Insurance provides financial protection against unexpected events. Life insurance is meant to offer financial protection to dependents in the unfortunate event of one’s death. Its purpose is to enable one’s dependents to maintain their current life style and pursue their life goals. Our article Basics of Insurance  explained basics of Insurance -Life and Non Life or General. What is insurance, which insurance is compulsory? terms associated with insurance. In this article we have explained different kinds of Life Insurance policies like Term Plans and Endowment, Money Back, Whole Life, Unit Linked Plan along with examples. We have shown the differences between different kind of Life Insurance policies.

Plans offered by insurers can be classified into following categories:

• Pure Insurance Products :Term Plans 
• Investment cum Insurance: Endowment, Money Back, Whole Life, Unit Linked Plan.

Terms related to Life Insurance Policies

Basics of Insurance mentions general terms related to Insurance like Premium, Sum Assured. Some terms specific to life insurance polices are:

• Bonus / Participating profit – is declared by the insurance company each year as a proportion of the sum assured. Usually Bonuses are declared per thousand Sum Assured annually at the end of each financial year. This amount could vary; it could be different for different policies and terms. Although declared each year, the bonus is a lump sum payment made to the insured person upon maturity or to his family upon death, in addition to the sum assured. Bonus is based on an insurance company’s assumptions about the future performance. Not all companies guarantee the amount of bonus on each policy.
• Guaranteed additions: The amount paid as returns in assured-return insurance plans. Guaranteed additions are expressed as a percentage of the sum assured, with the amount payable being stated by the insurer at the outset.Like the bonus amount, this is a lump sum payment made to the insured upon maturity or to his family upon death, in addition to the sum assured.
• Survival Benefit : is the amount of money received at pre-fixed, regular intervals by the insured person, upon survival of the term of the policy. Often, money received upon maturity or at the end of the term of the policy is also referred to as Survival benefit.
• Maturity Benefit : is the amount of money received by the insured, upon survival of the term of the policy. In case of policies that offer a bonus, the sum assured plus the bonus for the term of the policy is paid to the insured upon maturity. In addition, some policies offer a loyalty addition, which is paid as a proportion of the sum assured and is based on the term of the policy. In case of policies that offer no bonus, upon maturity, the sum assured or a refund of the premium or no money is receivable by the insured (depending on the type of policy selected).
• Cover  or Death Benefit or Sum Assured (SA) : the amount of insurance cover you have or the minimum amount your family receives in the event of your demise. In addition to the sum assured, this would include the bonus, if any. If additional riders such as Accident Death Benefit or Additional Sum Assured have been selected, the amount of money receivable by the nominee could be higher.
• Returns or Pre-tax yields – Interest earned on the premium, on a compounded basis, is the pre-tax yield.
• Post-tax yields – If the premium paid for a life insurance policy is used as a tax deduction under section 80C, then the effective premium paid by the insured is lower. Interest earned on the effective premium, on a compounded basis, is known as the post-tax yield.

Riders: Additional covers that can be added to a life policy, for a cost For example – If Akshay, has taken a policy which offers a sum assured of Rs. 10 lakhs and has taken an accidental death benefit rider of an additional Rs. 10 lakhs. In the event of death of the policy holder due to an accident during the tenure of the policy, the nominee would get Rs. 20 lakhs as the death benefit.

• Critical illness rider: A rider that provides a policyholder financial protection in the event of a critical illness
• Accident Benefit Rider : A rider that compensates a policyholder in the event of death or injury by accident
• Disability / dismemberment benefit rider: A rider that provides for additional cover in the event of disability, or dismemberment, of the policy holder due to an accident

Waiver of Premium Benefit :In case of death of the insured person, the premiums are waived off for the rest of the tenure and  policy continues.

Lets look at different kind of life insurance plans.

Term Plan

A term plan is a pure protection plan. It covers only the risk of dying of person who has taken the plan,called policy holder from the insurance company called as insurer. Further, rising aspirations have led to an increase in liabilities, such as home loans/mortgages. Hence, protection is required not only for financial security but also to provide a safety net for meeting liabilities. The policy holder gets his life insured

• For an amount called as cover amount or Sum Assured (SA). In the event of death of the policy holder, nominees receive at least the sum assured.
• For a specific period of time called as policy term or simply term. The insurer pays a benefit only during the term. It is available from 5 years to as long as 35 years.
• Pays a fixed amount, called as premium, to insurer during the policy term. The premium that a person is determined by several factors such as age, health, etc. Premium is paid one time or annually or in smaller payments over the course of the year. The amount can remain same or change over time based on the policy. When insurance premiums are not paid, the policy is typically considered void and companies will not honor claims against it.

It is a policy under which the insured amount is payable to the assured by monthly or annual installments after he attains a certain age. The assured may pay the premium regularly over a certain period or he may pay a lump sum of money at the outset(single premium). These policies are useful to persons who wish to provide a regular income for themselves and their dependents.

Example : LIC provides 2 term insurance policies.

