Life Insurance Products PDF

Poll - buying decision. At the time of buying a product, what factors you would look into most? I. Whether the product satisfies my immediate Your needs? opinion II. Whether the product satisfies my long term needs?...

Poll - buying decision. At the time of buying a product, what factors you would look into most? I. Whether the product satisfies my immediate Your needs? opinion II. Whether the product satisfies my long term needs? III. Whether the price is very high when compared to its benefits? IV. Whether the product adds any value to my status of living? Welcome to the Smart Achievers Training Program 8. Life Insurance Products - 1 Learning Objectives Learning Objectives At the end of this session, you will be able to: Provide overview of Life Insurance Products Highlight traditional Life Insurance Products Explain the features of various Riders.  Product versus Commodity What is a product? PRODUCT means a bundle of attributes”. It is need or want satisfier. Product Commodity A Product can be A commodity can not be differentiated based on differentiated. features it possess. Products of different Commodities remain the companies are different as same irrespective of the their features are different. company. Colgate, Close-up, Paste is the commodity. Its Sensodyne etc., are function remains the same different toothpastes of irrespective of the company it different companies. produces.  Types of Products Products are divided into TWO types. Tangible Products Intangible Products Physical objects that can be Products that can be perceived directly perceived by touch indirectly.  What is a Life Insurance Product ? Traditional Life insurance Products An intangible product. Protects against loss of productive earning capacity from human capital. Acts as savings and wealth accumulation instrument Provides peace of mind to the dear ones of the insured individual. Benefits like disability cover, accident cover, and critical illness cover enables customization and adds value to the Insurance Product.  Purpose of Life Insurance Products -1 Protection of interest of self and loved ones. Life insurance products offer protection against Life insurance signifies the need to the loss of economic protect both oneself and one’s value of an individual’s loved ones against this loss. productive abilities/human capital.  Purpose of Life Insurance Products - 2 Creation of immediate estate with lesser cost. The wealth expected to be created The risk may be untimely death or by an earning member during his disability due to accident or remaining lifetime is to be replaced illness. This replacement is called to his loved ones should the income creation of immediate estate. is stopped by the risk.  Evolution of Traditional Life Insurance Plans based on LIFE Popular Combination Endowment Financial security to family and replacement Term insurance With expiry date of income after death. Financial security to Financial security to family Pure Endowment Whole Life self till death. and legacy creation after No expiry date death. Die Live Life Only Two Possibilities for a person in his “Life”. Traditional Life Insurance Plans Now we shall discuss each plan in detail…  1.Whole Life Insurance Plan It provides insurance coverage to the policy holder for entire life or coverage till age 100. These are also called as permanent life insurance policies. Upon the inevitable death of the policy holder, the insurance amount is payable to the beneficiary of the life Assured. If the policy holder attains the age of 100, he is entitled to receive the maturity benefit. The premiums can be paid throughout one’s life or for a specified period of time which is limited. Premiums are slightly higher as the policies also include an investment component, which accumulates a cash value. The policyholder can borrow against the accumulated cash value in the form of loans, incase of emergency of funds. It provides the policyholder with a Guaranteed amount to pass on to his/her beneficiaries, regardless of how long he/she lives, provided the contract is maintained. It means it leaves behind a legacy to one’s future generations. These policies also offer a withdrawal clause, which allows the policy holder to cancel his/her coverage and receive a cash surrender value.  Whole Life Insurance Plan- how it works? Mr. Mukherjee at the age of 30 years had taken a Traditional Whole Life policy for a Sum Assured of Rs.30,00,000/-and made his son Mr. Nilesh as beneficiary under the policy. At the age of 50 years, Mr. Mukherjee passed away leaving behind a legacy to his son. Had Mr. Mukherjee survived till 100 years, he himself would have received the maturity amount. Mr. Nilesh would receive the death benefit of 30 lakhs and policy concludes Mr. Mukherjee would receive the 30 lakhs survival benefit and policy concludes 30 years 50 years-death 100 years  2.Term Insurance Plan 1) It provides for insurance coverage to the policy holder, for a specific period decided at the time of taking the policy. Protection also may extend up to age 80 years. 