Question: What are the different types of Life Insurance Policies?

Answer: Major life insurance policies are as follows:

Term Insurance: Term insurance pays a death benefit to the legal heirs if the person insured dies during the term of the policy. Such a policy provides cover for a specified period only and may be described as a temporary insurance.

Term insurance plans offer pure risk cover without any element of saving. Hence, they are less expensive. The sum assured is payable only if the insured dies during the selected period. In case the insured does not die during the tenure of insurance, nothing is payable.

Whole Life Insurance: Whole life insurance guarantees a death benefit cover throughout the course of life, provided the required premiums are paid.

The advantage of whole life insurance is that the policy, if kept current, covers over the periods of entire life, as opposed to term insurance that covers only for a certain term of years. Whole life insurance policies payout on the death of theassured, whenever it occurs. Premiums may need to be paid throughout the life of the assured, or a lesser limited period.

Endowment Insurance: Pure endowment is a plan where the benefit is payable to the insured only on survival of the specified term. Combining the features of term assurance and pure endowment, endowment policies payout either on the death of the assured, whenever it occurs, or after a fixed number of years.

If the insured person survives the term of the policy, the policy is said to mature. Hence, the claim, under an endowment policy, may arise either by death or by maturity.

Annuities: Annuities are a form of pension in which an insurance company makes a series of periodic payments to a person (annuitant) or his or her dependents over a number of years (term), in return for the money paid to the insurance company either in lump sum or in installments.

Annuities start where life insurance ends. It is called the reverse of life insurance. Annuity stops on death of a person, whereas theoretically, life insurance starts on the death of the assured.

Unit Linked Policies: A unit linked policy is a life insurance policy in which the benefits depend on the performance of a portfolio of shares.

Each premium paid by the insured person is split. A part is used to provide life insurance cover, while the balance is used to buy units in a unit of Mutual Fund after deduction of costs, expenses, etc. In this way, a small investor can benefit from investment in a managed fund without making a large financial commitment. The unit-linked policies can go up or down in value as they are linked to the value of the shares.

Term Insurance with return of Premiums: Under pure term assurance plans, if death of the life assured does not take place within the selected term, the policy comes to an end on completion of term and premiums collected already are not refunded. However, a variation of this plan has been devised whereby all the premiums collected are refunded, if the life assured survives the term. In effect, it means that the interest earned on the premiums is utilized to keep the policy in force as well as to grant a free term cover for a few years beyond completion of the term, even though the premiums collected are refunded.

Question: What are With Profits and Without Profits policies?

Answers: The life insurance company charges premiums based on mortality rate interest earned on investments and expenses. If these factors are favourable to the life insurance companies, then they can earn a profit or surplus. The surplus generated has to be retained. A major portion of the surplus, however, is distributed to the policyholders.

A life insurance policy, that has additional amounts added to the sum assured, or paid separately as cash bonuses, as a result of a surplus or profit made on the investment of the fund by the life insurance company, is called "with profits policy."

The surplus generated by the insurance company is distributed to the policyholders as bonus.

Policies that are not entitled to bonus are known as "without profit policies."

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