Marriage endowment/Educational annuity Plan

This Plan belongs to the category of conventional insurance product – endowment assurance Plans. It answers a specific financial need that arises at a particular fixed time in the life of the life assured. Expenses for marriage / education do not come too earlier than expected. Assuming that a person purchases this Plan for the benefit of his son / daughter aged one year for a term of 17 years the policy will mature when the son / daughter will be of 18 years of age. Marriage or college education will come after this age only. So premiums are payable for 17 years or till death of the life assured, if earlier.

Maturity benefit is payable to the policyholder. Death benefit is payable to the legal heirs. In case of daughter’s marriage the death benefit is payable in one lump sum. In case of education benefits are payable in ten half yearly installments.

In case of the earlier death of the life assured no further premiums need be paid. However bonus will be paid for all the years till maturity.

One specialty of this policy is that even in case of death of the life assured the insurance company pays maturity claim (and not death claim) on date of maturity. Conditions and privileges of the policy may be read from the Posts under the label ‘Policy’.

Key words:

Conventional insurance product

Marriage endowment Plan

Educational annuity Plan

Maturity claim

Jeevan Surabhi Plans

They also belong to the conventional insurance products, endowment assurance type of Plans. They are money-back Plans with provision to pay periodical survival benefit (SB) claims and the last SB claim is paid at the end of premium paying period. Premiums are payable as fixed limited payments – i.e. in a Plan with 15-year term premiums are payable in 12 years, in a 20-year term premiums are payable in 15 years and in a 25-year term premiums are payable in 18 years. The sum assured is returned during premium paying term in the form of SB payments. At the   end of the term accrued bonus (share of profit / surplus of the insurer) is paid on the full sum assured. Just as in the case of money-back policy, the SB payments are specified as percentages of sum assured, it really amounts to refund of a large portion of premiums paid, before the SB. In case of deaths after receipt of one or more SB the SB payments are ignored and full sum assured is settled as death claim. Bonus is also calculated on full sum assured, ignoring SB payments. You can go through the policy conditions and privileges by visiting topics under the label ‘Policy’.

Key words:

Conventional insurance products

Endowment assurance

Jeevan surabhi

Survival benefits

Money Back Plans

Money back or Cash back policies belong to the category of endowment assurance Plans [conventional insurance products] that provide benefits as combinations of term assurance and pure-endowment. In a usual endowment assurance Plan the benefits are payable either on death (if death takes place during the term) or on maturity of the policy.

In Money Bach Plans part of the sum assured is returned to the policyholder when he survives a certain portion of the term. For example in a 12-year money Back policy 20% of the sum assured is returned to the policyholder when he survives 4 years and another 20% of sum assured is returned when he survives another 4 years (i.e.8 years from commencement). This is known as Survival Benefit (SB). The balance 60% of the sum assured is returned on maturity of the policy at the end of the 12-year term along with accrued bonus on full sum assured. In money back policy with 15-year term the SB is paid when the policyholder survives 5 and 10 years and the rate of SB is 25% of the sum assured. Balance 50% of sum assured is paid on maturity along with accrued bonus on full sum assured. In a 20-year money back policy the SB is on the policyholder surviving 5, 10 and 15 years   and the rate of SB is 20% of sum assured. In 25-year money back policy the rate of SB is 15% of sum assured and the payments are made when the policyholder survives 5, 10, 15 and 20 years. I have taken here the example of money-back plans of the Life Insurance Corporation of India. The three distinct features of this type of Plans are:

(1) Since SB is expressed as a percentage of the sum assured the benefit may be perceived to be small, but actually it is refunding a major portion of the premiums paid before SB

(2) If death takes place after receipt of one or more SB, the SB paid is ignored and claim is settled for full sum assured, and

(3) Bonus (share of profit/surplus of the insurer) is paid on the full sum assured, since for the purpose of calculating the bonus SB paid is ignored.

In money-back policies the paid-up value is calculated and printed in the policy bond itself.