• Anmol Jeevan – 1 for  Sum Assured between Rs.5 lakhs – less than Rs. 25 lakhs,
• Amulya Jeevan – 1 for Sum Assured of Rs 25 lakhs or more

For Amulya Jeevan – 1 Sum Assured = Rs.50,00,000 , Policy Term = 25 years taken by male of age 35 years the premium works out to be 19,850.So if Mr Sharma at 35 years takes this policy and pays his premium regularly then if he dies before 60 years(current age : 35+ policy term : 25 years) his nominee will get 50,00,000 (50 lakh) , if he survives till 60 years he will not get any money.

Now insurance companies also also providing  online term plans which are cheaper than the regular plans. They are also providing some variations to basic term plan. For example Max Life Insurance has basic Online Term plan but also Max Life Online Term Plan Life Cover + Monthly Income and also Max Life Online Term Plan Life Cover + Increasing Monthly Income. For example Max Life Online Term Plan Life Cover + Increasing Monthly Income,in addition to Sum Assured payable on death, also  provides monthly income for 10 years, that increases at 10% simple rate of interest every year of the first year monthly income.

Endowment Plans

It is Money if you die, Money if you live plan. In case of endowment plans if policy holder dies during the policy term, nominee gets the sum assured plus some returns; if he survives the policy term, he gets back the sum assured and returns. But it comes at a price – high premium, which drag down the returns to barely 4-6%.

Example : Bajaj Allianz Super Saver Plan

This plan is a simple endowment plan

• Sum Assured + Guaranteed Additions + vested Bonus is paid on Maturity or on earlier Death
• Guaranteed Additions of 4% of sum assured at the end of each policy year.
• This plan has in-built Accidental Death Benefit rider and 2 additional riders
• This plan has a 2 year premium holiday facility from second policy year onwards
• Benefits you get from Bajaj Allianz Super Saver Plan
  • Death Benefit – In case of death of the Life Insured, the nominee receives the Sum Assured + Guaranteed Additions + the Vested Bonus
  • Maturity Benefit – At the maturity of the policy, the insured will get Sum Assured + Guaranteed Additions + the Vested Bonus

	Minimum	Maximum
Sum Assured (in Rs.)	20,000	No Limit
Policy Term (in years)	10	30
Premium Payment Term (in years)	10	30
Entry Age of Life Insured (in years)	18	60
Premium (in Rs.)	1055 p.a.	No Limit

For healthy Male (non-tobacco user) opting for a Sum Assured = Rs 1,00,000 Policy Term = 25 years.

	30 years	35 years	40 years
Annual Premium	6173	6285	6474

Money Back Plan

Similar to Endowment plan with basic difference that unlike endowment plans where benefits are disbursed at end of policy term, money back policies payout a fixed percentage at various interval. A portion of the sum assured is paid out at regular intervals. If the policy holder survives the term, he gets the balance sum assured.guaranteeing a regular flow of income at fixed stages in our lives

Example of Money Back Plan : HDFC SL New Money Back Plan

Eligibility of HDFC SL New Money Back Plan

• Age: Minimum Entry Age: 14 Years, Maximum Entry Age: 53 Years, Maximum Maturity Age: 65 Years
• Policy Term: 12, 16, 20 and 24Years
• Minimum Premium: Rs 10,000 per annum
• Benefits :

• Death benefit:In case the Life Assured passes away, Sum Assured along with vested bonuses will be paid.
• Money Back:A specified % of Sum Assured will be made every 4 years.
• Maturity Benefit:On maturity, life cover deducted by survival benefits and bonuses will be paid.
• Bonuses: Reversionary bonus will be made every year. Terminal bonus if any will be added on maturity.
• Rebates:If Sum Assured is equal or more than Rs 5 lacs, discount of 5% on basic Premium is also given.

Ex of payout for a policy taken for 16 years and 20 years is as follows:

Policy Terms (Yrs.)	Survival Benefit as a % of Sum Assured (Money Back Payout)
	4th yr	8th yr	12th yr	16th yr	20th yr
16	25%	25%	25%	25%+ attaching bonus
20	20%	20%	20%	20%	20% + attaching bonus

Whole Life Plan

A whole life policy covers a policyholder against death, throughout his life term as the name suggests unlike limited terms of the other plans. The whole life plans are structured such that a policy holder has the option to pay premiums upto a specified period (which may also be only for one year, such policies are called as a single premium policy). Whenever policy holder dies(before the maturity or after) , his nominee gets the Sum assured and then the Policy Expires . This policy will expire at predefined age (75/80/100) .

