Types of insurance

Insurance can be classified into two categories as: 1) Life insurance 2) Non-life insurance

Life insurance:- Life insurance is one of the most common forms of insurance. It has secured a special position all over the world. It estimated that life insurance comprises 80 percent of the total insurance business done in the world. It was started in England and other European countries in the 16^th century. The life insurance in modern lines was developed in the 18^th century.

·         Life insurance is a contract whereby the insurer agrees to pay a certain sum of money to the insured on the maturity of the policy consideration of premium paid by the insured. If the insured dies before the policy matures, his nominee will get the amount of policy. Such provision provides financial protection against the risk of early death which provides the financial security to the nominee or dependents. In fact, life insurance contains the elements of investment as well as protection. It is considered as an investment as the insured gets the amount of insurance with bonus on the maturity of the policy. It is considered as a protection as the nominee gets the financial compensation in case the death of the insured. Life insurance is also known as contingent contract because the loss of the life can not be compensated but the financial compensation is provided to the nominee for the loss of insured life.

Types of Life insurance

Life insurance can be classified as follows:-

1)      Whole life insurance: Under this policy, the insured has to pay the amount of premium in his whole lifetime. The insured amount is paid to the nominee by the insurer only at the death of the insured person. Under this policy, the insured person can not get the amount of premium during his lifetime.

2)      Endowment life insurance: The endowment policy is issued for a fixed period of time, say, for 15 years, 20 years or 25 years. The premium is payable during the insured period only. The sum assured is payable to the policy holder on the maturity of the policy. However, if the insured dies before the expiry of the policy, the sum assured is payable to his nominee. Endowment policy is very popular because it provides financial security to the family as well as livelihood to the insured in his old age.

3)      Anticipated endowment life insurance: Under this policy, a part of the sum assured is paid at certain intervals during the endowment period. The balance of the assured amount is paid at the maturity of the policy. In case of death of the insured before the maturity of the policy, the whole assured amount is payable to the nominee with bonus at once. Generally, such policy is issued for 15, 2o or 25 years. For example, If the policy is issued for 15 years, 25% of the insured amount is paid after 5 years, 25% is paid after 10 years and balance amount is paid with bonus after 15 years, i.e. on the maturity of the policy.

4)      Children’s education and marriage endowment life insurance: Education and marriage of the children are costly affairs for every parent. Such financial burden can be minimized by taking children’s education and marriage endowment life insurance policy. This policy is taken by the concerned parent for a specific period of time. The parent should pay the amount of premium for the specified period on regular basis. The child becomes the nominee of the policyholder. On the maturity of the policy, the insurer pays assured amount which supports the policyholder to manage the required amount of fund for higher education and marriage of the nominee.

5)      Term life insurance: The term life insurance policy is issued for short term period ranging from 3 months to 7 years. Under this policy, the sum assured is payable only on the death of the policyholder. If the policyholder survives till the maturity of the policy. Such policy helps to realize the amount of debt from the insurance company on the death of the debtor or borrower. It provides full financial protection to the creditor against the risk of death of the debtor or borrower.

6)      Single life insurance: Under single life insurance policy, only one individual is insured. The premium is paid for the life insurance of the single policyholder.

7)      Joint life insurance: Under joint life insurance, the insurance policy is taken for two or more persons’ lives. In this policy, the sum assured is payable to the survivor on the death of any person insured or to the survivors on the expiry of the policy whichever is earlier. Generally, this policy is taken by husband and wife jointly and partners of a firm.