Polytechnic University of the Philippines
College of Accountancy and Finance
DEPARTMENT OF BANKING AND FINANCE
Sta. Mesa, Manila
L I F E
I N S U R A N
Banaag, Gener John
Cabalo, Chloe May
Lomboy, Imee Ruth
Definition of Life Insurance
Parties involved in Life Insurance
Services of Life Insurance
Life Insurance Terminologies
Types of Life Insurance
A. According to Nature
(ii) Limited Pay
(ii) Limited Pay
2. Temporary or Term Insurance
B. According to Coverage
1. Individual Insurance
2. Group Insurance
3. Industrial Insurance
4. Social Insurance
5. Health Insurance
A. Definition of a Rider
B. Types of Riders
1. Waiver of Premium
2. Accidental Death Benefit
3. Term Insurance Rider
LIFE INSURANCE DEFINED.
1. Life insurance is insurance on human lives and insurance appertaining thereto or
connected therewith. (Sec. 179, Insurance Code)
2. A mutual agreement by which a party agrees to pay a given sum on the happening of a
particular event contingent on the duration of human life, in consideration of the
payment of a smaller sum immediately, or in periodical payments by the other party.
(44 C.J.S. 484)
3. It is a contract where by a party, for a consideration called the premium agrees to pay
another a certain sum of money in the event of the insured’s death from any cause not
excepted in the contract, or upon surviving a specified period of time or otherwise
contingent on the continuance or cessation of life.
1. Policyowner. The one who has the power to name and change the beneficiary, to assign
the policy, cash it for its surrender value, or use it as a collateral in obtaining a loan; and
the obligation to pay the premiums. He is also the one who owns the policy and also the
person whose life is insured.
2. Insured. The person whose life is the subject of the policy, also known as the cestui que
3. Beneficiary. The person named to received the life insurance proceeds upon the death
of the insured.
4. Insurer. The party who assumes or accepts the risk of loss and undertakes for a
consideration to indemnify the insured or to pay him a certail sum on the happening of
a specified contingency or event.
SERVICES OF LIFE INSURANCE.
1. Actual Death. It represents the so-called “casket death”.
2. Living Death. It represents permanent disability
3. Retirement Death. It represents living beyond the period of earning capacity.
BASIC SERVICES OF LIFE INSURANCE
LIFE INSURANCE TERMINOLOGIES.
1. Policy. The written contract between the insured and the insurance company.
2. Face Amount. The amount payable to the beneficiary upon the death of the insured or
the policyowner or insured upon surviving the protection period in the form of maturity
3. Premium. Money that must be regularly paid to the insurance company to keep the
insurance policy in force.
4. Protection period (Until age 100). Number of years that a proposed insured is covered
under the policy contract.
5. Policy Effectivity Date. Date the protection period starts.
6. Paying Period. Number of years insured will pay premiums.
7. Mortality Table. Table shows the average life expectancy.
8. Actuary. Person who sets the premium rates and develop life insurance products.
9. Cash Surrender Value. The amount that an insured, in case of default, after the
payment of at least three full annual premiums, is entitled to receive if he surrenders
the policy and releases his claims upon it.
LIFE INSURANCE CONTRACTS
There are FOUR basic classification of life insurance contracts issued by life insurance
companies: Whole-life, Endowment, Term and Annuities. For the purpose of simplicity, life
insurance contracts are classified into different categories.
ACCORDING TO NATURE:
Permanent Life Insurance Contracts
An umbrella term for life insurance plans that do not expire (unlike term life insurance) and
combine a death benefit with a savings portion. This savings portion can build a cash value against which the policy owner can borrow funds, or in some instances, the owner can
withdraw the cash value to help meet future goals, such as paying for a child's college
education. The two main types of permanent life insurance are whole and endowment life
Whole-life Insurance Contracts
Whole-life insurance provides for the payment of the face value upon the death of the insured,
regardless of when it may occur. Whole-life protection may be purchased under either of the
two principal types of contracts, the chief difference between the two being the method of
payment thereof. One is known as Ordinary; and the other, Limited-pay life policy.
Ordinary Life Policy
It is one under the terms of which the insured is required to pay a certain fixed premium
annually or at a more frequent intervals throughout his entire life and the beneficiary is entitled
to receive payment under the policy only after the death of the insured. Many insurance
companies consider this policy paid-up when the insured reaches the age of 100. Thus, the
ultimate payment of the insurance proceeds is as certain as death itself.
Limited-pay Life Policy
The only difference between ordinary life policy and Limited-pay life policy, is that, limited-pay
is required to pay the premiums during a limited period of years, usually ten, fifteen, or twenty.
