ZestExam

Types of Life Insurance

UIIC AO · Insurance Awareness

Also prepare for:IBPS PO IBPS Clerk SBI PO SBI Clerk

← Principles of Insurance Types of General Insurance →

💡

Core Concept

Read this first — the foundation of the topic

→There are two main categories

Term Insurance and Permanent Insurance. TERM INSURANCE Term insurance provides coverage for a specific period (10, 20, 30 years). It is pure insurance with no savings component. Premium is lowest but no maturity benefit exists

→Types of Term Insurance

1. Level Term: Same coverage amount throughout the term 2. Decreasing Term: Coverage reduces over time (used for loans) 3. Increasing Term: Coverage increases annually 4. Renewable Term: Can extend without medical exam 5. Convertible Term: Can convert to permanent insurance PERMANENT INSURANCE Permanent insurance provides lifelong coverage with a savings component called cash value

→Types of Permanent Insurance

1

Sum Assured = Rs. 10,00,000

2

Term Premium = (10,00,000/1000) × 8 = 1000 × 8 = Rs. 8,000

3

Whole Life Premium = (10,00,000/1000) × 25 = 1000 × 25 = Rs. 25,000

4

Difference = Rs. 25,000 - Rs. 8,000 = Rs. 17,000 WORKED EXAMPLE 2: Sita has a whole life policy for 15 years. Annual premium Rs. 50,000. Surrender value factor is 30% after 3 years, 50% after 5 years. Find surrender value after 5 years.

1

Total premiums paid in 5 years = Rs. 50,000 × 5 = Rs. 2,50,000

2

Surrender value factor after 5 years = 50%

3

Surrender value = Rs. 2,50,000 × 50% = Rs. 1,25,000 SHORTCUT TRICK #3: Cash Value Rule Cash value builds only in permanent insurance. Term insurance = 0 cash value always. MOST COMMON MISTAKE #1 Students confuse Universal Life with Unit Linked Insurance Plans (ULIPs). Universal Life is purely life insurance with flexible premiums. ULIPs are investment-cum-insurance products with fund switching options. In LIC AAO exams, this confusion costs 2-3 marks regularly.

🔑 Key Points

Term insurance provides temporary coverage with no cash value or maturity benefit
Whole life insurance offers permanent coverage with guaranteed cash value accumulation
Universal life insurance features flexible premiums and market-linked returns
Formula: Premium = (Sum Assured ÷ 1000) × Rate per thousand + taxes
Decreasing term insurance is ideal for loan protection as coverage reduces with outstanding amount
Variable life insurance allows policyholders to direct cash value into investment funds
Shortcut: Term < Whole < Universal < Variable in ascending premium cost order
Cash value formula: Surrender Value = Total Premiums × Surrender Value Factor
Renewable term policies can be extended without fresh medical examinations
Memory trick: TWUVVU for permanent insurance types sequence

📌 Exam Facts

Term insurance has zero surrender value throughout the policy term
Whole life insurance typically starts building cash value from the 3rd policy year
Universal life insurance minimum premium is typically 10% of target premium
Variable life insurance requires minimum guaranteed death benefit of 105% of cash value
Decreasing term insurance premium remains constant while sum assured decreases annually
Level term insurance maintains same death benefit and premium throughout the term
Convertible term policies allow conversion to permanent insurance within specified period without medical exam
Variable Universal Life combines investment flexibility with premium payment flexibility

🚀 60-Second Revision

Remember: Only permanent insurance builds cash value, term insurance never does
Formula: Premium calculation always divide sum assured by 1000 then multiply rate
Trap: Don't confuse Universal Life with ULIPs - Universal is pure insurance
Quick check: Term insurance cheapest, Variable insurance most expensive
Memory aid: TWUVVU sequence for permanent insurance types
Calculation tip: Surrender value always needs surrender value factor from insurance company
Exam focus: Classification questions carry maximum marks in LIC AAO papers

🎯

Test yourself under real exam conditions

A timed UIIC AO mock shows exactly how Types of Life Insurance questions appear in the actual paper — and where you lose marks.

Take Free Mock Test →Practice Panel

✓ Free mock✓ Instant percentile✓ AI Battle Plan after test