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Q.WHAT IS LIFE INSURANCE ?
EXPLAIN
TYPES OF LIFE INSURANCE?
ANS. Life insurance is a contract between an
insurer and a policyholder in which the insurer
guarantees payment of a death benefit to named
beneficiaries when the insured dies. One of the
most essential financial instruments, life insurance
helps your family to stay financially independent,
square off liabilities taken in the form of loans,
maintain the lifestyle provided, and keep essential
goals on track.
KEY POINTS
 Life insurance is a legally binding contract.

 For the contract to be enforceable, the life
insurance application must accurately disclose
the insured’s past and current health
conditions and high-risk activities.
 For a life insurance policy to remain in force,
the policyholder must pay a single premium up
front or pay regular premiums over time.
 When the insured dies, the policy’s named
beneficiaries will receive the policy’s face
value, or death benefit.
 Term life insurance policies expire after a
certain number of years. Permanent life
insurance policies remain active until the
insured dies, stops paying premiums, or
surrenders the policy.
 A life insurance policy is only as good as the
financial strength of the company that issues
it. State guaranty funds may pay claims if the
issuer can’t.
TYPES OF LIFE INSURANCE
1. Term life insurance:

Term insurance is the simplest form of life
insurance available in the market. A pure
protection plan, a term insurance offers a
large coverage at an affordable premium. A
30-year-old non-smoking male can opt for a
term plan offering a cover of Rs.1 crore for
a policy term of 30 years by paying a
nominal premium of a little over Rs.8,000
per annum. Term plan gives you the
flexibility to choose a sum assured 15-20
times of your annual income.
It pays your nominee the sum assured in

case of your demise within the policy term.
The insurance proceeds received help your
family to meet daily expenses and pay off
debts. Note that pure term plans have no
maturity benefits. It means, in case you
survive the policy term, you don’t get these
benefits.
However, of late insurers have come up with

the return of premium term insurance plans
which return all the premiums paid in case
you survive the policy term. But these plans
are slightly more expensive than pure term
plans.
2. Endowment plans
Weaving insurance and investment in a
single product, endowment plans offer life
cover as well as build a corpus for essential
life goals. A certain portion of the premium
goes towards the sum assured, while the
other portion is invested in low-risk
avenues. In case of your demise during the
policy term, your nominee gets the sum
assured.
In case you survive the policy term, you get

the sum assured as maturity amount along
with the accumulated bonuses. Thus,
endowment plans fulfil the dual needs of
insurance and investment.
3. Money back policies

Money back policies are similar to
endowment plans, except that they pay a
certain amount at pre-defined intervals
during the policy term. For instance, a
money-back policy for a term of 15 years,
may pay a certain amount at the end of 5th
and 10th year of the policy term. On policy
maturity, it pays the maturity benefits
along with the accumulated bonuses.
4. Unit linked insurance plans (ULIPs)

Combining insurance and investment in a
single product, ULIPs offer life protection
as well as the opportunity for capital
appreciation by investing in various funds of
varying degrees of risk. Just like
endowment policies, in ULIPs a certain
portion of the premium goes in providing
life cover, while the other portion is
invested in markets to earn returns.
Every ULIP has underlying funds belonging

to different asset classes such as equities,
debt and hybrid where it invests to
generate returns. ULIPs offer partial
withdrawal facility after the end of the
lock-in period (5 years) and also offer
switching facility whereby you can switch
from one fund to another. This facility
comes in handy when you are nearing your
goal, wherein you can switch from an
aggressive fund to a debt fund.
5. Whole life insurance

As the name suggests, a whole life
insurance offers you coverage for your
entire life. The policy term for whole life
insurance plans extend up to 100 years and
as long as the premiums are paid, the
benefits of the policy are kept intact.
If you, the policyholder, survive the policy

term, you get maturity benefits. If you
want to remain insured throughout your life,
whole life insurance plans are a good choice
to make.

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Q.WHAT IS LIFE INSURANCE ?

 Life insurance is a legally binding contract.

TYPES OF LIFE INSURANCE

1. Term life insurance:

It pays your nominee the sum assured in

However, of late insurers have come up with

In case you survive the policy term, you get

3. Money back policies

4. Unit linked insurance plans (ULIPs)

Every ULIP has underlying funds belonging

5. Whole life insurance

If you, the policyholder, survive the policy

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