When the specified number of premium payments have been made, the insurance is fully paid
for. Protection period, however, covers throughout his life.
Endowment Insurance Contracts
Endowment policy is one under the terms of which the insurer binds himself to pay a fixed sum
to the insured if he survives for a specified period. Whereas policies payable only in the event of
death are taken out chiefly for the benefit of others, endowment policies usually revert to the
insured if he survives the endowmnent period. There are two types of endowment contract:
Regular, and Limited-pay policies.
Regular Endowment Policy
Unlike the Ordinary life policy, Regular Endowment policies “protects” the insured for a limited
period or age. After such time the insured survives on the endowment period, he will be
entitled the full face amount at the end of its term.
Limited-pay Endowment Policy
It is one under the terms of which the endowment premiums are payable only during a limited
period of years, usually shorter than the endowment period. When premium payments have
been made, the insurance is fully paid for until the end of its term. When the insured survives,
he will be entitles the full face amount.
Term Insurance Contracts
A term policy may be defined as a contract which furnishes life insurance protection for a
limited number of years, the face value of the policy being payable only if death occurs during
the stipulated term, and nothing being paid in case of survival. Such policies may be issued for a
period as short as one year or may be provide protection up to age 65.
ACCORDING TO COVERAGE:
Individual Insurance Contracts
Individual Insurance is issued on the basis of individual application and involves a seperate
policycontract for each purchase (Sec. 227)
Many individuals and their financial planners consider life insurance as the cornerstone of their
financial plan. While the main purpose of life insurance is to help take care of your family in the
event of your death, policies can also serve other purposes including:
providing funds to pay final expenses
creating an inheritance for your heirs
making charitable contributions in the event of your death
creating a source of tax-deferred savings
Sunlife Financial offers 15
products on Individual life
Insurance. One of these is:
SUN Safer Life - 5 Year
Renewable and Convertible
Term (NEW) is a 5-year term
life insurance product that provides maximum protection at a cost that fits your budget. With
its convertibility and automatic renewability features, you can enjoy the benefit of keeping
yourself and your loved ones’ future secured for a longer period.
Group Life Insurance Contracts
A Life insurance plan providing coverage on the lives of a group of people under one master
It is a type of insurance coverage offered to a group of people. This coverage will provide a
benefit to the beneficiaries if the covered individual dies during the defined covered period. As
with other types of group benefits, group term life insurance is generally cheaper than
comparable individual policy coverage. For this reason, group term life insurance is often a key
component in employee benefit packages.
On the other hand, PhilAm Life provides life
insurance protection anytime, anywhere and
against any cause of death* with Group Yearly
Renewable Term (GYRT) Life Insurance:
With the array of benefits available, you can tailor-fit your plan depending on your needs or
budget. Group Classic is also available in US Dollar. With Group Classic, you can now avail of
customizable benefits that work hard for your people.
* Except for suicide during the first year of coverage
Industrial Life Insurance Contracts
Small Death Benefit Policies
If so, be informed, Industrial life is a small-face-amount policy that was sold to consumers as a
way to cover burial expenses. Customers often referred to these types of policies as street,
burial or debit insurance. Agents sold these policies door-to-door, collected weekly or monthly
premiums and signed a debit card as a receipt of money collected.
At the turn of the 20th century, Prudential Life of
America and other large insurers reaped the bulk of
their profits from industrial life insurance, or insurance
sold by solicitors house-to-house in poor urban areas.
For their insurance, industrial workers paid double what
others paid for ordinary life insurance, and due to high
lapse rates, as few as 1 in 12 policies reached maturity
Social Life Insurance
Social insurance is any government-sponsored program with the following four characteristics:
the benefits, eligibility requirements and other aspects of the program are defined by statute;
explicit provision is made to account for the income and expenses (often through a trust fund);
it is funded by taxes or premiums paid by (or on behalf of) participants (although additional
sources of funding may be provided as well); and the program serves a defined population, and
participation is either compulsory or the program is subsidized heavily enough that most
eligible individuals choose to participate.
Health Insurance Contracts
Health insurance is insurance against the risk of incurring medical expenses among individuals.
By estimating the overall risk of health care and health system expenses, among a targeted
group, an insurer can develop a routine finance structure, such as a monthly premium or
payroll tax, to ensure that money is available to pay for the health care benefits specified in the
insurance agreement. The benefit is administered by a central organization such as a
government agency, private business, or not-for-profit entity. According to the Health
Insurance Association of America, health insurance is defined as "coverage that provides for the
payments of benefits as a result of sickness or injury. Includes insurance for losses from
accident, medical expense, disability, or accidental death and dismemberment".
