Life Insurance is a Contract Between the Policy Owner and the Insurer

8/12/2019 Life Insurance is a Contract Between the Policy Owner and the Insurer

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CH.1 INTRODUCTION

Life insurance is a contract between the policy owner and the

insurer, where the insurer agrees to pay a designated beneficiary a

sum of money upon the occurrence of the insured individual's or

individuals' death or other event, such as terminal illness or critical

illness.In return, the policy owner agrees to pay a stipulated amount

(at regular intervals or in lump sums). There may be designs in some

countries where bills and death expenses plus catering for after

funeral expenses should be included in Policy Premium. In the United

States, the predominant form simply specifies a lump sum to be paid on

the insured's demise.

The value for the policyholder is derived, not from an actual claim

event, rather it is the value derived from the 'peace of mind'

experienced by the policyholder, due to the negating of adverse

financial consequences caused by the death of the Life Assured.

Life policies are legal contracts and the terms of the contract

describe the limitations of the insured events. Specific exclusions are

often written into the contract to limit the liability of the insurer; for

example claims relating to suicide, fraud, war, riot and civil commotion.
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Life insurance is a very popular form of insurance. It insures life

of an individual and gives financial protection to the members of the

family of the policyholder. It is popular among all sections of the

society in western countries, life insurance is a normal feature of

individual personal life and this business is carried on by private

companies too.

In India, this business has been nationalized since 1956. Life

insurance is different from other types of insurance in various ways. Itnot only gives protection but it is a compulsory method of savings/ it

promote saving as well as investment. Protection is given to family

members in case of premature death of policy holder and in case of

survival of the policyholder; he is given a lump sum after a fixed period.

Besides there are other concerns about taking care of childrenand their future and about creating wealth that most individual

cherish. Life insurance is generally designed to address such needs.

DEFINITION:

Life insurance may be defined as a type of insurance company whereby

the insurer, in consideration of premium paid in periodical installments,

undertakes to pay an annuity or a certain sum of money either on the

death of insured or on the expiry of certain number of years.


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HISTORY

Insurance began as a way of reducing the risk of traders, as early

as 2000 BC in China and 1750 BC in Babylon.Life insurance dates only

to ancient Rome; "burial clubs" covered the cost of members' funeral

expenses and helped survivors monetarily. Modern life insurance

started in 17th century England, originally as insurance for traders:[

merchants, ship owners and underwriters met to discuss deals at

Lloyd's Coffee House, predecessor to the famousLloyd's of London.

The first insurance company in the United States was formed in

Charleston, South Carolina in 1732, but it provided only fire insurance.

The sale of life insurance in the U.S. began in the late 1760s. The

Presbyterian Synods in Philadelphia and New York created the

Corporation for Relief of Poor and Distressed Widows and Children of

Presbyterian Ministers in 1759; Episcopalian priests organized a similar

fund in 1769. Between 1787 and 1837 more than two dozen life

insurance companies were started, but fewer than half a dozen

survived.

Prior to the American Civil War,many insurance companies in the

United Statesinsured the lives of slaves for their owners. In response

to bills passed in California in 2001 and in Illinois in 2003, the

companies have been required to search their records for such policies.
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New York Life for example reported that Nautilus sold 485

slaveholder life insurance policies during a two-year period in the

1840s; they added that their trustees voted to end the sale of such

policies 15 years before theEmancipation Proclamation.
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CH.2 METHODOLGY

Design of study

1.Objectives of the studyThe attempt has been made to achieve following objectives:

To know various policy available in the market for thecustomer.

To know why insurance is important in todays uncertain life.

2.Scope of StudyThe following has been covered under the project:-

Types of insurance policy Benefit of taking a policy Usage & Procedure of taking a policy

3. Limitations I have restricted my project only on Life insurance product I have restricted my project of some of the Insurance

companies in India.


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4.Methodology Primary study has been undertaken on micro level basis on

focusing only a few insurance companies. Secondary data is collected by undertaking extensive

library research as well as from various websites and books.


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CH.3 ANALYSIS

Function of Insurance

The functions of Insurance can be bifurcated into two parts:

1. Primary Functions

2. Secondary Functions

3. Other Functions

(A)The primary functions of insurance include the following:

1.Provide Protection:

The primary function of insurance is to provide protection against

future risk, accidents and uncertainty. Insurance cannot check the

happening of the risk, but can certainly provide for the losses of risk.

Insurance is actually a protection against economic loss, by sharing the

risk with others.

2. Collective bearing of risk:

Insurance is a device to share the financial loss of few among many

others. Insurance is a mean by which few losses are shared among

larger number of people. All the insured contribute the premiums

towards a fund and out of which the persons exposed to a particular

risk is paid.


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3. Provide Certainty:

Insurance is a device, which helps to change from uncertainty to

certainty. Insurance is device whereby the uncertain risks may be

made more certain.