2) If the life insured dies prematurely there will be a sum of money available to take care of his/her family. This lump sum money represents the insured’s human life value for his loved ones. 3) All premiums received are considered as mortality (risk)premium by the company. There is no savings or cash value element accruing to the insured. Hence no maturity benefit if the life assured survives the term of the policy.  2.Term Insurance Plan 4) Convertible term insurance policies allow a policyholder to change or convert a term insurance policy into a permanent plan like “Whole Life” without providing fresh evidence of insurability. 5) This privilege helps those who wish to have permanent cash value insurance but are temporarily unable to afford its high premiums. When the term policy is converted into permanent insurance, the new premium rate would be higher. 6) It can also be taken as an income replacement plan. On the death of the life assured during the term of the policy, in place of payment of a lump-sum amount to the dependents, a series of periodical pay outs (monthly, quarterly etc.,) for a pre- defined duration may be provided to the dependent beneficiaries. 7) The unique selling proposition (USP) of term assurance is its low price and large amounts of life insurance protection to the loved ones.  Term Insurance Plan-how it works? Mr. Abhinav aged 30 years ,Team Leader in a Software MNC has taken a Traditional Term Insurance policy for a Sum Assured of 2 crores, Term of 30 years and made his Wife Mrs. Spoorthi as beneficiary under the policy. If Mr. Abhinav dies during the term of 30 years, the Sum Assured will be paid to the beneficiary and the policy concludes. If Mr. Abhinav survives up to the age of 60 years he will not get any amount under the policy. Mrs.Spoorthi would receive 2 Cr. as the death benefit and policy concludes If Mr. Abhinav survives, he will not receive any amount under the policy at the time of maturity. 30 years 50 years-death 60 years  Variants of Term Assurance 1 crore 50 lakhs 25 lakhs DECREASING TERM Provides death benefit that 10 lakhs decreases in amount with duration ZERO ASSURANCE of coverage. (also called Mortgage 0 5 10 15 20 Redemption Insurance-MRI) 2 crore 1.75 crore 1 crore 1.50 crore INCREASING TERM Provides death benefit which ASSURANCE increases with policy term 0 5 10 15 Return of total TERM INSURANCE The policy holder will receive sum Sum Assured on death premiums WITH RETURN OF of premiums paid during policy paid at PREMIUMS term as he/she survives the policy maturity term  3.Pure Endowment Plan Pure Endowment is a plan under which the benefits are payable at the end of the policy period if the insured is alive. If the insured dies during the term of the policy, no benefits are paid. There are no beneficiaries under a pure endowment Plan. It means there are no benefits to be payable if the insured is not alive by the end of the endowment period. These plans are used to design pension /annuity plans.  Pure Endowment Plan-how it works? Mr. Ajay Sharma aged 30 years is working as a Manager in a private bank. He has taken a Pure Endowment plan to get a lump sum amount after 30 years , that is at the time of his retirement. Policy concludes. No amount payable If Mr. Ajay Sharma survives the term of 30 years, he would receive the maturity amount.. 30 years 50 years-death 60 years  4. Endowment Assurance Plan It is a combination of term and pure endowment plans. It provides both maturity and death benefit, whichever occurs earlier. A traditional with profit or without profit sharing plan. An effective tool to accumulate a specific sum of money over a fixed period of time. Available for selected terms only. Loans are available in case of emergency, A sure method of providing against old age/ for Children Education/ marriage expenses of one’s children. Provides for a safe and compulsory savings.  