Risk Management in Banking and Insurance · Life Insurance

Types of Life Insurance Plans for CMA Final

Updated 11 October 2026 · Fact-checked

Life insurance plans fall into protection plans (term, whole life), savings plans (endowment, money-back), market-linked plans (ULIP) and income plans (annuity). Riders add extra cover. To answer a question, identify the need, match the plan to it, then state the benefit, premium level, surrender value and risk bearer.

Understand Types of Life Insurance Plans

A life insurance plan is a contract where the insurer pays a sum on death, on survival to a stated date, or as regular income, in return for premiums. Plans differ in what they promise and who carries the investment risk.

Protection plans give cover and little or no savings. A term plan pays the sum assured only if death occurs within the term. If you survive, nothing is paid under a pure term plan. Premium is lowest for the same cover. A whole life plan covers you for your entire life, up to a stated high age, so a death benefit is eventually payable.

Savings plans combine cover with a maturity benefit. An endowment plan pays the sum assured on death during the term or on survival to maturity. A money-back plan pays fixed parts of the sum assured at set intervals during the term. The balance is paid at maturity, and death during the term usually pays the full sum assured. Both cost more than term cover because they build a savings value.

Unit-linked plans (ULIPs) put the premium, after charges, into funds chosen by you. The fund value moves with the market, so the policyholder bears the investment risk. Traditional plans such as endowment are non-linked: the insurer guarantees the sum assured and may add bonuses from its surplus in participating plans.

Annuity plans convert a lump sum or premiums into regular income, often for retirement. Riders are optional add-ons for an extra premium, such as accidental death benefit, critical illness, disability or waiver of premium. Choose a plan from need: pure protection suits term, a child's education goal suits endowment or money-back, market-linked growth suits ULIP, and retirement income suits annuity.

The Insurance Act, 1938 links to this topic through surrender value. Under Section 113, a policy of life insurance acquires surrender value as per the norms specified by the regulations, and every policy must contain the approved formula for guaranteed surrender value.

Key rules to remember

Surrender value rule: A life policy acquires surrender value as per the norms specified by the regulations (Section 113(1)); Every policy must contain the Authority-approved formula for guaranteed surrender value (Section 113(2)). Pure term plans usually have none.
Paid-up rule for non-linked plans: Non-linked policy with surrender value does not lapse for non-payment; it is kept in force to the extent of paid-up sum insured plus reversionary bonuses already attached (Section 113(3)); Applies notwithstanding any contrary contract. For linked plans, the policy is kept in force in the manner specified by the regulations.
Exceptions to the paid-up rule: Section 113(4): rule does not apply if (i) paid-up sum insured with attached bonuses, or the annuity, is below the amount the Authority specifies, or (ii) parties agree in writing to another arrangement after default; The written agreement must be made after the default occurs.
Minimum benefits: Insurer pays at least the minimum annuity and other benefits set by regulations, excluding profit or bonus (Section 4); Section 4 does not stop an insurer converting a policy into a paid-up policy of any value or paying a surrender value of any amount.
Risk bearer: Traditional plan: insurer bears investment risk. ULIP: policyholder bears investment risk.; A common comparison point.

How to solve Types of Life Insurance Plans questions

Use this method for any question on plan types, comparisons or suitability.

1Read the need in the question: pure cover, savings goal, growth, retirement income or extra protection.
2Name the plan type that fits and define it in one line.
3State the benefits: death benefit, survival or maturity benefit, and any periodic payments.
4State the cost and value features: relative premium, surrender value, bonus or fund value.
5State who bears the investment risk: insurer or policyholder.
6Suggest riders if the case shows gaps, such as accident, illness or loss of income.
7If the question involves lapse or surrender, apply Section 113 in plain words.
8Close with a clear recommendation linked to the need.

Quickest way: Need, benefit, risk, cost

When to use it: For MCQs and short comparison questions where time is tight.

Pure cover and lowest premium points to term.
Cover for whole life points to whole life.
Cover plus lump sum on survival points to endowment.
Cover plus periodic payouts points to money-back.
Market-linked returns with policyholder risk points to ULIP.
Regular income after a lump sum points to annuity.
Optional extra benefit for extra premium means rider.

