Life Insurance Products and Product Features
This domain tests whether you can match a need to a product and describe its mechanics precisely: death benefit, survival benefit, bonus, surrender, charges, and the limits the regulator sets on design.
Product families
- Term: pure death cover, no survival benefit, cheapest per rupee of sum assured.
- Whole life: cover to a defined old age or whole of life; low premium; may or may not pay a survival benefit.
- Endowment: sum assured plus bonuses on maturity or death, whichever is earlier.
- Money-back: periodic survival benefits, with the full sum assured usually paid on death.
- ULIP: fund value = units × NAV, market risk borne by the policyholder, a 5-year lock-in, and charges disclosed in the benefit illustration. Design rules now sit in the IRDAI (Insurance Products) Regulations, 2024.
- Annuity: immediate or deferred; life annuity, life with guaranteed period, joint life. An annuity converts a corpus into income and is not life cover.
- Riders: accidental death, critical illness, waiver of premium, term rider. A rider rides on a base policy, cannot exist alone, and its premium and cover are capped relative to the base plan.
- Participating plans share profits as reversionary bonuses declared per ₹1,000 of sum assured; simple versus compound bonus, plus interim and terminal bonus.
Worked example
Sum assured ₹5,00,000, 10-year endowment, simple reversionary bonus ₹40 per ₹1,000 each year. Annual bonus = 40 × 500 = ₹20,000; over 10 years = ₹2,00,000; maturity = ₹7,00,000. Under a compound bonus the same declared rate yields more, because each bonus is added to the base on which the next is calculated.
Traps
Promising ULIP "bonus" - ULIPs have no bonus. Confusing paid-up value with surrender value. Assuming an annuity returns the corpus after the guarantee period ends. Mixing the ULIP 5-year lock-in with the surrender eligibility of conventional plans.