Reply To: Order of life Insurance policies on premium basis
Mayank Goyal
Q. On the basis of premiums charged, what order can these life insurance policies be ranked (whole life, term, endowment, pure endowment)?
Ans: Let’s first see how these policies are structured:
Whole life pays the sum assured on death during the entire life of the individual.
Term assurance pays the sum assured on death during a pre-specified period (say 20 years).
Pure endowment pays out a sum on the survival of the end of a term.
Endowment assurance provides benefit either on death or on maturity whichever is earlier.
Let’s Pw, Pt, and Pe denote the premiums of whole life, term and endowment assurance respectively. Then
Pe > Pw > Pt
The reason being the premium highest for endowment is that the payment is guaranteed to be made (though the amount may vary for death and survival benefit) and that of the term being lowest is that the probability of payment being made is less as no payment is made if the life survives to the end and the death benefit is only for a specified term, not for the entire lifetime (like whole life assurance).
The premium for the pure endowment can’t be specified as of whether it will be higher or lower than that of the whole, it will depend on the terms of the policy.
However, the answer to this question is not specific. It will depend upon a variety of factors like – age, health status, the term of the policy, sum assured etc.
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