(B)The secondary functions of insurance include the

following:

1. Prevention of Losses:

Insurance cautions individuals and businessmen to adopt suitable device

to prevent unfortunate consequences of risk by observing safety

instructions; installation of automatic sparkler or alarm systems, etc

Prevention of losses cause lesser payment to the assured by the

insurer and this will encourage for more savings by way of premium.

Reduced rate of premiums stimulate for more business and better

protection to the insured.

2. Small capital to cover larger risks:

Insurance relieves the businessmen from security investments, by

paying small amount of premium against larger risks and uncertainty.


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3. Contributes towards the development of larger industries:

Insurance provides development opportunity to those larger industries

having more risks in their setting up. Even the financial institutions may

be prepared to give credit to sick industrial units which have insured

their assets including plant and machinery.


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Principle of Insurance

1.GENERAL CONTRACT:

Since life insurance contract is a sort of contract it is

governed by the Indian contract act. According to section 10 of Indian

contract act, 1872 a valid contract must have the following

essentialities:

a) Offer and acceptance.b)Legal consideration.c)Competent to make contract.d)Free consent.

2.INSURABLE INTEREST:The insured must have as insurable interest in life to be

insured for valid contract. Insurable interest arises out of pecuniary

relationship that exists between the policy holder and the life

assured.

Insurable interest in life insurance may be divided into 2

categories:

(A) insurable interest in own life, and(B) Insurable interest in others life.


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The latter can be sub-divided into 2 classes:

(i) Where proof is not required, and(ii) Where proof is required.

3.UTMOST GOOD FAITH:The life insurance requires that the principal of utmost

good faith should be preserved by both the parties. The principal of

utmost good faith says that both the parties propose [insured] andinsurer must be of the same mind at the time of contract because only

then the risk may be correctly ascertained. They must make full and

true disclosure of the facts material to risk.

4.WARRANTIES:Warranties are integral part of contracti.e.they form the

bases of the contract between the propose and the insurer and if any

statement wheather material or non material, is untrue the contract

shall be null and void and the premium paid by him may be forfeited by

the insurer.


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5.PROXIMATE CAUSE:The efficient or effective cause loss is called PROXIMATE

CAUSE. It is the real and actual case of loss. If the cause of loss is

insured the insurer will pay.

In LIFE INSURANCE. The doctrine of CAUSA PROXIMA

is not applied because the insurer bound to pay the amount of

insurance whatever may be the reason of death. It may be natural or

unnatural. Hence this principal is not of much partial importance withlife insurance.

6.ASSIGNMENT AND NOMINATION:

Life insurance policy can be assigned freely for a legal

consideration or love and affection. Notice of assignment must be given

to the insurer who will acknowledge the assignment.

THE holder of life insurance policy on his own; may either at

the time of effecting the policy or at any subsequent time before the

policy matures, nominate person or persons to whom the money secured

by the policy should be paid in event of his death.

Nomination can be cancelled before the maturity, but a

notice should be served to this effect.


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7.RETURN OF PREMIUM:

In the ordinary course premium once paid cannot be

refunded. But in following cases the premium paid are returnable.

On account of mispresentation or breach of warranty, the

insured in absence of any express condition to contrary, can claim

return of premium paid.

Where insured is guilty of fraud in obtaining policy, he will

fail in his claim to the sum assured. He cannot ask for return of

premium because he will have to allege his own fraud to succeed in his

claim.

8. OTHER FEATURES:

Life Insurance policies have the following

additional features:

i. It is an Aleatory Contract.ii. A Unilateral contract.iii. A conditional contract.iv. A Contract of Adhesion andv. Not a contract of Indemnity.


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BENEFITS OF LIFE INSURANCE

1) Life insurance gives monetory protection to policy holder and hisfamily members in case of premature death.

2) It reduces tensions and provides peaceful life to policy holder.

3) Life insurance acts as a social security measure.

4) It serves as a provision for old age.

5) Life insurance is useful as an ideal method of compulsory savingfor old age.

6) It is useful for meeting certain expenses like marriage andeducation of children.

7) Life insurance policy is useful for securing temporary loan formeeting unexpected expenses.


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8) The benefit of profitable investment are available in life

insurance as LIC gives attractive bonus to policyholders.

9) It also gives protection and safety to policy holders, raises rate

of capital formation and contributes for economic development.


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LIFE INSURANCE PRODUCT

The life Insurance products are in the form of life policies. The

following are the different kinds of life insurance policies and their

uses:

1. WHOLE-LIFE POLICY:

Whole Life Insurance, or Whole of Life Assurance (in theCommonwealth), is a life insurance policy that remains in force for the

insured's whole lifeand requires (in most cases) premiums to be paid

every year.

Whole life insurance provides guaranteed insurance protection for the

entire life of the insured, otherwise known as permanent coverage.

These policies carry a "cash value" component that grows tax deferred

at a contractually guaranteed amount (usually a low interest rate) until

the contract is surrendered. Thepremiums are usually level for the life

of the insured and the death benefit is guaranteed for the insured's

lifetime.

Under the whole life policy the sum injured becomes payable to the

beneficiary only after the death of the insured. The policy remains in

force throughout the life of the insured and he has to pay premium
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regularly till his death. This policy does not give protection to him but

only to his family members.

