Life Insurance and Takaful Products Distributed Through Banks
The product families
Bancassurance shelves typically carry:
- Term life (pure protection): pays a sum assured on death within a defined period; no maturity value. Cheapest protection per rupee of cover.
- Whole life: cover for the whole of life, usually with a savings element.
- Endowment: pays on death or on survival to maturity; combines protection and savings.
- Money-back: periodic survival benefits plus death cover.
- ULIPs / unit-linked: part of the premium buys units in a fund; investment risk sits with the policyholder.
- Annuities and pension products: convert a lump sum into income.
- Credit life / mortgage protection: repays a loan balance on the borrower's death - a natural bank cross-sell.
Takaful basics
Takaful is Shariah-compliant, mutual-risk-sharing cover. Participants contribute to a pool; the operator manages the pool for a fee. Key structures: mudarabah (profit-sharing between participants and operator) and wakalah (agency fee), often combined as wakalah-mudarabah. Surplus from the pool may be distributed to participants. Riba (interest), gharar (excessive uncertainty) and maysir (gambling) are avoided. A Shariah board supervises the model.
Traps in questions
- Treating takaful as "conventional insurance with an Arabic name" - the surplus-sharing and Shariah-board features are what distinguish it.
- Confusing ULIP investment risk (policyholder) with conventional endowment risk (insurer).
- Forgetting credit life is the classic bank-linked protection product.
Worked example
A borrower takes a home loan. The bank offers mortgage protection cover sized to the declining outstanding balance so the family is not left with the debt. The bank distributes; the insurer underwrites; the cover reduces as the loan is repaid.