Different insurers may have different conditions and privileges on such Plans. To know about a specific policy of an insurer it is always advisable to go through the policy or to contact the insurer.

Key words:

Conventional insurance products

Endowment assurance Plan

Money Back Plans

Survival Benefit

Bonus

Endowment Assurance Plans

Most of the conventional insurance products of life insurers come under this title. They provide benefits in the form of combinations of Term assurance (death benefit) and Pure endowment (survival benefit). In other words endowment assurance plans provide death benefit as well as survival benefit. If the policyholder does not die during the term of the policy then he will get the assured benefit as maturity claim. If the policyholder dies during the term his beneficiaries receive the death claim.

Benefits under endowment type of plans could be enhanced by increasing the under lying benefits. For e.g. if you mix term assurance (TA) benefits and pure endowment (PE) benefits in 1:1 ratio you get a standard endowment Plan. If you enhance death benefit to two times (on death two sums assured are payable) the ratio of TA:PE will be 2:1. Similarly if death benefits are increased to three times the ratio becomes 3:1. Examples are Jeevan Mitra policies of the Life Insurance Corporation of India. Remember, as death benefits rise, the term assurance premiums too will rise and that is not refundable. Let us assume that keeping the death benefits as one sum assured an insurer increases the survival benefit to two sums assured, i.e.TA:PE = 1:2. That is on death one sum is payable whereas on maturity two sums assured are payable, e.g. Double endowment Plan of LIC.

Term of the Endowment Plan could be chosen to suit the convenience of the policyholder. There are provisions to pay single premium, limited period premium or premium payment during the entire term. Non-forfeiture regulations (see the Post on the topic, under the label 'Policy') are applicable to endowment assurance plans. We shall see some more Plans coming under the group of endowment plans in our coming Posts.

Key words:

Conventional insurance products

Endowment assurance

Non-forfeiture regulations

Jeevan mitra

Double endowment

The Whole Life Plans

These are an important group of conventional insurance products. Ideally they are Plans where premiums are payable till death and claims are payable on death. There should not be any maturity claim in a whole life policy. These policies are best suited to pay estate duty or other similar taxes that a person’s estate becomes liable on his death. But companies have devised many features that project their Plans better than the Plans of competitors. In marketing, especially financial service marketing, it is the perceived benefits that rule the roost. There are with profit whole life plans as well as without profit whole life plans. There are life long premium paying policies and limited period premium paying policies. There are whole life plans that allow conversion to endowment plan after passage of a stipulated period. In one whole life plan of the Life Insurance Corporation of India premiums are payable till 80 years of age of the life assured or for 35 years whichever is more. However in a variation of this Plan premiums can be paid as single premium or in limited number of years, for example 7 or 8 years. Non-forfeiture regulations (see Post on the topic under the label ‘Policy’) are applicable to whole life policies. Some life insurers may opt to give a maturity claim on whole life policy at 80 or 100 years of age of the life assured.

Key words:

Conventional insurance products

Whole life Plan

Estate duty

Maturity claim

Term Assurance Plans

While discussing the conventional insurance products I told you that Plans under this heading will be discussed in detail later. Almost all life insurance companies offer term assurance products with different features. The essence of term assurance is that it covers risk during the term of the policy. That means in case of survival to the end of the term the life assured or policyholder does not receive any maturity benefit. The features that are added to this basic benefit by various companies enable product differentiation and more demand for the product. Some companies allow addition of rider benefits on payment of additional premium to term assurance products. Some others provide for a refund of premium on maturity. Some others make term an attraction. To cite an example the Life Insurance Corporation’s (of India) Table 43 is a temporary term assurance Plan. The Plan is available for a maximum period of two years and for a minimum period of six months. Premium is very low and risk cover is quite high. Generally term assurance Plans are without profit Plans. No surrender value or loan is available under this type of Plans. While comparing term assurance Plans do not take it that premium is the only factor to be compared. Compare the product in its entirety taking all features of the Plan.

Key words:

Conventional insurance products

Term assurance

Features of Plans

Comparing the Plans