Module 5

Life insurance basics

Enough life insurance to hold a conversation and avoid being caught out, even in a general insurance BA interview.

Life policies run for decades, so the work centres on long-term promises: guarantees, bonuses, lapses, revivals and payments to nominees. The term life calculator shows how age, cover and smoking change the premium.

Practise in the calculator →

Products

Most life products mix protection and savings. The mix decides both the premium and the payout.

Term: pure protection, the lowest premium per rupee of cover.
Term insurance pays the sum assured only if the life assured dies during the term. Nothing is paid on survival unless the customer chose a return-of-premium version.
ExampleOn the Calculators tab, a 30-year-old non-smoking man pays about ₹12,097 a year for ₹1 crore of cover over 30 years (an illustrative model, not an insurer price).
Endowment and money-back: savings plus protection; guaranteed or participating (bonus).
These pay on death or at maturity. Money-back plans pay part of the sum assured at set intervals. Non-participating plans give guaranteed benefits; participating plans add bonuses declared each year from the insurer's profits.
ExampleA ₹10 lakh, 20-year participating endowment pays ₹10 lakh plus the bonuses added over 20 years at maturity, or the sum assured plus bonuses to date on earlier death.
ULIP: market-linked funds, 5-year lock-in, charges disclosed.
After charges, the premium buys units in equity or debt funds chosen by the customer, so returns are not guaranteed. Money cannot be withdrawn in the first 5 years.
ExampleA customer puts ₹1 lakh a year into an equity fund. Allocation, mortality and fund management charges are deducted before and after units are bought, and the fund value moves with the market.
Annuity and pension: regular income after retirement.
An immediate annuity turns a lump sum into income for life. A deferred plan builds savings first and starts paying later. Options include joint life cover for a spouse and return of the purchase price on death.
ExampleA retiree pays ₹50 lakh for an immediate annuity and receives a fixed monthly income for the rest of their life.

Operations and terms

These terms come up in any discussion of life insurance systems or processes.

Mortality tables and medical underwriting; financial underwriting for high cover against income.
Mortality tables give the chance of dying at each age and underpin protection premiums; Indian insurers use the IALM tables. Medical underwriting checks health; financial underwriting checks that the cover is reasonable for the person's income.
ExampleA ₹5 crore term proposal from someone earning ₹10 lakh a year (50 times income) is referred, and the insurer asks for income proof.
Riders: accidental death, critical illness, waiver of premium.
Riders are optional extra covers attached to a base policy for an extra premium.
ExampleWith a waiver of premium rider, if the policyholder becomes permanently disabled, future premiums are waived but the cover continues.
Surrender value, paid-up value, revival of lapsed policies, persistency (13th and 61st month).
Surrender value is paid if the customer exits early. If premiums stop after a minimum period, the policy can become paid-up with reduced benefits instead of lapsing. A lapsed policy can be revived within the revival period by paying arrears, sometimes with new medical evidence.
ExampleA customer stops paying an endowment in year 4. It becomes paid-up at a reduced sum assured, and they later revive it by paying the missed premiums with interest.
LIC is the largest insurer; private leaders include SBI Life, HDFC Life and ICICI Prudential.
Much private-sector business is sold through bank branches (bancassurance), so bank integrations and sales journeys are a big part of life BA work.
ExampleA customer taking a home loan is offered a term or credit life policy by the bank's insurance partner at the same desk.