insurance awareness study material

Insurance Awareness: Types of Life Insurance – Chapter 2

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Topics covered in Chapter 2

  • What is Life Insurance
  • Types of Life Insurance
    • Term Insurance
    • Whole Life Policy
    • Endowment Plan
    • ULIP
    • Money Back Policy

What is Life Insurance

Definition- Life insurance is a contract/agreement under which the insurer pledges payment of an amount to the person assured/insured (or his nominee) on the happening of the certain event against which the person is insured.

Understand this in three steps:

Step 1: It is a contract/agreement (between the insurance company and the person insured)

Step 2: A certain amount of money will be paid by the insurance company to the person insured

Step 3: But When? – On the occurrence of a certain event – Like

  • The date of maturity, or
  • Specified dates at periodic intervals, or
  • Unfortunate death, if it occurs earlier.

The Person Insured pays a certain amount of money for this insurance to the insurance company that is known as premium. This premium is very less as compared to the benefits that the person will receive in case the risk takes place.

Types of Life Insurance

There can be many types of Life Insurance. However, the major types have been discussed below.

1. Term Insurance

Basic- Pays you only if death occurs during the term of the policy.

A term Insurance is an insurance product under which the person insured receives the benefit only if he/she dies during the time for which the insurance policy is bought. If the person dies after that, nothing will be paid by the insurer to the person insured/nominee. A term plan provides death risk cover for a specified period.

2. Whole Life Policy

Basic- The policyholder pays regular premiums until his death. After his death, the accumulated amount + benefits (total corpus) is paid out to the family.

In this, the family will definitely get the benefit of the Insurance Plan.

3. Endowment Plans

Basic- Endowment plans pay out the sum assured/insured under both circumstances – death (during the term of the policy) and survival. Combination of Insurance and Savings.

Under Endowment Plan if a person dies during the term of the policy then he/she will get the sum insured + bonus if any. If a person survives the term of the policy then also he will get the assured sum and the bonus. Bonus is paid for the number of years for which the policy was in force.

4. Unit Linked Insurance Plans (ULIP)

Basic-Combination of Insurance and Investment

For any insurance product, the policyholder pays a certain premium to the insurance company. Under ULIP plan a portion of this premium is utilized to provide insurance coverage to the policyholder and the remaining portion is invested in equity and debt instruments (similar to mutual funds).

A portion of the premium goes towards providing life cover. The remaining portion gets invested funds of policyholder’s choice. Investment in ULIPs is eligible for tax benefit up to a maximum of Rs 1.5 lacs under Section 80C of the Income Tax Act.

Once your policy term ends, you receive a lump sum amount called the Maturity Benefit. In case of death during the term of the policy, the family receives an amount called the Sum Assured.

Lock-in Period of ULIP- 5 years

The first ULIP was launched by Unit Trust of India (UTI).

5. Money Back Policy

Basics- Pays periodic payments over the policy term and full sum assured in case of death during the policy term.

In this, there is a concept of full sum assured. The policyholder receives periodic payments over the policy term.

Case A: If he survives the Policy period – Then he/she will receive the remaining balance of the sum assured

Case B: If he survives the Policy Period- Then the nominee will get the full sum assured.


Benefit Payable
Term Insurance Survives: 0

On Death: Sum Assured (If death occurs within policy period)

Whole Life Policy 100% assured benefit in case of death at any age.
Endowment Plans (Insurance + Savings) Survives: Sum Assured+ Bonus (One Time)

Death: Sum Assured + Bonus

ULIP (Insurance + Investment) Survives: Sum Assured+ Bonus (One Time)

Death: Sum Assured + Bonus

Money Back Policy First of all – you get periodic payment

Survives: remaining of the sum assured
Death: Full Sum Assured


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