Whole life policies are issued with lower rate of insurance

premium.The whole life policies may be limited payment whole life

policies or convertible whole-life policies may be limited payment whole

life policies or convertible whole-life policy.

2. ENDOWMENT POLICY:

Under this policy, the sum assured becomes payable after the

expiry of a specified period or after death of assured whichever is

earlier. Premium is to be paid ill the maturity of the policy.

Endowment policy is convenient when an individual desires toenjoy fruits of his savings during his life time. His policy is useful for

policy holder as well as his dependents.

All useful benefits of life insurance available to his policy.


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3. WITH OR WITHOUT PROFIT POLICY:

Under with profit policy policyholder is paid sum assured plus a

share in profits earned by insurance company every year.

In case of without profit policy, a share in the profits is not given

but rate of premium is less in case of without profit policies.

LIC gives handsome bonus to its policyholders by way of profits.

4. JOINT LIFE POLICY:

This policy taken on life of two persons. Amount becomes payable

to survivor after death of other party. Such policy can be taken for

any amount. It is useful for both partners and gives them safety and

security.

Joint life policy is suitable when both partners are employed and

have capacity to pay premium regularly.

5. DOUBLE ACCIDENT POLICY:

Policy gives special protection in case of death of policy holder

due to accident. In this case if insured expires by accident. Survivor

get double amount of the policy.


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6. ANNUITY POLICY:

Under this policy amount of policy is paid in form of annuitiesfor

specified number of years or till death of assured. It is like pension

payment arrangement through life insurance. Such policy is useful to

those who prefer regular income in their old age. They are relieved

from botheration of keeping money safely.

7. GROUP INSURANCE POLICY:

It can be taken on lives of members of a family or of

employees of a business concern.

Joint Stock Companies prefer such type of policies for their

employees. Companies pay premium. If any insured employee dies while

in service, insured amount becomes payable o relative of employees.

8. CONVERTIBLE WHOLE LIFE POLICY:

In the beginning, a whole life policy is taken but a provision is

made in policy itself to convert the same into an endowment policy

after fixed period period is usually for 5 years.

For a whole life policy rate of premium is much less but it

increases when it is converted into an endowment policy.


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9. JANTA POLICY:

LIC introduced this policy with a view to popularize message

of insurance among poor section of society. Under this scheme only

endowment policy can be taken. This policy is issued for such period

that it should not mature after age of 60 years.

10. JEEVAN SATHI POLICY:

This policy can be taken by married couple only. Under this

husband and wife can insure their lives by a single policy. Unique

feature of this policy is that it matures twice i.e. if one of them dies

before expiry of this policy period sum insured is payable to survival.

11. JEEVAN-MITRA POLICY:

It is taken up by a single person. If he dies before maturity

then sum assured is paid to nominee. However, if he survives till

maturity a single sum assured is paid to him.


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PROCEDURE OF TAKING OUT A LIFE INSURANCE

POLICY

1. SUBMISSION OF PROPOSAL FORM:

The first step in the procedure of taking out a policy is to submit

a proposal form to the LIC authorities. A person who desires to take

life insurance policy has to submit a completed proposal form for the

consideration of LIC. A proposal is a written request made to the

insurance cover to benefit. For this printed proposal forms are

available. Information must be given correctly, clearly and in good

faith in the proposal form. All details regarding occupation, family,

background, age, health, and hectare required to be given properly in

the proposal form.

2. SUBMISSION OF PROOF OF AGE:

He has also to give an authentic proof of his age. For this birth

certificate school living certificate or horoscope is adequate. The

claim of the policy will not be accepted unless the age is verified and

approved by the insurance company. Information about the age is also

necessary for fixing the rate of premium and for fixing the maturity


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date of the policy. Premium rate increases along with the age and

amount of policy.

3. MEDICAL EXAMINATION:

For life insurance, the propose has to get himself examined

medically form the approved doctor of the insurance company. LIC

arranges for medical examination if necessary in order to decide the

premium and final acceptance of the proposal medical examination is

taken after the receipt of the proposal form. Medical examination

must be conducted by the doctor, who is on the panel of LIC. In India,

for a policy up to Rs 15,000 medical examination is not required.

4.SCRUTINY OF PROPOSAL:

The proposal form and the medical report are examined by the

officers of the LIC. This is necessary before the final approval of

proposal. The decision as regard the acceptance of the proposal and

the rate of premium is taken to the basis of the proposal form, the

report of the agent and the medical report of the applicant.


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5.ACCEPTANCE OF PROPOSAL:

If the medical report is favorable, the proposal is generally

accepted and the decision is communicated to concerned party. He is

also to pay the first premium immediately. The risk is accepted by the

insurance company from his date of the receipt of the first premium.

6. PAYMENT OF FIRST PREMIUM AND ISSUE OF POLICY:

The insured will pay the first premium after the receipt of

communication from the LIC Office. In many cases, the propose has to

pay in advance the amount equal to first premium along with the

proposal form. The amount is kept as a deposit by the LIC and adjusts

after the proposal is accepted.

