CHAPTER – 9
LIFE INSURANCE PRODUCTS – II
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
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
Major sources of appeal of the new genre of products that emerged worldwide are :
- Direct linkage with the investment gains
- Inflation beating returns
- 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
- a) Variable insurance plans
- b) Unit linked insurance plans
Break-up of ULIP Premium
Investment fund options offered by ULIP Equity Fund :
This fund invests major portion of the money in equity and equity related instruments.
VARIABLE LIFE INSURANCE :
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.