Types of Health Insurance
PhilHealth, the national health insurance program, provides sustainable, affordable and
continuing social health insurance for Filipinos of any age at an affordable rate of about $4 per
month, as of June 2010. This program ensures hospitalization discounts for contributing
members at any accredited hospital in the Philippines.
There are three kinds of PhilHealth membership available: employed membership, individually
paying membership and lifetime membership. Filipinos who are regularly employed pay less
than individually paying (self-employed and freelance) members because employers provide
monthly co-payments for their employees, as required by Philippine law. A lifetime member
doesn't have to pay the monthly contribution, since this kind of membership requires paying a
lump-sum amount to cover the lifetime membership.
Private Health Insurance
A private or public health insurance in the Philippine setting is a term more popularly used for
insuring a person from critical illness and hospitalization. Since a separate health insurance
generally works independently from an HMO plan, a basic health insurance policy covers
hospital expenses as a supplement to HMO coverage.
Private health insurance companies cover health expenses for individuals, families and groups.
Plans are either paid in full by freelance or self-employed members or partially paid or acquired
for free by regular employees. An individual plan may be upgraded to a family plan to extend
coverage to family members. Group insurance is designed for groups of three or more persons.
Like with a family plan, it can offer customized coverage with premium discounts.
Health Maintenance Organization
HMO is the common managed care plan in the Philippines while a health insurance plan works
separately for emergency cases and hospitalization. While there are available packages offered
by health insurance companies for additional coverage, the affordability of HMO plans are
more amenable to Filipinos with average income, especially those who are of considerably
An HMO plan is usually acquired for free through employment. However, freelancers and nonworking individuals can also avail themselves of individual and family HMO accounts to cover
basic medical expenses for preventive and outpatient care, medical treatment and
hospitalization. Unlike in the United States, the Philippines only offers HMO plans and not
preferred provider organization (PPO) plans. There are also health discount cards offered by
specific groups, mostly medical and diagnostics clinics, to also supplement HMO and health
insurance coverage. Those who can't afford an HMO plan usually avail of such health discount
cards to help them ease the burden of medical expenses.
International Health Insurance
An international health insurance is designed for individuals, families and groups intending to
be covered while outside the Philippines. This type of health insurance plan protects a member
for a few months to one year. There are insurance companies that can provide straight
coverage for up to three years. International health insurance for Filipinos generally provides
two options for coverage: worldwide and worldwide except the United States. Including a U.S.
coverage requires a higher premium as the cost of medical expenses in this country is much
higher than in other parts of the world. Also, when including preventive services and outpatient
care instead of just the basic hospitalization coverage, the premium becomes higher as well.
Expatriate Health Insurance
Expatriate health insurance is designed for a non-Filipino intending to maintain health
insurance coverage while staying in the Philippines. This type of plan insures a legally residing
foreigner of his medical expenses in the country. It is generally a renewable type of plan
suitable for individuals of all ages, nationalities and occupations.
Annuities (Life Insurance)
An annuity is an insurance product that pays out income, and can be used as part of a
retirement strategy. Annuities are a popular choice for investors who want to receive a steady
income stream in retirement.
Here's how an annuity works: you make an investment in the annuity, and it then makes
payments to you on a future date or series of dates. The income you receive from an annuity
can be doled out monthly, quarterly, annually or even in a lump sum payment.
The size of your payments is determined by a variety of factors, including the length of your
You can opt to receive payments for the rest of your life, or for a set number of years. How
much you receive depends on whether you opt for a guaranteed payout (fixed annuity) or a
payout stream determined by the performance of your annuity's underlying investments
While annuities can be useful retirement planning tools, they can also be a lousy investment
choice for certain people because of their notoriously high expenses. Financial planners and
insurance salesmen will frequently try to steer seniors or other people in various stages toward
retirement into annuities. Anyone who considers an annuity should research it thoroughly first,
before deciding whether it's an appropriate investment for someone in their situation.
Types of Annuities
There are two basic types of annuities: deferred and immediate.
With a deferred annuity, your money is invested for a period of time until you are ready to
begin taking withdrawals, typically in retirement.
If you opt for an immediate annuity you begin to receive payments soon after you make your
initial investment. For example, you might consider purchasing an immediate annuity as you
approach retirement age.
The deferred annuity accumulates money while the immediate annuity pays out. Deferred
annuities can also be converted into immediate annuities when the owner wants to start
Within these two categories, annuities can also be either fixedor variable depending on
whether the payout is a fixed sum, tied to the performance of the overall market or group of
investments, or a combination of the two.
Mathematics for Life Insurances
Some means of scientifically measuring risk is necessary if insurance is to be priced properly.
This measurement of risk lies at the foundation of any system of insurance and is made possible
through the application of the laws of probability.