Common mistakes in Types of Life Insurance Plans

Saying a pure term plan pays a maturity benefit.
Students mix term with endowment.
Fix: Pure term pays only on death within the term. Return of premium variants are a separate feature, so state it explicitly.
Saying the insurer bears investment risk in a ULIP.
Students assume all insurance guarantees returns.
Fix: In a ULIP the fund value moves with the market, so the policyholder bears the risk.
Confusing money-back with endowment.
Both give survival benefits.
Fix: Endowment pays at maturity. Money-back pays parts of the sum assured at intervals and the balance at maturity.
Treating riders as separate policies.
Riders have their own names and premiums.
Fix: A rider is an add-on to a base policy for an extra premium. It does not exist alone.
Stating that every policy lapses on non-payment.
Students ignore the paid-up rule.
Fix: A non-linked policy that has acquired surrender value is kept in force to the paid-up sum insured plus attached reversionary bonuses, subject to Section 113(4) exceptions.
Recommending one plan for every need.
Students memorise features without matching needs.
Fix: Always link the recommendation to the stated goal, budget and risk appetite.

Worked examples

Example 1

Rohit, 30, earns ₹8,00,000 a year, has a spouse and a child, and has a tight budget. He wants maximum cover for his family if he dies early. Which plan do you recommend, and which riders?

Show the solution

Need: pure protection at lowest cost.
Plan: a term plan gives the highest cover per rupee of premium because it has no savings component.
Limit: it pays only if death occurs within the term, so he gets no maturity benefit if he survives.
Riders: accidental death benefit for extra payout on accident, critical illness for major diseases, and waiver of premium so cover continues if he becomes disabled.
Savings and growth can be handled separately without raising the cost of protection.

Answer: Recommend a term plan with accidental death, critical illness and waiver of premium riders. It gives the largest cover at the lowest premium for his family's needs.

Example 2

Differentiate between an endowment plan and a ULIP. Also state what happens under Section 113 if a non-linked policy that has acquired surrender value stops receiving premiums.

Show the solution

Endowment: non-linked, with a guaranteed sum assured payable on death in the term or on survival to maturity; participating plans may add bonuses.
ULIP: part of the premium after charges buys units in chosen funds, with the fund value moving with the market.
Risk: insurer bears investment risk in endowment; policyholder bears it in a ULIP.
Transparency and flexibility: ULIPs usually let you switch funds, while endowment returns are less market-sensitive.
Section 113(3): a non-linked policy that has acquired surrender value does not lapse for non-payment of further premiums, but is kept in force to the paid-up sum insured and attached reversionary bonuses.
Exceptions under Section 113(4): the paid-up sum insured with bonuses, or the annuity, is below the amount the Authority specifies, or the parties agree in writing to another arrangement after default.

Answer: An endowment plan is a guaranteed non-linked plan where the insurer bears investment risk. A ULIP is market-linked and the policyholder bears it. A non-linked policy with surrender value becomes paid-up rather than lapsing, subject to the Section 113(4) exceptions.

Exam tips

Practise the one-line definition of each plan. Section A questions often test differences between plans.
In case scenarios, underline the need and budget first, then choose the plan.
Always state who bears the investment risk when comparing ULIP with traditional plans.
When lapse or surrender appears, quote the Section 113 rule in plain words and mention both the paid-up rule and its exceptions.
End each written answer with a recommendation, not just a list of features.

Practice questions from Life Insurance

Types of Life Insurance Plans in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Types of Life Insurance Plans: frequently asked questions

What is the difference between a term plan and an endowment plan?

A term plan gives pure cover and pays only if death occurs during the term. An endowment plan also pays the sum assured on survival to maturity. Because of this savings element, the endowment premium is higher for the same cover.

How is a ULIP different from traditional life insurance plans?

In a ULIP, premium after charges is invested in market-linked funds and the policyholder bears the investment risk. In a traditional non-linked plan, the insurer guarantees the sum assured and may add bonuses. ULIPs usually offer fund choice and switching.

What are riders in life insurance?

Riders are optional benefits added to a base policy for an extra premium. Common ones are accidental death, critical illness, disability and waiver of premium. They cannot be bought on their own.

Does a life policy always lapse if I stop paying premiums?

Not always. Under Section 113(3) of the Insurance Act, 1938, a non-linked policy that has acquired surrender value is kept in force to the paid-up sum insured and attached reversionary bonuses. Exceptions are listed in Section 113(4).