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Chapter

Classification of Policies

Slide prepared
prepared by:
by:Abdullah
AbdullahAl
AlYousuf
Yousuf Khan
Khan
Slide
Assistant Professor
Professor -- IUBAT
IUBAT
Assistant

McGraw-Hill/Irwin

Copyright 2006 by The McGraw-Hill Companies, Inc. All


rights reserved.

Classification of Policies
The life insurance contract provides elements of
protection and investment.
Life insurance provides against pre-matured death
and a fixed sum at the maturity of the policy.
The older the policy, the lesser the element of
protection and higher the element of investment
and vice versa.
Premium
Investment
Protection
Age of the Policy
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Classification of Policies
Having different elements in different
policies, the policy-holders are free to
choose the best policies according to their
requirements.
No one policy is the best for all the policyholders due to variance in;

Costs,
Elements of investments and protections
Requirements of the policy-holders, and
Availability of the policy.
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Policies can be Divided on the


Basis of;
A. Duration of Policy
B. Methods of Premium Payments
C. Participations of Profit
D. Numbers of Lives Covered
E. Methods of Payment of Claims
F. Non-conventional Policies

A. Policies According to
Duration

Whole-life
Term Insurance
Endowment Insurance
Survivorship Policy

Whole Life Policies


Whole life policies are issued for life. It means that
the policy amount will be paid at the death of the
life assured.
The person whose life assured will not get the
money during his/her life time; only the
dependents will get the benefit of this policy.
Whole life policies cane be effected either by
payment of;
Single premium
Continuous premium
Limited premium

Limited Payment Whole-Life


Policies
Premium is limited to certain period, although
the amount secured under this plan is payable
on the death of the policy holder.
Premium under this plan is higher than the
premium payable under a whole life plan.
Since the premiums are payable for a selected
period of years or until death if it occurs within
this period, the life assured is satisfied to know
the amount of maximum premium payable.
If the life assured survives the premium paying
period, the policy continues in full force,
provided all premiums are paid.
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Convertible Whole-Life
Policies
This is a whole-life policy which gives its holder an
option to get it converted at the end of five years,
into an endowment policy.
If this option is exercised, the policy no longer
remains a whole-life policy. If it is not exercised,
the policy continues to be a whole-life policy with
premiums ceasing at the age of 70..
The objective is to provide maximum protection at
a minimum cost and at the same time to offer a
flexible contract for converting into endowment
policy.
The premiums is increased if it is exercised.
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Term Insurance Policies


Term insurance is far a short period of years
ranging from 3 months to 7 years.
Sum assured is payable only in the event of death
of the life assured occurring during the period.
If the life assured survives the period, the
insurance comes to an end without any payment.
the premiums are paid during the term of the
insurance or till the death of the life assured.
Term insurance policies are the cheapest policies.
No profit is given.

Term Insurance Policies


Useful to those;
Who needs extra protection for a short duration
Who need protection for long duration but unable to
purchase for the time-being for low income or ill
health
A young businessman to save the business from
disaster during the initial stage of the business.
Key-mans insurance.
A father for his children during the education period.
Any person who needs insurance for a shorter
period.

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Straight-Term (temporary)
Insurance
Issued for two years (also called two-years temporary
assurance policy.)
The sum assured will be payable only in the event of
death of the life assured within two years from the
commencement of the policy.
A single premium is required.
The policies are issued only without profit plan.
The policy holder is required to pay the medical fee.
The policy is entitled to any surrender value and no
loan can be granted.
This policy cannot be converted into other plans.

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Renewable Term Policies


These policies are renewable at the expiry
of term for an additional period without
further medical examination; but the
premium rate will be increased according
to the age attained at the time of renewal.
These policies are suitable to those whose
health are deteriorating and will be
uninsurable at an advanced age.
The policy-holder can renew it many times
up to the age of 55.
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Convertible Term Policy


This policy gives an option to convert it into a whole-life or
endowment policy.
Without having to undergo a fresh medical examination.
The option can be exercised any time except the last two
years.
A new policy is issued after conversion it into either wholelife or endowment policy.
The premium rates will be increased according to the age
attained.
This policy is issued to first class lives.
Persons aged over 40 years and those are in hazardous
occupation are not eligible to use this option.

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Endowment Policies
Life insurance
policythatpaystheassuredsum(face amount)
on a fixed date or upon thedeathof theinsured,
whichever comes earlier.
Endowmentpoliciescarrypremiumshigher than
those on conventional whole life policies andterm
insurance, but are useful inmeetingspeciallump
sumneedssuch as collegeexpensesor
forbuyingaretirementhome.
Alsocalledendowment life policy or endowment
policy.