Endowment Assurance Plan-how it works? Mr. Sudheer Roy aged 35 years, working as an officer in a state Government department, has a daughter Ms. Sharmila aged 5 years. He has taken an Endowment plan for a Sum Assured of Rs.20 lakhs to get a lump sum amount after 20 years for his daughter’s marriage expenses. Death benefit of 20 lakhs paid and Policy concludes. If Mr. Sudheer Roy survives the term of 20 years, he would receive the maturity amount of 20 lakhs plus some additions. Sudheer Roy’s age→ 35 years 50 years-death 55 years Sharmila’s Age → 5 years 20 years 25 years  Variants of Endowment Assurance Plan It has a provision for return of a part of the sum assured in periodic instalments MONEY BACK PLAN during the term and balance of sum assured at the end of the term. NON-PARTICIPATING Also called as” without profit plans “,the benefits are fixed and guaranteed at PLANS (Non- Par) the time of the contract and the policyholder would be eligible for these benefits only. The return on the policies should be disclosed at the beginning of the policy itself. PARTICIPATING Also called as “With profit Plans”, these plans have a provision for PLANS(Par) participation in profits of the company. Profits are payable as bonuses like Reversionary Bonus and Terminal Bonus.(as a percentage on the Sum Assured)  Money Back Plan-how it works? Mr. Ranjit Kumar aged 30 years, is working as a Clerk in a public sector bank. He has taken a Money Back plan for a term of 20 years and Sum Assured Rs. 20 lakhs, so that he would get 20% of Sum Assured as survival benefit(SB) at the end of 5,10 and 15 years and the balance of 40% is paid at the end of full term of 20 years. If death occurred at age 42 years, death benefit of 20 lakhs paid and Policy concludes. 4 lakhs SB paid 4 lakhs SB paid 4 lakhs SB paid 8 lakhs maturity benefit paid Ranjit Kumar age→30 years 35 years 42 years 50 years 40 years 45 years  Non-Par Endowment Assurance Plan-how it works? Mr. Rohit Kumar aged 35 years, is a business man. He has taken a non-par Endowment plan for a Sum Assured of Rs. 20 lakhs to get a lump sum amount after 20 years for his daughter’s marriage expenses. The plan offers a Guaranteed addition of 2% of Sum Assured for every year of the term so that on maturity he would get an additional benefit of 40% of Sum Assured. Death Benefit (DB) at 50 years Maturity Benefit (MB) at 55 years Rohit Kumar’s age→ 35 years 50 years-death 55 years DB → If Mr. Rohit Kumar Died at the age of 50 years – the family would get a death benefit of 20 lakhs + [15X2%x20 lakhs] 6 lakhs = 26 lakhs and policy concludes. MB → If Mr. Rohit Kumar survives to the term, at the maturity age of 55 years – He would get a benefit of 20 lakhs + [20X2%x20 lakhs] 8 lakhs = 28 lakhs and policy concludes.  Par Endowment Assurance Plan-how it works? Mr. Suraj Singh aged 35 years, is working as an officer in a state government department. He has taken a Par Endowment Assurance plan for a Sum Assured of Rs. 20 lakhs to get a lump sum amount after 20 years for his daughter’s marriage expenses. The company has declared a reversionary bonus as below. 1-5 years- 4% RB 6-10 years- 3% RB 11-16 years- 5% RB 17-20 years- 2% RB Maturity at 55 years Suraj Singh age→ 35 years 50 years-death 55 years DB → If Mr. Suraj Singh died at the age of 50 years – the family would get a death benefit of 20 lakhs +{ [5X4%+5X3%+5X5%]x20 lakhs] }12 lakhs = 32 lakhs and policy concludes. MB → If Mr. Suraj Singh survives to the term, at the maturity age of 55 years – He would get a benefit of 20 lakhs +{ [5X4%+5X3%+6X5%+4X2%]x20 lakhs] } 14.6 lakhs = 34.60 lakhs and policy concludes. Now test your understanding of the topic so far.. Match the correct Answer  MATCH THE FOLLOWING 1. Decrease of death benefit with term A. Endowment 2. Money back policy is a variant of B. Term and Pure Endowment 3. Increase of death benefit with term C. Whole Life 4. Permanent insurance policy w/o expiry D. Legacy planning 5. Endowment is a combination of E. MRI. 6. Whole life policy is useful for F. Term insurance 7. Peace of mind to the dear ones of the G. Increasing Term Assurance insured individual.  Key-MATCH THE FOLLOWING 1. Decrease of death benefit with term E. MRI. 2. Money back policy is a variant of A. Endowment 3. Increase of death benefit with term G. Increasing Term Assurance 4. Permanent insurance policy w/o expiry C. Whole Life 5. Endowment is a combination of B. Term and Pure Endowment 6. Whole life policy is useful for D.Legacy planning 7. Peace of mind to the dear ones of the F. Term insurance insured individual.  Riders Riders are supplementary benefits that enhances the value of policies. the following are the major and popular riders available. Riders are added at the inception of the policy. Some Riders may be added during the currency of the policy. A rider is a provision typically added through an endorsement, which then becomes part of the contract.  