The policy comes in force with the payment of the first premium.

The regularly policy document is sent to the police holder in due

course. This policy contains insurance contract and all details of the

policy holder including his name, age, address, occupation, the amount

of the policy, the name of nominee, manner of payment of premium and

terms and conditions of insurance contract.


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PARTIES TO CONTRACT

There is a difference between the insured and the policy owner

(policy holder), although the owner and the insured are often the same

person. For example, if Joe buys a policy on his own life, he is both the

owner and the insured. But if Jane, his wife, buys a policy on Joe's life,

she is the owner and he is the insured. The policy owner is the

guarantee and he or she will be the person who will pay for the policy.

The insured is a participant in the contract, but not necessarily a party

to it. However, "insurable interest" is required to limit an unrelated

party from taking life insurance on, for example, Jane or Joe. Also,

most companies allow the Payer and Owner to be different, e. g., a

grandparent paying premiums for a policy on a child, owned by agrandchild.

The beneficiary receives policy proceeds upon the insured's

death. The owner designates the beneficiary, but the beneficiary is

not a party to the policy. The owner can change the beneficiary unless

the policy has an irrevocable beneficiary designation. With an

irrevocable beneficiary, that beneficiary must agree to any beneficiary

changes, policy assignments, or cash value borrowing.
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In cases where the policy owner is not the insured (also referred

to as the celui qui vitor CQV), insurance companies have sought to limit

policy purchases to those with an "insurable interest" in the CQV. For

life insurance policies, close family members and business partners will

usually be found to have an insurable interest. The "insurable interest"

requirement usually demonstrates that the purchaser will actually

suffer some kind of loss if the CQV dies. Such a requirement prevents

people from benefiting from the purchase of purely speculative policies

on people they expect to die. With no insurable interest requirement,

the risk that a purchaser would murder the CQV for insurance

proceeds would be great. In at least one case, an insurance company

which sold a policy to a purchaser with no insurable interest (who later

murdered the CQV for the proceeds), was found liable in court for

contributing to the wrongful death of the victim (Liberty National Life

v. Weldon, 267 Ala.171 (1957)).
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Contract terms

Special provisions may apply, such as suicide clauses wherein the

policy becomes null if the insured commits suicide within a specified

time (usually two years after the purchase date; some states provide a

statutory one-year suicide clause). Any misrepresentations by the

insured on the application is also grounds for nullification. Most US

states specify that the contestability period cannot be longer than two

years; only if the insured dies within this period will the insurer have a

legal right to contest the claim on the basis of misrepresentation and

request additional information before deciding to pay or deny the

claim.

The face amount on the policy is the initial amount that the policy

will pay at the death of the insured or when the policy matures,

although the actual death benefit can provide for greater or lesser

than the face amount. The policy matures when the insured dies or

reaches a specified age (such as 100 years old).
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TYPES OF LIFE INSURANCE

Life insurance may be divided into two basic classes temporary

and permanent or following subclasses term, universal, whole life and

endowment life insurance.


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management because premiums remain consistent year to year and can

be budgeted long term. At the end of the term, some policies contain a

renewal or conversion option. Guaranteed Renewal, the insurance

company guarantees it will issue a policy of equal or lesser amount

without regard to the insurability of the insured and with a premium

set for the insured's age at that time. Some companies however do not

guarantee renewal, and require proof of insurability to mitigate their

risk and decline renewing higher risk clients (for instance those that

may be terminal). Renewal that requires proof of insurability often

includes a conversion options that allows the insured to convert the

term program to a permanent one that the insurance company makes

available. This can force clients into a more expensive permanent

program because of anti selection if they need to continue coverage.

Renewal and conversion options can be very important when selecting a

program.

Annual renewable term is a one year policy but the insurance company

guarantees it will issue a policy of equal or lesser amount without

regard to the insurability of the insured and with a premium set for

the insured's age at that time.

Another common type of term insurance is mortgage insurance,which

is usually a level premium, declining face value policy. The face amount
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is intended to equal the amount of the mortgage on the policy owners

residence so the mortgage will be paid if the insured dies.

A policy holder insures his life for a specified term. If he dies before

that specified term is up (with the exception of suicide see below), his

estate or named beneficiary receives a payout. If he does not die

before the term is up, he receives nothing. However, in some European

countries (notably Serbia), insurance policy is such that the policy

holder receives the amount he has insured himself to, or the amount hehas paid to the insurance company in the past years. Suicide used to be

excluded from ALL insurance policies,however, after a number of court

judgments against the industry, payouts do occur on death by suicide

(presumably except for in the unlikely case that it can be shown that

the suicide was just to benefit from the policy). Generally, if an

insured person commits suicide within the first two policy years, the

insurer will return the premiums paid. However, a death benefit will

usually be paid if the suicide occurs after the two year period.