Three probability laws are used in life and health insurance:
The law of certainty
The law of simple probability
The law compound probability
The three laws may be stated as follows:
Certainty may be express by unity, or 1.
Simple probability, or the probability or chance that an event will occur, may
be expressed by a fraction, which may take a value from 0 to 1.
Compound probability, or the chance that two independent events will
occur, is the product of the separate probabilities that the events, taken
separately, will occur.
DISTRIBUTION OF LIFE INSURANCE CLAIMS
According to the law of large numbers, if the number of insureds is large enough, the actual
claims will most likely show only small relative deviation from the expected claims. Using the
probability theory, one can calculate the probabilities of various deviations from the expected
claims, depending on the number of insureds.
APPLICATION OF THE LAWS OF PROBABILITIES TO MORTALITY
l – number of living at age x
d – number of dying during the age x
q – probability of an individual dying during the age x
p – probability of an individual at age x surviving one year
In insurance term it is defined as the price paid for the use of money.
FOR ACCUMULATED VALUES:
S2 = A(1+i)2
Every insurance company both life and non-life as well as suretyship, they have their own
Commissioners Standard Ordinary mortality table, that’s why you can notice that every
insurance company have their own amount of premiums and benefits.
Riders are an important and integral part of insurance policies. A policy rider in an insurance
policy represents a provision or modification to an existing insurance policy that provides
additional coverage to an insurance policy. Riders on the insurance contract provide additional
protection against risk.
Types of Riders
Waiver of premium
For an upfront charge, most insurance companies will incorporate a waiver of premium into a
policy. The waiver is usually associated with life insurance policies, and requires the
policyholder to be disabled for a specified amount of time, such as being incapacitated for six
months. To have a waiver of premium, some companies may also place other requirements on
the policyholder, such as being healthy and below a certain age.
Things you need to know:
1. You must be under age 55 and accepted on standard rates.
2. If you are not in work before the onset of incapacity, your premiums are waived after 26
weeks if you are unable to perform three of the following specified work tasks ever
Walking - The ability to walk more than 200 meters on a level service
Climbing - the ability to climb up a flight of 12 stairs and down again, using the
handrail if needed.
Lifting - the ability to pick up an object weighing 2kg at table height and hold for
60 seconds before replacing the object on the table.
Bending - the ability to bend or kneel to touch the floor and straighten up again
Getting in and out of a car - the ability to get into a standard saloon car, and get
Writing - the manual dexterity to write legibly using a pen or pencil, or type
using a desktop computer keyboard.
3. The insurance company will continue to waive premiums until one of the following
• you're fit to return to work;
• your policy ends; or
• you no longer fulfill our definition of incapacity.
Accidental Death Benefit
Sometimes, when you apply for life insurance Legal & General are unable to give you an
immediate decision and may need to write to you or your doctor for more information. During
this time it's important that you still have some protection so Legal & General provide you with
Accidental Death Benefit at no extra cost whilst they process your application. They provide this
cover without the need for any underwriting – giving you some peace of mind that you’re
covered in case of accidental death.
Things you need to know:
• The maximum payment would be the amount of cover you applied for (across all
applications) or £300,000, whichever is lower.
• The cover will start when Legal & General receives a completed application form
that you submit online or over the telephone.
• Cover will last for 90 days or until Legal & General accept, postpone or decline
your application or you notify them that you no longer wish to proceed,
whichever is earliest.
• Accidental death benefit pays out a cash sum if you die within 90 days of an
accident. In this instance our definition of an accident is where a bodily injury is
sustained, caused by accidental, violent, external and visible means, which solely
and independently of any other cause results in death.
• Legal & General don't provide this benefit if you have told them that your
application is to replace an existing policy of theirs, as long as you remain
covered under the existing policy.
• The benefit won't pay out if the cause of death is directly or indirectly caused by
any of the following:
o self-inflicted injury including intentionally taking your own life or
attempting to do so
o taking part or attempting to take part in a dangerous sport or pastime
o taking part or attempting to take part in an aerial flight other than as a
fare paying passenger on a licensed airline
o committing, attempting or provoking an assault or criminal offence
o war (whether declared or not), riot or civil commotion
o taking alcohol or drugs (unless these drugs were prescribed by a
registered doctor in the United Kingdom)
o accidents that happened before your application
Term Insurance Riders
It is a type of life insurance policy that provides coverage for a certain period of time, or a
specified "term" of years. If the insured dies during the time period specified in the policy and
the policy is active - or in force - then a death benefit will be paid. Term insurance is initially
much less expensive when compared to permanent life insurance. Unlike most types of
permanent insurance, term insurance has no cash value.