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Types of Endowment
Policies
1.
2.
3.
4.
5.
6.
7.

Pure Endowment Policy


Ordinary Endowment Policy
Joint Life Endowment Policy
Double Endowment Policy
Fixed Term (Marriage) Endowment Policy
Educational Annuity Policy
Triple Benefit Policy;
1. If death occurs within a stipulated period
2. On survival on selected term

8. Anticipated Endowment Policy


9. Progressive Protection Policy with Profit
10. Anticipated Whole Life policy with Profits

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1. Pure Endowment Policy


The sum assured is payable on the life assureds'
surviving the endowment term.
In the event of his/her death within the term
(endowment), premiums may be returned or not.
Thus pure endowment policy is opposite to term
policy.
Because the insured is paid if he/she survives in
pure endowment and if he/she dies in the term in
term policy.
Pure endowment is for the benefit of the policy-holder and term
insurance term-policy is for the benefits of others (e.g.
dependents).
Pure endowment policy has the element of investment, and the
term-policy has the element of protection.
Pure endowment grants protection against living
16long while

2. Ordinary Endowment
Policy

This is the policy which actually represents the life insurance in


true sense.
It provides an ideal combination of both the family protection and
the investment.
It is taken out for a specified term of years.
The sum assured being payable either on the life-assureds death
during the period or on the survival to the end of the period.
Premiums are payable throughout the term of the policy or to a
limited period or till the prior death of the life assured.
This provides solutions to various problems of life whether living
too long or too short.
Moreover, compulsory savings is possible in this policy.
Other advantages are to meet the marriage, education or other
family requirements.

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3. Joint Life Endowment


Policy
This policy covers more than one life under a single policy.
Under this plan, the sum assured is payable on the expiry of
the term or on the death of the assured-lives during the
endowment period.
Premium are payable throughout the endowment period or
till the prior death of anyone of the lives assured.
Premium is calculated with certain modification according to
the age of all insured partners.
Paid-up and surrender values are payable on the policy.
This policy is suitable for partners of a business firm.
This policy is also beneficial for couple.

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4. Double Endowment Policy


Under this policy, if the life-assured dies during
the endowment period, the basic sum assured is
payable and if he survives to the end of the term,
double of the sum assured is paid.
The term of policy is ranging from 10 to 40 years
but no policy is insured to mature at an age of 65
years.
This plan is suitable for persons whom, by reason of
some physical disability, are not eligible for acceptance
at the tabular rates under any of the other classes of
insurance.
This is also beneficial to those who are confident of living
long but would like to have some cover in the event of
his early death.
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5. Fixed Term (Marriage) Endowment


Policy
Under this policy, the sum-assured is payable
only at the end of a stipulated period, but the
premiums ceases if death of the policy-holder
occurs earlier.
In such an event, the policy will remain fully
paid until the maturity date but the
beneficiary may discount the policy before
maturity.
This policy is designed to meet the needs of a
family man who wants to make available a
certain sum for marriage of a female
dependents.
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6. Educational Annuity
Policy
Like marriage endowment policy, this policy is
also taken by a father or guardian who
undergoes medical examination.
The children for whose benefit (education)
policy is taken is called beneficiary.
The difference is that the sum assured is not
payable, but a lump sum is payable, in equal
installments over a period of five years.
The installments are payable in five years halfyearly.

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7. Triple Benefit Policy;


This policy is a combination of a whole-life limited payment
and a pure endowment with a guaranteed annual bonus
payable on death during the endowment term.
This policy is granted for fixed terms of 15, 20, or 25 years.
Premiums are paid throughout the term or till prior death of
the life-assured.
The special feature of the plan is that there is a guaranteed
and steadily increasing family provision during the selected
period along with the old age benefit.
The provision for the family does not terminate when the old
age benefit is paid at the end of the period and no further
premiums are payable thereafter, but a sum equal to the
original sum assured still remains to be paid on the death of
assured.
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7. Triple Benefit Policy;


Benefits
A. If Death occurs within the Stipulated Period; the
benefits payable to dependents, in the case, are;
i.
ii.

The basic sum assured


A guaranteed bonus per annum equal to Rs. 25/- per
1,000/- sum assured for each full years premium paid
excluding the first years premium.

B. On survival to the Selected Term; the following


amounts are paid at the survival of the life
assured at the selected term;
i.
ii.

The basic sum assured in cash, and


Actually paid-up whole-life assurance for a like amount
payable at death thereafter.