2. Permanent Life Insurance:

Permanent life insurance is life insurance that remains in force

(in-line) until the policy matures (pays out), unless the owner fails to

pay the premium when due (the policy expires OR policies lapse). The
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policy cannot be canceled by the insurer for any reason except fraud in

the application, and that cancellation must occur within a period of

time defined by law (usually two years). Permanent insurance builds a

cash value that reduces the amount at risk to the insurance company

and thus the insurance expense over time. This means that a policy

with a million dollar face value can be relatively expensive to a 70 year

old. The owner can access the money in the cash value by withdrawing

money, borrowing the cash value, or surrendering the policy and

receiving the surrender value.

The four basic types of permanent insurance are whole life,

universal life, limited pay and endowment.

a. Whole life coverage:

Whole life insurance provides for a level premium, and a cash

value table included in the policy guaranteed by the company. The

primary advantages of whole life are guaranteed death benefits,

guaranteed cash values, fixed and known annual premiums, and

mortality and expense charges will not reduce the cash value shown in

the policy. The primary disadvantages of whole life are premium

inflexibility, and the internal rate of return in the policy may not be

competitive with other savings alternatives. Also, the cash values are

generally kept by the insurance company at the time of death, the
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death benefit only to the beneficiaries. Riders are available that can

allow one to increase the death benefit by paying additional premium.

The death benefit can also be increased through the use of policy

dividends. Dividends cannot be guaranteed and may be higher or lower

than historical rates over time. Premiums are much higher than term

insurance in the short term, but cumulative premiums are roughly equal

if policies are kept in force until average life expectancy.

Cash value can be accessed at any time through policy "loans" andare received "income-tax free". Since these loans decrease the death

benefit if not paid back, payback is optional. Cash values support the

death benefit so only the death benefit is paid out.

Dividends can be utilized in many ways. First, if Paid up additions

is elected, dividend cash values will purchase additional death benefit

which will increase the death benefit of the policy to the named

beneficiary. Another alternative is to opt in for 'reduced premiums' on

some policies. This reduces the owed premiums by the unguaranteed

dividends amount. A third option allows the owner to take the dividends

as they are paid out. (Although some policies provide

other/different/less options than these - it depends on the company

for some cases)


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b. Universal life coverage:

Universal life insurance (UL) is a relatively new insurance product

intended to provide permanent insurance coverage with greater

flexibility in premium payment and the potential for greater growth of

cash values. There are several types of universal life insurance policies

which include "interest sensitive" (also known as "traditional fixed

universal life insurance"), variable universal life (VUL), guaranteed

death benefit, and equity indexed universal life insurance.

A universal life insurance policy includes a cash value. Premiums

increase the cash values, but the cost of insurance (along with any

other charges assessed by the insurance company) reduces cash values.

However, with the exception of VUL, interest is credited on cash

values at a rate specified by the company and may also increase cash

values. With VUL, cash values will ebb and flow relative to the

performance of the investment subaccounts the policy owner has

chosen. The surrender value of the policy is the amount payable to the

policyowner after applicable surrender charges, if any.

Universal life insurance addresses the perceived disadvantages of

whole life namely that premiums and death benefit are fixed. With

universal life, both the premiums and death benefit are flexible.
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Except with regards to guaranteed death benefit universal life, this

flexibility comes at a price: reduced guarantees.

Depending on how interest is credited, the internal rate of return can

be higher because it moves with prevailing interest rates (interest-

sensitive) or the financial markets (Equity Indexed Universal Life and

Variable Universal Life). Mortality costs and administrative charges

are known. And cash value may be considered more easily attainable

because the owner can discontinue premiums if the cash value allows it.

Flexible death benefit means the policy owner can choose to decrease

the death benefit. The death benefit could also be increased by the

policy owner but that would (typically) require that the insured go

through new underwriting. Another example of flexible death benefit

is the ability to choose option A or option B death benefits - and to be

able to change those options during the life of the insured.

Option A is often referred to as a level death benefit. Generally

speaking, the death benefit will remain level for the life of the insured

and premiums are expected to be lower than policies with an Option B

death benefit.

Option B pays the face amount plus the cash value. If cash values grow

over time, so would the death benefit which is payable to the insured's


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Endowment Insurance is paid out whether the insured lives or dies,

after a specific period (e.g. 15 years) or a specific age (e.g. 65).

3. Accidental Death:

Accidental death is a limited life insurance that is designed to cover

the insured when they pass away due to an accident. Accidents include

anything from an injury, but do not typically cover any deaths resulting

from health problems or suicide. Because they only cover accidents,

these policies are much less expensive than other life insurances.

It is also very commonly offered as "accidental death and

dismemberment insurance", also known as an AD&Dpolicy. In an AD&D

policy, benefits are available not only for accidental death, but also for

loss of limbs or bodily functions such as sight and hearing, etc.

Accidental death and AD&Dpolicies very rarely paya benefit; either

the cause of death is not covered, or the coverage is not maintained

after the accident until death occurs. To be aware of what coverage

they have, an insured should always review their policy for what it

covers and what it excludes. Often, it does not cover an insured who

puts themselves at risk in activities such as: parachuting, flying an

airplane, professional sports, or involvement in a war (military or not).
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Also, some insurers will exclude death and injury caused by proximate

causes due to (but not limited to) racing on wheels and mountaineering.

