Tuesday, 6 June 2017

Life Insurance and different types of Life Insurance policies-HSC/Class 12,OC/OCM

What is Life Insurance?

Under life insurance, the subject matter of insurance in human life. The human life is the insured against various risks like accident, death, etc.

Life Insurance is basically for legal heirs of the person insured, i.e. Legal heirs of the person on whom the life insurance is taken. So, in the event of death of the person insured, the insurance amount goes to the legal heir

Various types of life insurance policies-

1. Whole life Policy - Under this policy, the whole life of a person is insured. The person who is insured cannot receive any amount under this policy. Insurance amount is paid to the nominee or the legal heirs of the person insured on his death. The rate of premium is very low in case of whole life policy.

2. Term Plan - A term plan is similar to a whole life policy. The only difference is that under term plan, the person is insured for a specific period only like 10 years, 15 years, etc. The premium of a Term plan is lowest among all types of life insurance policies. Suppose if a person has taken a term plan for say 10 years. The nominee will get the insurance amount if the person insured dies within the term of the plan (which is 10 years in our example). If the person survives the tenure of the policy he gets nothing in return.

3. Endowment Policy - Again, this policy is not for whole life. It’s for a specific period only. Under this policy, the nominee or legal heir gets the sum assured (the insurance amount) plus a bonus in the event of the death of the person insured. The Bonus is some extra amount which is paid by the insurance company over and above the sum assured. However, if the death of the insured doesn’t happen within the tenure of the policy, then he himself gets the sum assured plus bonus on completion of the term of life insurance policy. The bonus amount depends on income earned by the insurance company by investing a certain portion of the premium in various assets like government securities/bonds etc. It is a insurance cum investment product.

4. Money back policy - This policy is also a insurance cum investment product. Under this policy a certain percentage of insurance amount is paid regularly (to the person insured) during the lifetime of the policy. It can be after every 3 years or 4 years or 5 years etc. In the event of the death of the person insured, the nominee gets full sum assured. The policy comes to an end with the death of the person insured.

5. Joint life policy - Under this policy, two or more individuals are jointly insured, For example, the individuals can be husband and wife or it could be all the partners of the partnership firm. The sum assured/policy amount is paid at the end of the term of the policy or on the death of any one person whichever is earlier.

6. Annuity policy - This policy is basically for retirement planning. Under this policy, the person insured pays the premium in a lump sum or in installments over a certain period of time. The person insured will get a specific amount periodically from a specified date onward for the lifetime or for a fixed number of years depending on the terms and conditions of the policy

7. Unit linked insurance plans - This policy is similar to endowment policy. Under endowment policy, a certain percentage of premium amount is invested in safe investments like Government securities, bonds, etc. So there is not much risk involved in such types of Investments. Hence the surety of getting a decent bonus is much more. Whereas in unit linked plans, the investment made by the insurance company is in slightly riskier assets like shares, etc. So the surety of getting a good bonus is not there and you may also end up getting a negligible or maybe even zero bonus.

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