IC38 Chapter 9 Notes



 Cash value component

The savings or cash value component in traditional life insurance policies is not well defined

 Rate of return

It is not easy to ascertain what would be rate of return on traditional life insurance policies

 Surrender value

The cash and surrender values (at any point of time), under these contracts depend on certain values (amount of actuarial reserve and the pro-rata asset share of the policy)


Finally there is the issue of the yield on these policies

 Appeal :

Major sources of appeal of the new genre of products that emerged worldwide are :

  • Direct linkage with the investment gains
  • Inflation beating returns
  • Flexibility
  • Surrender value

 Non-traditional life insurance products Universal Life Insurance

  • Universal Life Policy was first introduced in the USA.
  • Universal life insurance is a form of permanent life insurance characterised by its flexible premiums, flexible face amount and death benefit amounts, and the unbundling of its pricing factors.

Non-traditional life insurance products

  1. a) Variable insurance plans
  2. b) Unit linked insurance plans

Break-up of ULIP Premium

  • Expenses
  • Mortality
  • Investment

 Investment fund options offered by ULIP Equity Fund :

This fund invests major portion of the money in equity and equity related instruments.


This policy was first introduced in the United States in 1977. Variable life insurance is a kind of “Whole Life” policy where the death benefit and cash value of the policy fluctuates according to the investment performance of a special investment account into which premiums are credited. Theoretically the cash value can go down to zero, in which case the policy would terminate.

Unit linked insurance

Unit linked plans, also known as ULIP‟s emerged as one of the most popular and significant products, displacing traditional plans in many markets. These plans were introduced in UK, in a situation of substantial investments that life insurance companies made in ordinary equity shares and the large capital gains and profits they made as a result.

Unit linked policies thus provide the means for directly and immediately “cashing on the benefits of a life insurer’s investment performance.

Equity Fund : Invests major portion of the money in equity and equity related instruments.

Debt Fund : Invests major portion of the money in Goverment Bonds,corporate Bonds , Fixed deposits etc.

Balanced Fund : Invests in a mix of equity and debt instruments

Money Marker Fund: Invests money mainly in instruments such as treasury bills, certificates of deposit, commercial paper etc.