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8.Anticipated Endowment Policy


In the event of death occurs at any
time during the term of the policy,
i.e., before the maturity date, full
sum assured is payable without any
deduction of installments paid earlier.
The policy may be issued both under
profit or without profit plan.
The term may be for 15, 20, or 25
years.
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9.Progressive Protection Policy


with Profit
This policy is very useful for those who want to
provide additional insurance benefits for additional
responsibilities.
The sum assured increases automatically by half the
initial sum assured at the end of five years and again
by half the initial sum assured at the end of ten
years.
No need for additional medical evidence for
subsequent increase in the sum assured.
After ten years the benefit, under this policy, will be
double the initial sum assured, payable on survival
at the end of the selected term or on death within
the term.
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10. Anticipated Whole Life policy


with Profits
This policy provides two distinct types
of benefits in one policy the benefit of
Whole-Life Limited Payment Policy and
Anticipated Payments at five yearly
intervals.
It provides complete long-range
insurance protection for the family and
in addition helps meet various shortterm needs through periodical
payments.
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10. Anticipated Whole Life policy


with Profits;
For a policy with a term of 20 years, 1/8th of the sum
assured becomes payable on the life-assureds
surviving 5 years, a further 1/8th of the sum assured
becomes payable on his surviving 15 years and a final
1/8th of the sum assured becomes payable on his
surviving to the end of the term of 20 years.
For a policy with term of 25 years, 1/10th of the sum
assured becomes payable on the life-assureds
surviving 5 years, a further 1/10th of the sum assured
becomes payable on his surviving 10 years, a further
1/10th of the sum assured becomes payable on his
surviving 20 years and a final 1/10th of the sum assured
becomes payable on his surviving to the end of the
term of 25 years.
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11.New Jana Raksha Policy

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12. Mortgage Redemption


Assurance Policy
This policy meets the requirements of institutions and
individual borrowers to ensure that the outstanding
loan is automatically extinguished in the event of the
borrowers death.
The benefits under the plan at any time during the
term of the policy would be the amount of outstanding
loan at the beginning of the year as envisaged at the
beginning of the transaction, and would become
payable in the event of the death of the borrower.
A schedule showing the amounts of outstanding loans
at the beginning of each year would be drawn up at
the outset on the basis of predetermined rate of
interest.
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13. Children Deferred Endowment


Assurance
Sometimes a parent or guardian of a child
wishes to take an insurance policy on the life
of the child under which premium is paid by
the proposer during the first few years and
by the life-assured (the child) thereafter.
Benefits of the policy;
Very low premium
Habit of saving money by the child
Cash value in case of discontinuing the policy to
meet specific expenses such as education or
marriage.
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14. Children Anticipated Policy with


Profits
This policy can be taken by parent or legal
guardian or any near relative on the life of a
child on whose life risk will commence at
the age of 18 completed, or 21 years as
required by the proposer.
The policy will automatically vest in the life
of the child at the end of the deferment
period and half of the premiums paid during
this period will be returned to him in lump
sum.

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15. Married Womens Property Act


Policy

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16. Survivorships, Reversionary or


Contingent Assurance
There are two persons in this policy,
first a named insured and another
named person.
The sum-assured is payable if the lifeassured dies before the named
person (or counter life).
Nothing is payable if the counter life
(named person) dies first and the
contract then ceases.
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B.

Policies According to Premium


Payment

1. Single Premium Policy;

In this policy, the whole premium is paid at the


beginning of the policy.
As compare to the annual premium payable, it is
costlier; but as compared to the aggregate of all
annual premiums payable, it is much cheaper

2. Level Premium Policy;

Under this policy a regular and equal premiums


are paid at a definite interval.
The premiums are lesser than the single
premiums and is convenient to make payment
at a regular period.
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C.Policies According to
Participation in Profits
1. Non-Participating Policies;

The policy-holders are not entitled to share the


profits of the insurer.
The policy holder only get the sum assured and
no bonus is given to them.

2. Participating Policies;

The policy-holders are entitled to share the


profit of the insurer.
If there is no profit than the policy-holders will
not get any bonus or bear any loss of the
insurer as policy-holders are not owners of the
business.
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D. Policies According to the


Number of Persons Insured
1. Single Life policies;

The policy is issued on only individual. Policy


can be issued on ones own life or somebody
elses life.

2. Multiple Life Policies;

More than one life is insured. It may be a;


a. Joint Life policy;

The policy covers two or more lives and the policy


amount is payable on the first death. This is beneficial to
the partners of a firm or to a couple.

b. Last Survivorship Policy;

The policy amount is payable at the last death. So long if


anyone of the insured is alive, no payment will be made.
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E. Policies According to the Method of


Payment of Policy Amount

Lump Sum Policies;


Where the sum-assured is paid in lump
sum at the events insured against.

Installment or Annuity Policies;


The policy amount is payable in
installments.
It is beneficial to those whose earnings
capacities are reduced to minimum to
old age.
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End of Chapter

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