ASSIGNMENT ON INSURANCE AND RISK MANAGEMENT

(Course no: Mgt-304)

TOPIC: CLASSIFICATION OF LIFE INSURANCE POLICIES

SUBMITTED TO:
MD. MOSHARRAF HOSSAIN ASSOCIATE PROFESSOR DEPARTMENT OF MANAGEMENT STUDIES UNIVERSITY OF DHAKA

SUBMITTED BY:
MD. OSMAN GANI ROLL: 128, SEC-B, BBA 16TH BATCH DEPARTMENT OF MANAGEMENT STUDIES UNIVERSITY OF DHAKA

DATE OF SUBMISSION:

.02.12

CLASSIFICATION OF LIFE INSURANCE POLICY

The life insurance policies can be divided on the basis of. (a) Duration of policy (b) Method of premium payment (c) Participation in profit (d) Number of lives covered (e) Method of payment of claim amounts and (f) Non conventional Policies

A. POLICIES ACCORDING TO DURATION OF POLICIES

The life insurance policies according to the duration may be (i) Whole life (ii) Term insurance (iii) Endowment insurance and (iv) Survivorship policy.

I. WHOLE- LIFE POLICIES:

Definition: Features:
1. The policy amount becomes payable on the death of the life assured. 2. The assured can not get the policy amount during his life time. 3. Only the dependents will get the benefit of the policy. 4. The policy covers the whole life of the assured. Types: Life Insurance Company can issue four types of policies: 1. Ordinary whole-life policy 2. Limited whole-life policy A whole life policy is one which is taken to cover the entire or whole period of life of the assured.

3. Single premium whole-life policy 4. Convertible whole-life policy

1. Ordinary whole life policy

Definition:
Ordinary whole life policy is one under which policy premium is payable throughout the lifetime and the policy amount shall be payable after the death of assured.

Features:
1. Under this policy premium is payable throughout the life time of the assured. 2. The policy provides permanent protection in the sense that the family receives a lum-sum amount after the death of assured. 3. The policy amount shall be payable after the death of the assured. 4. The policy gives maximum protection at minimum annual charge as compared to other policy. 5. The life assured never enjoyed the benefits under this policy.

Advantage:
1. The rate of premium is low. 2. Reimbursement against the claim of policy amount is done easily. 3. The policy is easily transferable.

Disadvantage:
1. Inconvenience in paying the premium during disablement. 2. Policy-holder cant enjoy the benefit of investment during his lifetime.

3. The amount of premium to be paid is unlimited as premium has to be paid till death of the policy-holder.

2. Limited payment whole-life policy

Definition: The limited payment whole-life policy is one on which the payment of
premium is limited to certain period, although the amount secured under this plan is payable on the death of the policy-holder.

Features:
1. The payment of premium is limited to certain period. 2. The amount secured under this policy is payable after the death of the assured policy. 3. The amount of premium depends upon the number of annual premium stipulated. 4. Premium are payable for a selected periods of year or until death if it is occurred within this period. 5. The life assured shall have the satisfaction of knowing maximum premium. 6. It is a better form of life insurance policy for family protection. 7. The minimum amount for which a policy will be issued under this plan is tk. 1000.

Advantage:
1. This plan is suitable for persons in whose case the need for money would arise only on the happening of the death.

Disadvantage:
1. Premium under this plan is high.

3. Single premium while-life policy:

Definition:
This is same as limited premium whole-life insurance policy but in this policy the total amount of premium is payable is paid in one lum-sum by the assured.

Features:
1. This is an extreme form of limited payment life insurance.

2. The total amount of premium is payable is paid n one lum-sum by the assured. 3. This policy is not popular but it is purchased for investment purpose. 4. It is generally suitable for those persons, who got win fall income like lotteries or those who can afford such single premium.

Advantage:
1. It has the investment elements 2. Premium is to be paid for a single time only.

Disadvantage:
1. This is not so popular. 2. This policy has no protective elements. 3. Only the person, who can afford single premium, can purchase the policy.

4. Convertible whole-life policy:

Definition:
This is a whole-life policy which gives its holder an option to get it converted at the end of five years, into an endowment policy. If this option is exercised, the policy no longer remains a whole-life policy.

Features:
1. This policy provides the convertible opportunity. 2. This policy provides maximum insurance protection at a minimum cost. 3. This policy offers a flexible contract which can be allowed to an endowment policy, at the end of five years of the policy. 4. The minimum sum assured for which a policy will be issued under this plan is tk.5000 and the maximum age at entry shall be 45 years.

Advantage:
1. Policy-holder can convert the whole-life policy to endowment policy at the end of 5 years.

2. This policy is designed to meet the needs of the young man who is on the threshold of his career and has prospect for increase in income after a short period. 3. Under this policy, the cost is minimum.

Disadvantage:
1. If the policy converted to endowment policy from a whole-life policy, the premium increases.

II. TERM INSURANCE POLICIES:

Definition: Term insurance policy is one where life insurance is taken for short
periods of years ranging from 3 months to seven years.

Features:
1. Policy is matured if the policy holder died within the term period. 2. This policy is ranging from 3 months to 7 years. 3. If policy is matured the nominee will get the benefit. 4. If policy holder survives, the liability of insurer comes to end (no scope of payment). 5. This policy is taken for a short term period. 6. Term policy is a protective measure for the nominee; no scope f investment. 7. Premium will be paid throughout the period or till the prior death of the life assured.

