Answer:
Insurance: Insurance is a contract between two parties, the insurer and the insured, in which the insurer agrees to compensate the insured for a loss (or pay a fixed sum on death or maturity) arising from a specified risk, in return for a consideration called the premium. The document containing the terms of the contract is called the policy. Insurance works on the principle of sharing of risk by many people.
Types of life insurance policies:
- Whole life policy: Premium is paid throughout life (or for a fixed period) and the sum assured is paid only on the death of the insured to his nominee or legal heirs. It is meant to provide for the family.
- Endowment policy: Life is insured for a fixed period. The sum assured is paid on maturity if the insured survives, or to the nominee if he dies earlier. It combines protection and saving.
- Joint life policy: Two or more lives (e.g. husband and wife, or partners) are insured under one policy. The sum assured is paid on the death of any one of them to the survivor(s), or on maturity.
- Annuity policy: The insured pays a lump sum or instalments and in return receives a fixed amount (annuity) regularly, monthly, quarterly or yearly, after a certain age. It is useful as a pension after retirement.
- Children's endowment policy: Taken by a parent for a child to meet expenses of education or marriage. The sum is paid when the child reaches a specified age.
- Term insurance policy: Life is covered only for a fixed term. If the insured dies within the term, the sum assured is paid; nothing is paid if he survives. Premium is low.
- Money back policy: A part of the sum assured is returned to the insured at regular intervals during the term, and the balance with bonus on maturity. On death during the term, the full sum assured is paid.
- Unit Linked Insurance Plan (ULIP): Part of the premium gives life cover and the rest is invested in market-linked funds (equity/debt), so returns depend on market performance.