Example of Whole Life Plan: Kotak Eternal Life Classic Shield Plan  From the (pdf format)

• Life cover: Eternal Life Classic Shield is a participating Whole Life plan designed to give life protection till the age of 99.With this plan, your cover doesn’t end with premium payment term but ones remain protected till his 99th birthday.
• Premium paying term:Flexibility to choose the premium paying term as per your requirement. With a minimum payment term of just 10 years, one can choose to pay for any number of years, with a maximum payment term of 40 years or until you reach age 75, whichever is earlier
• Bonus: During the life of the policy, one will be eligible for the following:
  • Simple Reversionary Bonuses, declared annually by Kotak Life Insurance and are expressed as a percentage of basic sum assured. They are payable
    • on death during the premium payment term or
    • on survival to the end of the selected premium payment term.
  • Special Terminal Bonus etc
• Benefits:
  • On Survival : Vested Simple Reversionary Bonus Special Terminal Bonus (if any) available as a cash lump sum benefit
  • On Maturity: Upon survival till age 99 :Guararanteed Sum Assured + Terminal Bonuses(as applicable) payable
  • On death of life insured during premium paying term : Guaranteed Sum Assured + Vested Reversionary Bonus (if any) + Interim Bonus (if any) + Terminal Bonus (as applicable) payable
  • On death of life insured after premium paying term : Guaranteed Sum Assured + Terminal Bonus (as applicable) payable.

JagoInvestor review of LIC Jeevan Tarang policy

Unit Linked Plan

Unit linked Insurance Plan or ULIPs are life insurance and investment plans. Part of the premium paid by the customer goes towards providing the insurance cover and the balance is invested in venues of investment desired by the policy holder. These insurance plans double as mutual funds. The funds can be chosen by the customers depending on their risk appetite. A Unit stands for a portion or a part of the underlying Fund.  There are two type of ULIPs.

• Type I Ulip: In this plan on death of the policyholder the policy pays the higher of the sum assured or the unit value of the investment to nominees.
• Type II Ulip: In these plans on death of the policyholder the policy pays out both the sum assured and the net asset value of the fund the policyholder invested in to nominees

Ulips are liquid only after the lock-in period of five years. This is achieved by redeeming units in which the premiums are invested in. One can also make premature withdrawal or surrender the policy at a loss.

Valueresearch Unit Linked Insurance Plan (ULIP) covers ULIPs in detail.

Example of ULIP : SBI Life – Unit Plus Super is a flexible non participating Unit linked insurance Plan. Key features of the plan are:

• Guaranteed Additions of up to 75% of one annual regular premium on a regular premium policy, for a 30 year policy term, subject to the Policy being in force till the maturity date.
• No Policy Administration fee for first 5 years for Regular and Limited Premium Paying Term (LPPT) plans, thereby boosting your fund value
• No Premium Allocation Charge from 11th year onwards
• Guaranteed Additions starting as early as 10th policy year onwards
• Enhanced investment opportunity through 9 varied Fund Options including P/E Managed Fund, Index Fund & Top 300 Fund
• Option to pay Regular/Limited/ Single Premium; Switch or Redirect your premiums
• Flexible product with an option to increase/decrease your Sum Assured from 6th year onwards
• Life Insurance coverage, with minimum Sum Assured, based on your age
• Liquidity through Partial Withdrawals.
• Option to customize the product with a wide range of riders: SBI Life – Criti Care 13 Rider , SBI Life – Accidental Death Benefit Linked Rider , SBI Life – Premium Payor Waiver Benefit Rider  and SBI Life – Income Sustainer Rider .

Child Insurance plans

A child insurance plan is a saving cum investment plan that is designed to meet one’s child‘s future financial needs. From a very early age of the child, the parent can invest fixed amounts every year which can be timed to mature around major events like marriage or higher studies. There are built-in flexibilities like waiving off the premium even after the death of the parents. Child Insurance Plans come in 2 variants –

• Traditional plans like moneyback polices or endowment plans and
• ULIPs in which part of the amount paid as premiums every year is invested in financial .

More details at WealthWisher A primer on child insurance plans in India

Comparing Life Insurance Plans

	Term Plan	Endowment Plan	Money Back	Whole-life	Unit Linked Plan
Policy Term	Premium Payment Period	Premium Payment Period	Premium Payment Period	Maturity Age/Whole life	Premium Payment Period
Periodic Payback during policy term	No	No	Yes	No	No
Benefits	No	One time Loyalty Additions/Guaranteed Additions or Bonus every year if participating	Bonus every year for participating plan	Bonus if applicable for participating plan	NAV Linked
If policy holder dies during the term	Sum Assured	Sum Assured	Sum Assured + Benefit accrued	Fund value at time of death AND/OR sum insured based on type of ULIP	Sum Assured + Value of units on date of death
If policy holder survives the term	Nothing	Sum Assured + Benefits	Balance Sum Assured + benefits	Fund value at time of maturity	Sum Assured + Value of units on date of Maturity

 Tax Implications

Premiums paid towards a life insurance policy qualify for tax deductions under Section 80C with a limit of 1 lakh in a financial year.

•  If the premium paid exceeds 20 per cent of the sum assured of the life insurance policy, the amount eligible for tax deduction under section 80C will be limited to 20 per cent of the sum assured.
• The proceeds from the maturity or claims on a life insurance policy are exempt under Section 10(10D).

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Note: We have no tieups with any insurance company and we are not recommending any policy here. The policies were picked randomly. General Disclaimer applies.

Related Articles:

• Basics of Insurance

This article covered the basics of Life Insurance explaining the different life insurance policies, what is difference between them etc. In next article we shall expand on why one should not mix insurance with investment, compare term plan with endowment plans, having multiple insurance polices etc.