basic insurance policies in order
to address specific needs of a cross section of
people.
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