Types of Riders 1 Accidental Death Benefit Rider 2 Accidental Total permanent Disability Rider 3 Critical Illness Benefit Rider Types of Riders 4 Term Rider 5 Premium Waiver Benefit Rider 6 Waiver of Premium Rider  1.Accidental Death Benefit Rider-how it works? Accidental Death Benefit It provides additional Sum Assured to the beneficiary in case of death of the life Rider assured due to accident. If Death is due to accident Death If death is natural then Death benefit of benefit of Rs.40 lakhs is paid and Rs. 20 lakhs is paid and policy Policy concludes. concludes. Age of LA 35 years 50 years-death 55 years Base policy SA→ Rs. 20 lakhs Rider policy SA →Rs.20 lakhs  2.Accidental Total permanent Disability rider-How it works In case of an accident leaves the life assured permanently disable, an additional Accidental Total permanent sum assured would be paid as monthly pay-outs. In addition to this if this rider is Disability rider taken along with the Waiver of Premium rider then all the future premiums payable under the policy would be waived off. If total disability is due to accident, Rs. 20 lakhs is paid as instalments and Policy continues for base SA. Age of LA 35 years 50 years- 55 years Disability Base policy SA→ Rs. 20 lakhs Rider policy SA →Rs. 20 lakhs  3. Critical Illness Benefit Rider-how it works? This rider provides additional lumpsum benefit in case life assured contracts any Critical Illness Rider specified critical illnesses. In addition to this, if this rider is taken along with the Waiver of Premium rider then all the future premiums payable under the policy would be waived. If Life Assured is diagnosed with any specified critical illnesses the SA of Rs. 20 lakhs is paid and base Policy continues. Age of LA 35 years 50 years 55 years Base policy SA→ Rs. 20 lakhs Rider policy SA →Rs. 20 lakhs  4.Term Rider-how it works? This rider provides additional sum assured in case of the death of the life assured Term Rider along with the base sum assured under the policy. Death Benefit of Rs. 40 lakhs is paid and Policy concludes. Age of LA 35 years 50 years-death Base policy SA→ Rs. 20 lakhs Rider policy SA →Rs. 20 lakhs  5. Premium Waiver Benefit Rider-how it works? This rider is opted when the policy is taken on the life of children/ spouse. Here in Premium waiver Benefit case of the death/Disability of the proposer, all the future premiums under the policy Rider (Payor benefit Rider) are waived and the policy continues for full benefits on the lives of the children/spouse. In case of Death /Permanent Disability of LP ,all future premiums are waived off and policy continues. Life Proposer (LP) age→ 35 years 50 years 55 years Life Assured (LA)Age → 5 years 20 years 25 years  6. Waiver of Premium Rider-how it works? This rider allows waiver of premium payments if the policyholder becomes critically Waiver of premium Rider ill, seriously injured, or disabled in an accident. In case of Permanent Disability/Diagnosis of Critical Illness of LA all future premiums are waived off and policy continues. Life Proposer (LP) age→ 35 years 50 years 55 years  Important points on Riders There is a convenience of managing just one policy with multiple benefits with Riders. The rider benefit will continue till such time the base policy is in force. If the base policy gets lapsed or surrendered, one must forego the rider benefits too. As per the rules, the premium of health-related riders can’t be more than 100% of the premium under the base product and premiums of all other riders put together can’t be more than 30% of the premium under the base policy. The benefit under the rider cannot exceed the sum assured under the base policy. The rider premium is very low than a standalone policy premium  Activity Time Case Please attempt the case studies in studies the following slides.  Case Study 1 Case: Mr. Rahul Desai has taken a pure endowment policy for a Term of 30 years and for a sum assured of Rs. 75,00,000/-. After few years Mr. Rahul Desai dies in an accident. What is the benefit payable to the wife of Mr. Rahul Desai? Solution – No Benefit  Case Study 2 Case: Mr. Vinod Rathod aged 27 years is working as Assistant Manager in a Private Bank.He wants to take a Housing Loan of Rs. 50 lakhs. He does not want this loan amount to be a burden on his family if he dies before clearing the loan. What type of insurance policy suits this need? Solution – Decreasing Term Insurance policy/Mortgage Redemption Insurance policy.  Case Study 3 Case: Mr. Suresh Chandra, aged 35 years has a son of 10 years, studying in class IV. He intends to purchase an insurance policy which will help him to fulfill his goal towards his son's admission to a corporate college, and thereafter to a private university for post graduation.Suggest a plan to satisfy these needs. Solution – Money Back Policy with periodical pay outs after every 5 years. Let’s Recap Summary Life Insurance products are intangible and protect against loss of productive earning capacity from a human capital. Various Insurance products are available to satisfy various needs in a life stage of a person, viz., Whole life, Endowment, Term insurance etc., Riders provide additional benefits attached to the main policy with lesser premium.