Comparison between Insurance Policies

Term Insurance provides pure life cover for a fixed period. The sum assured is paid only on death during the term, with no maturity benefit.

Endowment Policies combine life cover with a savings component. If the policyholder survives the policy term, a maturity benefit (usually the sum assured plus bonuses) is paid.

Unit‑Linked Insurance Plans (ULIPs) link the investment portion to market‑linked funds, offering both protection and market‑linked returns. The fund value fluctuates with market performance.

Health (Mediclaim) Policies cover medical expenses incurred due to hospitalization, surgery, or day‑care procedures. They are distinct from life cover policies.

• Motor Insurance – compulsory for vehicles, covers third‑party liability and optional own‑damage.
• Home Insurance – protects against fire, natural calamities, and theft.

When comparing policies, the first dimension is the coverage scope. Some policies, like term, focus solely on death benefit, whereas health policies address medical costs. Understanding what is covered versus what is excluded is critical for client suitability.

The second dimension is the premium structure. Policies may offer single premium, regular (annual, semi‑annual, quarterly, monthly), or limited‑pay options. The premium amount is influenced by age, sum assured, policy term, and underwriting class.

Third, examine the benefit payout mechanics. For endowment and ULIP, the maturity benefit may include bonuses or fund value, while health policies have claim limits per year and per hospitalization. The timing of claim settlement (speed) also varies and is examined in the exam.

Finally, consider policy‑specific exclusions and waiting periods. Many health policies have a 30‑day waiting period for pre‑existing diseases, and term policies may exclude death due to suicide within the first year. Overlooking these can lead to wrong answer choices.

Insurance companies typically allow four premium payment modes: single premium, regular premium (payable annually, semi‑annually, quarterly, or monthly), limited‑pay (e.g., pay for 10 years on a 20‑year policy), and pay‑as‑you‑earn for ULIPs where premiums are linked to the fund purchase.

Regular premium options affect the policy's cash value and surrender value. A higher frequency (monthly) usually carries a slight loading compared to annual payments because of increased administrative cost.

From an exam perspective, remember that the premium frequency does not change the sum assured, but it does affect the total outflow and may influence the policy's suitability for cash‑flow‑constrained clients.

Death benefit in term and endowment policies is the sum assured, whereas ULIPs pay the fund value at the time of claim, which may be higher or lower than the original sum assured depending on market performance.

Health policies pay actual medical expenses up to the sum insured, subject to sub‑limits for room rent, ICU, etc. The claim process usually requires submission of hospital bills and a claim form within a stipulated period.

Claim settlement speed is a crucial comparison metric. Faster settlement enhances client satisfaction and is often highlighted in IRDAI disclosures. The exam may ask you to identify the policy with the quickest settlement based on given data.

Every policy carries charges that affect its overall cost. Common charges include policy administration charge, premium allocation charge (especially for ULIPs), mortality loading based on health risk, and surrender charge if the policy is terminated early.

ULIPs also have a fund management fee expressed as a percentage of assets under management. These fees are deducted from the fund value and can erode returns over time.

For the exam, be able to identify which charge applies to which policy type and how it influences the net benefit to the policyholder.

Matching a policy to a client requires assessing age, income, risk appetite, and financial goals. Younger clients with high income may benefit from term insurance for pure protection, while middle‑aged clients seeking savings may prefer endowment or ULIP.

For health coverage, the client’s medical history, family size, and expected hospitalisation frequency guide the choice of sum insured and waiting period.

In the NISM exam, scenario questions often provide client details and ask you to recommend the most appropriate policy type based on the comparison criteria discussed.

IRDAI mandates that insurers disclose the policy wording, premium breakdown, claim settlement ratio, and any waiting periods in the policy brochure. These disclosures help investors compare policies objectively.

The regulator also requires a standard Key Features Summary that lists coverage, exclusions, premium mode, and surrender values. Failure to present these details can lead to regulatory penalties.

For the exam, be prepared to identify which document contains the required disclosures and how they assist in policy comparison.