Life insurance contracts or policies are made between life insurance companies and one or more persons called the policy holders. The policy holders will agree to pay an amount or a series of amounts to the life insurance company called premiums and in return the company agrees to pay the sum assured under the terms and conditions of the policy on the occurrence of specified event. The premiums can be paid:
- On a regular basis, typically paid monthly, quarterly or annually and they are generally known as regular premiums
- By a single payment known as single premium
There are two categories of life insurance contracts:-
- INDIVIDUAL LIFE: There are various types of individual life contract. Starting with the simplest life insurance contract. we have:
- WHOLE LIFE INSURANCE CONTRACT: This simplest life insurance contract is for the whole life. The benefit under such a contract is an amount, called the sum assured, which will be paid on the policyholder’s death. The most suitable age for this is from 45 to 60 years.
- TERM INSURANCE CONTRACT: A term assurance contract is a contract to pay the sum assured on or after death, provided death occurs during the specified period, called the term of the contract. The suitable age for this is from 25 to 40 years.
- PURE ENDOWNMENT CONTRACT: A pure endowment contract provides a sum assured at the end of a fixed term, provided the policyholder is then alive.
- ENDOWMENT CONTRACT: An endowment assurance is a combination of a term assurance, and a pure endowment assurance. That is, a sum assured is payable either on death during the term or on survival to the end of the term. The sums assured payable on death or survival need not be the same, although they often are.
- GROUP INSURANCE: Undergroup life insurance, a single contract covers an entire group of people. The employer or an entity such as a labour union is the policyholder, and the employees or members of the group are the ones covered by the group policy. Such coverage is often part of an employee benefits package, with the employer picking up the tab. There are three types of group life insurance:
- Group Term Life
The most common form of group life insurance is group term life. This is typically provided by the employer to the employees in the form of an annually renewable term insurance policy. When the policy is up for renewal, the mutual consent from both the parties is required. There can be a hike in rates upon the policy renewal. Costs of the policy are fully or partially paid by the employer. A typical coverage amount for group term life policies is equal to twice or thrice of an employee’s annual salary.
- Group Universal Life
This is just like an endowment policy for the whole group. Under this group life insurance policy the benefits from both life insurance policies are combined i.e. the benefits of term life and whole life insurance. You can choose to pay the life insurance premium only or also make payments that build cash value (above the cost of the premium). The advantages include affordable group insurance rates and simplified underwriting, along with the potential for cash accumulation and portability. Features of this type of group insurance include
- Group buying power results in more affordable premiums,
- An optional cash value account,
- Coverage that can be extended to age 100
- Variable Group Universal Life
Often used in executive benefit plans or to fund retiree life insurance, variable group universal life provides flexible life insurance, a guaranteed account and optional sub-account investment choices. Features of variable group universal life insurance include
- Affordable premiums due to group buying power,
- An investment option (for tax-deferred accumulation),
- Coverage that can be extended to age 99
- Investment account options (that cover a wide range of investment styles and risks).