Accidental death benefits can also be added to a standard life

insurance policy as a rider. If this rider is purchased, the policy will

generally pay double the face amount if the insured dies due to an

accident. This used to be commonly referred to as adouble indemnity

coverage. In some cases, some companies may even offer a triple

indemnity cover.

4. Related Life Insurance Products:

Riders are modifications to the insurance policy added at the

same time the policy is issued. These riders change the basic policy to

provide some feature desired by the policy owner. A common rider is

accidental death, which used to be commonly referred to as "double

indemnity", which pays twice the amount of the policy face value if

death results from accidental causes, as if both a full coverage policy

and an accidental death policy were in effect on the insured. Another

common rider is premium waiver, which waives future premiums if the

insured becomes disabled.
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Joint life insurance: is either a term or permanent policyinsuring two or more lives with the proceeds payable on the

first death or second deazth.

Survivorship life: is a whole life policy insuring two liveswith the proceeds payable on the second (later) death.

Single premium whole life: is a policy with only one premiumwhich is payable at the time the policy is issued.

Modified whole life: is a whole life policy that chargessmaller premiums for a specified period of time after which

the premiums increase for the remainder of the policy.

Group life insurance: is term insurance covering a group ofpeople, usually employees of a company or members of a

union or association. Individual proof of insurability is not

normally a consideration in the underwriting. Rather, the

underwriter considers the size and turnover of the group,

and the financial strength of the group. Contract provisions

will attempt to exclude the possibility of adverse selection.

Group life insurance often has a provision that a member

exiting the group has the right to buy individual insurance

coverage.

Senior and preneed products: Insurance companies have inrecent years developed products to offer to niche markets,


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most notably targeting the senior market to address needs

of an aging population. Many companies offer policies

tailored to the needs of senior applicants. These are often

low to moderate face value whole life insurance policies, to

allow a senior citizen purchasing insurance at an older issue

age an opportunity to buy affordable insurance. This may

also be marketed as final expense insurance, and an agent or

company may suggest (but not require) that the policy

proceeds could be used for end-of-life expenses.

Preneed (or prepaid) insurance policies: are whole lifepolicies that, although available at any age, are usually

offered to older applicants as well. This type of insurance is

designed specifically to cover funeral expenses when the

insured person dies. In many cases, the applicant signs a

prefunded funeral arrangement with a funeral home at the

time the policy is applied for. The death proceeds are then

guaranteed to be directed first to the funeral services

provider for payment of services rendered.
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USAGE

Term life insurance is a pure death benefit, its primary use is to

provide coverage of financial responsibilities, for the insured. Such

responsibilities may include, but are not limited to, consumer debt,

dependent care, college education for dependents, funeral costs, and

mortgages. Term life insurance is generally chosen in favor of

permanent life insurance because it is usually much less expensive

(depending on the length of the term) Many financial advisors or other

experts commonly recommend term life insurance as a means to cover

potential expenses until such time that there are sufficient funds

available from savings to protect those whom the insurance coverage

was intended to protect. For example, an individual might choose to

obtain a policy whose term expires near his or her retirement agebased on the premise that, by the time the individual retires, he or she

would have amassed sufficient funds in retirement savings to provide

financial security for their dependents.
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Level term life insurance

Much more common than annual renewable term insurance is

guaranteed level premium term life insurance, where the premium is

guaranteed to be the same for a given period of years. The most

common terms are 10, 15, 20, and 30 years.

In this form, the premium paid each year remains the same for the

duration of the contract. This cost is based on the summed cost of

each year's annual renewable term rates, with a time value of money

adjustment made by the insurer. Thus, the longer the term the

premium is level for, the higher the premium, because the older, more

expensive to insure years are averaged into the premium.

Most level term programs include a renewal option and allow theinsured to renew for a maximum guaranteed rate if the insured period

needs to be extended. It is important to note that the renewal may or

may not be guaranteed and the insured should review their contract to

see if evidence of insurability is required to renew the policy. Typically

this clause is invoked only if the health of the insured deteriorates

significantly during the term, and poor health would prevent them from

being able to provide proof of insurability.


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TYPES

There are several types of whole life insurance policies.New York

State defines six traditional forms: non-participating (aka "non par"),

participating, indeterminate premium, economic, limited pay, and single

premium A newer type is known generally as interest sensitive whole

life. Other jurisdictions may classify them differently, and not all

companies offer all types. There are as many types of insurance

policies as can be written in their contracts while staying within the

law's guidelines.

a. Non-Participating:

All values related to the policy (death benefits, cash surrender

values, premiums) are usually determined at policy issue, for the life of

the contract, and usually cannot be altered after issue.

