Question

1. The product offers life protection, savings and even has investment component. Even though it runs for a specified period, life assurance companies are flexible to extend cover so that they make sure that money became available to the policyholders dependents on their death.

Identify and describe the variations under this product.                            [25 marks]

Answer 1

Answer:

Traditionally life insurance companies are offering pure life insurance. in case of pure life insurance, the insured is required to pay a certain amount as premium to keep the insurance policy in force. Insured is required to mention the nominees, who will receive the proceeds of the insurance policy in case of the death of the policyholder.

In the present era of the insurance industry, insurance companies have introduced many additional benefits along with life insurance. Life insurance with savings and even has an investment component.

Variations under  life protection, savings, and investment component:

1. Life insurance cover benefits and operation:

Maturity Benefit: Benefits payable at the end of the policy term. At maturity, the policyholder will receive your Fund Value. Fund Value will be calculated by multiplying balance units in the fund by the then prevailing unit price.

All your risk cover ceases at the end of the policy term. And policyholders can also take fund value at maturity in periodical installments under a settlement option.

Death Benefit: Benefits payable in case of unfortunate death. On a valid death claim for an in-force policy where all due premiums have been paid, the death benefit shall be paid.

2. Savings cover benefits and operation:

Insurance companies will invest a certain percentage of the premium paid in risk-free assets which will give constant returns irrespective of the fluctuations in the stock and commodities market.

The percentage of premium amount will be going to be invested in risk-free assets that will be specified at the time of initiation of insurance to the policyholder.

Insurance companies will invest in assets like government bonds & securities, post office deposits, fixed deposits, T-bills, etc.

3. Investment cover benefits and operation:

Insurance companies will invest a certain percentage of the premium paid in stock market-linked securities which will give returns based on the fluctuations in the stock & commodities market.

The percentage of premium amount will be going to be invested in stock market-linked securities will be specified at the time of initiation of insurance to the policyholder.

These funds will be administered by the fund managers, they will regularly monitor the movements of the stock market and shift the amount of investment between securities based in the market movements in order to gain from the market.

Under these units linked insurance plans life assurance companies are flexible to extend cover so that they make sure that money became available to the policyholders dependents on their death.

Premium waiver option: An option that takes care of all your financial responsibilities in policyholder absence. In the case of policyholder unfortunate death, all future premiums will be paid by insurers to make sure that the fund does not stop growing. The policy continues with risk cover for Life Assured and the accumulated fund Value is paid on Maturity. On the death of the Policyholder, the Life Assured will become the policyholder.