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Features
• Temporary Coverage • Pure Death Benefit • No Capital Build-up • Terminal
illness • Fixed Coverage Amount • Medical Exam for Qualification • Tax-Free
Inheritance
Term insurance Whole life insurance policies
• Ordinary whole life • Limited payment • Convertible whole life • Increasing
whole life
Endowment
• Endowment plans are designed to pay back a lump sum amount after the policy
term which is also known as maturity or on death of the policyholder. It provides a
living benefit to the policyholder as a payouts along with insurance coverage.
Who should consider buying endowment policies?
people with a regular stream of income and need for a lump sum amount after a
period of time may consider buying an endowment plan.
• Endowment plans provide a disciplined route for savings, which could come in
handy in case of a financial emergency. Salaried people, small businessmen and
professionals such as doctors and lawyers should look at this plan to meet their
long-term financial security needs. Also, people who are risk averse and do not
mind settling for lesser return than taking additional risks should go for
endowment plans.
What to check when buying an endowment policy?
Choosing a suitable policy will depend on many factors, including your current life
stage, individual need, income and risk appetite.
• Need to check the premium rates of various endowment plans as they are
expensive compared to term plans. Therefore, a mistake here will cost you more in
the long term.
• Next important thing to check is the insurance company's track record with
respect to bonus payments.
• Other important considerations are the claim settlement ratio, customer service
track record and financial standing of the insurance company.
• Pick an endowment plan which is simple and easy to understand. Further, avoid
policies with complex features and benefits, unless you are able to understand them
very well, because there could be some catch in the fine print, caution experts
Features of endowment
• Death along with Survival benefits: In case of demise of the insured, the
beneficiary/nominee of the policy gets the sum assured along with bonuses. Also,
the insured is allowed to get the sum assured if he/she outlives the policy.
• Higher returns: An endowment policy is helpful in building a corpus for future
and providing financial protection to the family.
• Premium payment frequency: The policyholder can make payment of the
premium based on the policy chosen by him/her. Payment can be done on monthly,
quarterly, half-yearly, and on yearly basis.
• Flexibility in Cover: Riders like critical illness, total permanent disability, and
accidental death can be added to the base plan and enhance the life cover. There
are a few plans that offer waiver in the premium payment in such cases.
• Tax Benefits: The policyholder is entitled to get tax exemption on both premium
payments, maturity and final payouts under the Section 80C and Section 10(10D)
of the Income Tax Act, 1961.
• Low Risk: Traditional Endowment policies are considered safer as compared to
the other investment option such as the Mutual Fund or the ULIP’s because the
amount here is not directly invested in equity funds or the stock market.
Bonus
• The bonuses can be classified as follows
• Reversionary Bonus: This is the additional money that is added to the amount
payable on maturity or death with profit policy. Also, once a reversionary bonus is
announced, it cannot be withdrawn.
• Terminal Bonus: The insurance company will add a discretional amount of
money after completion of a fixed term say 10 or 15 years to the payment made on
the maturity of an insurance policy or on the death of an insured person
Things you need to know before buying an endowment plan
• Begin planning early: Investment is always considered ‘the earlier the better’ as it
offers a long horizon for your invest to grow.
• Select a plan that offers riders: There are some insurance companies that offer
riders as an inbuilt feature and one must never miss to get benefited out of it.
• Review flexibility option: in case an individual is salaried, she/he can choose a
regular endowment policy whereas an individual with irregular income may opt for
single payment option or limited premium payment option.
• Guaranteed and Non-Guaranteed returns: The guaranteed returns such as
guaranteed additions remain fixed and are payable on death or maturity (as
applicable). The non-guaranteed returns include bonuses that are variable in nature
and it depends on the investment performance.
• Bonuses: Bonuses will be declared by the insurance company depending on how
the company has performed. When the insurer has made profits from its
investments, he distributes a part to it to policyholders at the end of each financial
year.
Types of endowment policies
Pure endowment:
o A pure endowment is a type of insurance in which an insurance company agrees
to pay the insured a certain amount of money if the insured is still alive at the end
of a specific time period.
• Joint endowment:
The policy covers the risk of two or more lives under a single policy. • Marriage
endowment: The policy is designed to meet the marriage or education financing
needs of the family member of a policyholder.
Components of a life insurance contract
• A life insurance policy expresses the terms of contract between the insurer and
the insured. It also states the rights, privileges and obligations of the insured. • The
policy document must contain: o Definition of risk covered o Duration of risk o
Premium o Amount of insurance
Structure of a policy
• Heading: Name and address of the insurer, the jurisdiction in cases of legal
disputes and the address where any notice can be served by the insured against the
company
• Preamble: States the intention of the parties to the contract, receipt of the
proposal, and an acknowledgement of the first premium
• Operative clause: Mentions the mutual responsibilities and obligations of both
the parties.
• Schedule: o Details of the policyholder: policy number, date of commencement,
date of proposal, name and address of the proposer and life assured o Scope of
cover: plan and term of insurance, sum assured, date of maturity, events on which
the benefits become payable, any additional benefits like accident
o Nominee details o Premium: Installment premium, due dates, mode of payment,
period during which premiums are payable, dates on last premium o Age: Age of
life assured o Any special provision
Basic procedure for issuing a life insurance policy
• Meeting with the client understanding the financial status and requirement
gathering • Filling up of the proposal form • Document collection: age proof,
address proof, income proof • Medical examination • Premium amount decision •
Policy issuance
Other Features
• Alteration • Issuance of duplicate policy • Nomination • Assignment • Lapse and
revival • Policy Loans • Surrender • Foreclosure
Annuity Plans
o Immediate Annuity: There is no accumulation phase and the plan starts
working right from the vesting phase. It is purchased with a lump sum and the
annuity payment starts immediately either for a limited tenure or lifetime.
o Deferred annuity: Here the annuitant pays premiums till the policy term is over.
After its term, the annuitant will start receiving the pension. No tax is levied on the
amount the annuitant invests. You can make a one-time payment or make regular
contributions towards the plan.
o Annuity Certain Annuity is paid for a specific period. If the insured dies before
that period, the beneficiary receives the amount.
o Guaranteed Period Annuity Annuity is paid for certain periods regardless of the
survival of the annuitant
Types of Annuity Plans
With & Without Cover Pension Plan With cover’ will give you a life cover, a
lump sum amount is paid to your family in the event of your death. ‘Without
cover’ implies you do not get any life cover. The amount built till the date of
your death is paid to your dependents. Deferred annuity is with cover and
immediate annuity plans are without cover.
o Life Annuity Pension is paid till the annuitant’s death.
o National Pension Scheme This is introduced by the government. You have the
option of withdrawing 60% of the amount at retirement and the rest is used to
purchase annuity. The maturity amount is not tax free though.
Annuity/Pension Plan Options
• Annuity Payable For Life • Annuity Payable For Life With A Guaranteed Period
• Increasing Annuity at a fixed rate • Joint life and last survivor annuity • Joint life
and last survivor annuity
Benefits of annuity
• Provision of Regular Income Post Retirement • Funds at Times of Need • Tax
Benefits • Insurance Protection
Money back plans
• In a money back plan, the insured person gets a percentage of sum assured at
regular intervals, instead of getting the lump sum amount at the end of the term. It
is an endowment plan with the benefit of liquidity. • Example Page 265. Book PK
Gupta