This means that the insurance company assumes all risk of future

performance versus the actuaries' estimates. If future claims are

underestimated, the insurance company makes up the difference. On

the other hand, if the actuaries' estimates on future death claims are

high, the insurance company will retain the difference.
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b. Participating:

In a participating policy (also par in the USA, and known as a

with-profits policy in the Commonwealth), the insurance company

shares the excess profits (variously called dividendsor refundsin the

USA, bonus in the Commonwealth) with the policyholder. Typically

these refunds are not taxable because they are considered an

overcharge of premium. The greater the overcharge by the company,

the greater the refund/dividend. For a mutual life insurance company,

participation also implies a degree of ownership of the mutuality.

c. Indeterminate Premium:

Similar to non-participating, except that the premium may vary

year to year. However, the premium will never exceed the maximumpremium guaranteed in the policy.

d. Economic:

A blending of participating and term life insurance, wherein a

part of the dividends is used to purchase additional term insurance.This can generally yield a higher death benefit, at a cost to long term

cash value. In some policy years the dividends may be below

projections, causing the death benefit in those years to decrease.
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e. Limited Pay:

Similar to a participating policy, but instead of paying annual

premiums for life, they are only due for a certain number of years,

such as 20. The policy may also be set up to be fully paid up at a

certain age, such as 65 or 80. The policy itself continues for the life of

the insured. These policies would typically cost more up front, since

the insurance company needs to build up sufficient cash value within

the policy during the payment years to fund the policy for the

remainder of the insured's life.

f. Single Premium:

A form of limited pay, where the pay period is a single large

payment up front. These policies typically have fees during early policyyears should the policyholder cash it in.

g. Interest Sensitive:

This type is fairly new, and is also known as either excess

interestor current assumptionwhole life. The policies are a mixture oftraditional whole life and universal life.Instead of using dividends to

augment guaranteed cash value accumulation, the interest on the

policy's cash value varies with current market conditions. Like whole
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life, death benefit remains constant for life. Like universal life, the

premium payment might vary, but not above the maximum premium

guaranteed within the policy.

h. Requirements:

Whole life insurance typically requires that the owner pay

premiums for the life of the policy. There are some arrangements that

let the policy be "paid up", which means that no further payments are

ever required, in as few as 5 years, or with even a single large premium.

Typically if the payor doesn't make a large premium payment at the

outset of the life insurance contract, then he is not allowed to begin

making them later in the contract life. However, some whole life

contracts offer a rider to the policy which allows for a one time, or

occasional, large additional premium payment to be made as long as a

minimal extra payment is made on a regular schedule. In contrast,

Universal life insurance generally allows more flexibility in premium

payment.

i. Guarantees:

The company generally will guarantee that the policy's cash values

will increase regardless of the performance of the company or its

experience with death claims (again compared to universal life
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insurance and variable universal life insurance which can increase the

costs and decrease the cash values of the policy).

j. Liquidity:

Cash values are considered liquid enough to be used for

investment capital, but only if the owner is financially healthy enough

to continue making premium payments (Single premium whole life

policies avoid the risk of the insured failing to make premium payments

and are liquid enough to be used as collateral. Single premium policies

require that the insured pay a one time premium that tends to be lower

than the split payments. Because these policies are fully paid at

inception, they have no financial risk and are liquid and secure enough

to be used as collateral under the insurance clause of collateralassignment.). Cash value access is tax free up to the point of total

premiums paid, and the rest may be accessed tax free in the form of

policy loans. If the policy lapses, taxes would be due on outstanding

loans. If the insured dies, death benefit is reduced by the amount of

any outstanding loan balance.

Internal rates of return for participating policies may be much

worse than universal life and interest-sensitive whole life (whose cash

values are invested in the money market and bonds) because their cash
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values are invested in the life insurance company and its general

account, which may be in real estate and the stock market. Variable

universal life insurance may outperform whole life because the owner

can direct investments in sub-accounts that maydo better. If an owner

desires a conservative position for his cash values, par whole life is

indicated.

k. Permanent life insurance:

Permanent life insurance is a form oflife insurance such as whole

life orendowment,where the policy is for the life of the insured, the

payout is assured at the end of the policy (assuming the policy is kept

current) and the policy accruescash value.

This is compared with Term life insurance where insurance is

purchased for a specified period (typically a year, or for level periods

such as 5, 10, 15, 20 even 25 and 30 years) where a death benefit is

only paid to the beneficiary if the insured dies during the specified

period.

Permanent life insurance originally was offered as a fixed premium

fixed return product known as whole life insurance also known as cash

surrender life insurance. This offered consumers guaranteed cash

value accumulation and a consistent premium. Consumers later wanted
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more flexibility which was offered in the form of universal life

insurance.Universal life insurance allows consumers flexibility in when

premiums are to be paid and the amount that they would be. Universal

life policies also allowed consumers to permanently withdraw cash from

the policy without the interest associated with the loan provisions in

whole life policies.