Advantage:
1. The term policy is for the benefit of others. 2. Term policy has the element of protection 3. Term policy grants protection against living too short. 4. This policy is for family protection. 5. It is the cheapest policy, the premium rate is nominal. 6. It is useful to those, who need extra-protection for a short duration.

Disadvantage:
1. This policy doesnt have the elements of investment.

III. ENDOWMENT POLICIES:

The endowment policies can be several, of which important endowment policies are discussed below:

1. PURE ENDOWMENT POLICY:

Definition: Features:
1. The endowment policy is the opposite of term policy. 2. In case of pure endowment policy, premium may be returnable in accordance with the contract. 3. The sum assured is payable on the life assureds surviving the endowment term. 4. The pure endowment policy has the element of investment. 5. Pure endowment policy grants protection against living long. 6. Pure endowment policy is old-age protection. 7. The mode of payment of premium under this plan is only yearly or half-yearly. Pure endowment policy is one where the sum assured is payable on the life assureds surviving the endowment term.

Advantage:
1. This policy can be issued in the life of adult as well as in the life of child. 2. Pure endowment policy is for the benefit of the policy-maker. 3. This policy is useful to the person who does not care to protect himself for medical examination. 4. This is also beneficial to those who, for reasons of health, would be unacceptable for life insurance on standard premium.

5. Paid up and surrender values are allowed on this policy. 6. It is sort of compulsory saving for old age.

Disadvantage:
1. Pure endowment policy hasnt the element of protection. 2. Pure endowment policy is not for family protection.

2. ORDINARY ENDOWMENT POLICY:

Definition:
Ordinary endowment policy is one where the sum assured being payable either on the life assureds death during the period or on his survival to the end of the period.

Features:
1. Actually represent the life insurance policy in the true sense. 2. Ordinary endowment policy is the combination of term insurance and of pure endowment policy. 3. Premium is payable throughout the term of the policy or to a limited period or till the prior death of the life assured. 4. In this policy, the net premium rate is equal to the net premiums of term and pure endowment policies issued at the same age, for the same period of time. 5. It has both protective and investment elements. 6. The policy is matured if the policy holder died within the period or survives after the period.

Advantage:
1. This provides solution to various problems of life whether living to long or too short. 2. The old-age provision and the family protection is possible by purchasing only this single policy 3. Compulsory saving is possible due to this policy which is not present in other types of saving.

4. It is a means of hedging against the possibility of saving period being cut short by death. 5. Another advantage of this policy is to meet the marriage; education or other requirements of the family.

Disadvantage:
1. The rate of premium is maximum.

3. DOUBLE ENDOWMENT POLICY

Definition:
Under double endowment policy, if the life assured dies during the endowment period, the basic sum assured is payable and if he survives to the end of the term, double of the sum assured is paid.

Features:
1. This policy is the combination of an endowment insurance and a pure endowment(without return of premium) for the same period and for the same amount. 2. In this policy, if policy holder died within the period the dependent will get the policy amount; if survived he will get the double policy amount. 3. It has both protective and investment measure. 4. Premium are payable throughout the endowment term or till the prior death of the life insured. 5. The premium, are generally quoted according to the endowment period, irrespective of the age at entry subject to the provision that maturity age is not beyond 65. 6. This policy is ranging from 10 to 40 years but no policy is insured to mature at an age exceeding 65 years.

Advantage:
1. The element of investment is higher in this plan. 2. This plan is beneficial to the person who by reason of some physical disability is not eligible for acceptance at the tabular rates under any of the other classes of insurance. 3. This is also to benefit to those who are confident of living long but would like to have some cover in the event of his early death.

Disadvantage:
1. The rate of premium is high. 2. The protection element in this plan is lower.

4. TRIPLE BENEFIT POLICY:

Definition:
Triple benefit policy is the combination of a whole life limited payment and a pure endowment (without return of premium) with a guaranteed annual bonus payable on the death during the endowment term.

Features:
1. This policy is the combination of a whole-life limited payment and a pure endowment policy. 2. In this plan. Guaranteed annual bonus payable on the death during the endowment term. 3. This policy is granted for a fixed terms of 15,20, or 25 years. 4. Premium is pay able throughout the term or till prior death of the life assured. 5. There is a guaranteed and steadily increasing family provision during the selected period along with the old age benefit.

Advantage:
1. Guaranteed surrender value is applicable to this policy. 2. The plan is useful to a person who, in addition to providing cover for his family, wants to make some provision for his old age. 3. Another advantage is that the insurance elements are greater than in an ordinary endowment assurance policy.

Disadvantage:
1. The rate of premium is very high. 2. Premium is not returnable.

5. ANTICIPATED ENDOWMENT POLICY:

Definition:
Anticipated policy is similar to endowment assurance except that a part of the sum assured is paid at certain interval before death within maturity of the policy and the balance of the sum assured is payable at maturity.

Features:
1. This policy is similar to the endowment assurance. 2. A part of the sum assured is paid at certain interval before death within maturity of the policy and the balance of the sum assured is payable at maturity. 3. The policy may be issued both under with and without profit plan. 4. The term may be 12,15,20 or 25. 5. In the event of death at any time within the selected term the full sum assured is payable without any deduction or adjustment for the amount that may have been paid earlier by way of survivance benefit.

Advantage:
1. The part of sum assured is paid at certain interval before death within maturity of the policy. 2. Full sum assured is payable without any deduction of installments paid earlier, in the event of death during the term period.

Disadvantage:
1. The rate of premium is very high.