Page 132 - DCOM309_INSURANCE_LAWS_AND_PRACTICES

Unit 8: Life Insurance

This means insurance of healthy people who are generally in good health should be done. This Notes
is made possible through a medical examination at time of issue of policy.

Self Assessment

Fill in the blanks:

3. The principle of ………………………………… only works when the law of large numbers
is operational.
4. The third principle of life insurance is predictable nature of ……………………………..

8.3 Classification of Policies Prevailing in Market

As you are well aware that life insurance is a contract providing for the payment of a sum of
money to the person assured or if not him then to the person entitled to receive the same on the
happening of a certain event. The two basic needs applicable universally to all individuals are
risk coverage and savings for future.
1. Risk Coverage: Risk is used here to mean “death”. The first basic need is to provide a lump
sum amount to the family in the event of the untimely death of the bread winner. This is
called term insurance or temporary insurance. The lump sum amount is payable only if
the death of the insured occurs during a selected period. If the insured survives till the end
of the selected period, nothing becomes payable.
2. Savings for Future: Savings is accumulation of funds for a specific purpose in the future.
Here the lump sum insurance amount is payable only if the insured survives till the end
of the selected period. If the insured dies during the period of insurance, nothing becomes
payable. This is called “pure endowment”.

The two concepts, term insurance and pure endowment are the basic elements of every life
insurance product. By combining these two elements in different proportions different products
of life insurance are developed, and the proportion of these two elements in the mixture depends
on the different needs of individuals. These two elements are therefore called the “Basic Building
Blocks” in all life insurance product design.

The life insurance policies can be divided on the basis of:
Methods of premium payments
Single premium policy

Level premium policy
Participation in profit
With profit policy
Without profit policy
Number of lives covered
Single life policy

Multiple life policy
Joint life policies
Method of payment of sum assured
Instalments or annuity policies

Lump-sum policies

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