Basic life insurance benefits

Let us recall a story from our primary school textbook. Animals in a forest were selecting a king from among them. In the selection process there was a simple test to be passed by the winner. The test was to count the number of spots on the body of a leopard. Each animal would go to the leopard, start counting the spots, get confused midway and return. At last it was the rabbit’s turn to count. After some close observation he declared that he has counted the spots - there were only two spots, the red ones and the black ones!  In the same way, let us understand that there are, basically, only two life insurance benefits.

At one extreme is the Term assurance benefit (TA), where the benefit is paid only if there is a loss, e.g. claim on account of the death of the life assured. The death should have taken place during the insured period. If death does not take place no benefit goes to the life assured. The premium will belong to the insurance Company. At the other extreme is the Pure endowment benefit (PE), in which the life assured gets the benefit when he survives the period for which he was insured. In other words, it is a survival benefit. If he dies during the insured period, his family does not get any benefit; instead the premium belongs to the insurance company. With the exception of Simple Term Assurance policies and Pure Endowment policies, all other policies/Plans of life insurance companies are combinations of term assurance benefit and pure endowment benefits in varying proportions.

In the Plans of insurance companies these benefits could be mixed in 1:1 ratio or with more of TA benefits and less of PE benefits or with more of PE benefits and less of TA benefits. If more TA benefits are included in a Plan it means that the non-refundable portion of premium is more in the premium of the Plan. In such cases the premium payable under a Plan may even exceed the sum assured (insurance cover)