Universal life policies retained the fixed investment performance

of whole life policies. Variable life insurance follows the mold of wholeor universal life, but it shifts the investment risk to the consumer

along with the potential for greater returns. Variable universal life

insurance combines this with the flexibility in premium structure of

universal life to create the most free form option for consumers to

manage their own money (at their own risk). Variable universal life

insurance policies are considered more favorable to other permanent

life insurance alternatives due to the favorable tax treatment of all

permanent life insurance policies and their potential for greater

returns than other permanent life insurance products.
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l. Payout likelihood:

Because permanent life insurance programs are designed to be

permanent and pay a death benefit, the cost of insurance is

considerably higher than term insurance. Term insurance is referred to

as pure death benefit with no cash accumulation vehicle tied to it.

Because of this, permanent premiums remain 8 to 10 times more

expensive than term premiums for the same coverage.Most people are

drawn to term insurance for the low cost and the ability to invest the

difference in separate financial products. Doing so has a potential

drawback in some cases because all term policies eventually expire and

the client would then have to pay a higher premium based on his

attained age or he may not be able to qualify for a new policy at that

point. In these situations, money earned from investments may notmeasure up to the coverage the policy would have provided.


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Conclusion

Although some aspects of the application process (such as

underwriting and insurable interest provisions) make it difficult, life

insurance policies have been used in cases of exploitation and fraud. In

the case of life insurance, there is a motivation to purchase a life

insurance policy, particularly if the face value is substantial, and then

kill the insured. Usually, the larger the claim, and/or the more serious

the incident, the larger and more intense will be the number of

investigative lawyers, consisting in police and insurer investigation,

eventually also loss adjusters hired by the insurers to work

independently.

The television series Forensic Files has included episodes that

feature this scenario. There was also a documented case in 2006,

where two elderly women are accused of taking in homeless men and

assisting them. As part of their assistance, they took out life insurance

on the men. After the contestability period ended on the policies (most

life contracts have a standard contestability period of two years), the

women are alleged to have had the men killed via hit-and-run car

crashes.
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Recently, viatical settlements have created problems for life

insurance carriers. A viatical settlement involves the purchase of a life

insurance policy from an elderly or terminally ill policy holder. The

policy holder sells the policy (including the right to name the

beneficiary) to a purchaser for a price discounted from the policy

value. The seller has cash in hand, and the purchaser will realize a

profit when the seller dies and the proceeds are delivered to the

purchaser. In the meantime, the purchaser continues to pay the

premiums. Although both parties have reached an agreeable

settlement, insurers are troubled by this trend. Insurers calculate

their rates with the assumption that a certain portion of policy holders

will seek to redeem the cash value of their insurance policies before

death. They also expect that a certain portion will stop paying

premiums and forfeit their policies. However, viatical settlements

ensure that such policies will with absolute certainty be paid out. Some

purchasers, in order to take advantage of the potentially large profits,

have even actively sought to collude with uninsured elderly and

terminally ill patients, and created policies that would have not

otherwise been purchased. Likewise, these policies are guaranteed

losses from the insurers' perspective.
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BIBLIOGRAPHY

Websites

1. www.wikipedia.com2. http://www.google.co.in/imgres?imgurl=http://www.jrfin.com/types_of_life_insurance.jpeg&imgrefurl=http://www.jrfin.com/types-of-life-

insurance

Books Referred

Insurance Product & Services by Indian Institute of Insurance &

Finance
http://www.wikipedia.com/http://www.google.co.in/imgres?imgurl=http://www.jrfin.com/types_of_life_insurance.jpeg&imgrefurl=http://www.jrfin.com/types-of-life-insurancehttp://www.google.co.in/imgres?imgurl=http://www.jrfin.com/types_of_life_insurance.jpeg&imgrefurl=http://www.jrfin.com/types-of-life-insurancehttp://www.google.co.in/imgres?imgurl=http://www.jrfin.com/types_of_life_insurance.jpeg&imgrefurl=http://www.jrfin.com/types-of-life-insurancehttp://www.google.co.in/imgres?imgurl=http://www.jrfin.com/types_of_life_insurance.jpeg&imgrefurl=http://www.jrfin.com/types-of-life-insurancehttp://www.google.co.in/imgres?imgurl=http://www.jrfin.com/types_of_life_insurance.jpeg&imgrefurl=http://www.jrfin.com/types-of-life-insurancehttp://www.google.co.in/imgres?imgurl=http://www.jrfin.com/types_of_life_insurance.jpeg&imgrefurl=http://www.jrfin.com/types-of-life-insurancehttp://www.google.co.in/imgres?imgurl=http://www.jrfin.com/types_of_life_insurance.jpeg&imgrefurl=http://www.jrfin.com/types-of-life-insurancehttp://www.google.co.in/imgres?imgurl=http://www.jrfin.com/types_of_life_insurance.jpeg&imgrefurl=http://www.jrfin.com/types-of-life-insurancehttp://www.google.co.in/imgres?imgurl=http://www.jrfin.com/types_of_life_insurance.jpeg&imgrefurl=http://www.jrfin.com/types-of-life-insurancehttp://www.wikipedia.com/

Life Insurance is a Contract Between the Policy Owner and the Insurer

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