Endowment Policy
Money Back Policy
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Annuities And Pension Policy
Most of the products offered by Indian life
insurers are developed and structured around these "basic" policies and are
usually an extension or a combination of these policies. So, what are these
policies and how do they differ from each other?
- A term insurance policy is a pure risk
cover for a specified period of time. What this means is that the sum
assured is payable only if the policyholder dies within the policy term. For
instance, if a person buys Rs 2 lakh policy for 15-years, his family is entitled
to the money if he dies within that 15-year period.
- What if he survives the 15-year period? Well,
then he is not entitled to any payment; the insurance company keeps the entire
premium paid during the 15-year period.
- So, there is no element of savings or
investment in such a policy. It is a 100 per cent risk cover. It simply means
that a person pays a certain premium to protect his family against his sudden
death. He forfeits the amount if he outlives the period of the policy. This
explains why the Term Insurance Policy comes at the lowest cost.
- As the name suggests, a Whole Life Policy is
an insurance cover against death, irrespective of when it happens.
- Under this plan, the policyholder pays
regular premiums until his death, following which the money is handed over to
his family.
This policy, however, fails to address the
additional needs of the insured during his post-retirement years. It doesn't
take into account a person's increasing needs either. While the insured buys the
policy at a young age, his requirements increase over time. By the time he dies,
the value of the sum assured is too low to meet his family's needs. As a result
of these drawbacks, insurance firms now offer either a modified Whole Life
Policy or combine in with another type of policy
Combining risk cover with financial savings,
endowment policies is the most popular policies in the world of life insurance.
- In an Endowment Policy, the sum assured is
payable even if the insured survives the policy term.
- If the insured dies during the tenure of the
policy, the insurance firm has to pay the sum assured just as any other pure
risk cover.
- A pure endowment policy is also a form of
financial saving, whereby if the person covered remains alive beyond the tenure
of the policy, he gets back the sum assured with some other investment benefits.
In addition to the basic policy, insurers
offer various benefits such as double endowment and marriage/ education
endowment plans. The cost of such a policy is slightly higher but worth its
value.
- These policies are structured to provide sums
required as anticipated expenses (marriage, education, etc) over a stipulated
period of time. With inflation becoming a big issue, companies have realized
that sometimes the money value of the policy is eroded. That is why with-profit
policies are also being introduced to offset some of the losses incurred on
account of inflation.
- A portion of the sum assured is payable at
regular intervals. On survival the remainder of the sum assured is payable.
- In case of death, the full sum assured is
payable to the insured.
- The premium is payable for a particular
period of time.
In an annuity, the insurer agrees to pay the
insured a stipulated sum of money periodically. The purpose of an annuity is to
protect against risk as well as provide money in the form of pension at regular
intervals.
Over the years, insurers have added various
features to basic insurance policies in order to address specific needs of a
cross section of people.