What is life insurance? Types of life insurance

Insurance is a matter of transferring a reasonable and specific risk, such as loss of life, property, or possessions in exchange for money. It is a part of risk management to avoid uncertain losses. Life protection is one of the traditional forms of insurance. One way to insure is through life insurance. However, many do not know about life insurance. So today, I am writing for those who do not know. Let us not know about life insurance and its types –

Life insurance

Life insurance is a type of contract that is executed between an insured and an insurance company. Here the insurance company guarantees that a certain amount of money will be paid to the heir of the insured in case of death of the insured. According to the terms of this agreement, the insured gets money even if he is seriously ill. Moreover, the insured pays a certain amount to the insurance authority at one time or another.

In a word, life insurance is a type of contract where the insurer assumes the responsibility of paying a stipend or a certain amount of money on the death of the insured or at the end of specific years in return for a lump-sum payment or a fixed period.

History of the evolution of life insurance

  • Life Insurance Company was established in 1898 in England.
  • The Oriental Life Assurances Company was formed in 1819.
  • 1982 Postal life insurance was introduced.
  • ALICO started working in Bangladesh in 1984.
  • Alliance Insurance Company was formed in 1824.

Types of life insurance

Life insurance can be divided based on four factors. These are –

  • On an expiration basis
  • Based on the premium payment method
  • Based on profit participation
  • Based on the number of insured
  • Based on the method of payment of insurance claims

Types based on duration

There are three types of life insurance on a term basis. E.g.

  • Term insurance policy
  • Lifetime insurance policy
  • Temporary insurance policy

Term insurance policy: An insurance policy that promises that the specified amount mentioned in the insurance policy will be paid if the insured enters a certain age. Alternatively, if the insured dies before that time, his successor or nominee will get the fixed amount of money mention in the insurance policy. This policy is called term insurance.

Lifetime insurance policy: An insurance contract that pays the insured till his death and promises to pay a certain amount of money to his heirs or nominees after the insured’s death is called life insurance.

Temporary policy: The insurance period is usually from 7 to two months to be seen. If the insured dies before this period, the sum assured is paid. Moreover, the insurance claim will not be received if the insured does not die within the specified time.

Read More: What Is General Insurance And Types Of Insurance

Based on the premium payment method

There are two types of life insurance based on premium payment methods. E.g.

  • Single installment insurance policy
  • Equity insurance policy

Based on profit participation

There are two types of life insurance based on profit sharing. These are –

  • Single life insurance policy
  • Many life insurance policies

Based on the method of payment of insurance claims

There are two types of life insurance based on the method of payment of insurance claims.

  • One time insurance policy
  • Scholarship insurance


The premium is the premium the insurer receives from the insured in different installments in return for a promise to compensate the insured.

Method of determining premium

  • The most ancient method is the calculation method.
  • Death probability rates are taken based on this. If the probability of death increases, the premium also increases, i.e., the regular premium plan.
  • A balanced plan, i.e., the same amount of premium, has to be paid every year.


When the surplus is published after the company’s valuation, a portion of it is distributed among the owners of the insurance policy with the profit. This arrangement is called a bonus.


An annual stipend is a payment of a certain amount of money over some time. There are different types of annual scholarships. E.g.-

General Annual Scholarship:  The annual scholarship through which the beneficiary receives a fixed rate of lifelong allowance is called a general annual scholarship.

Instant Scholarship:  The payment of allowance to the insurance company becomes effective immediately after the payment is made as per the contract is called instant scholarship.

Promise Scholarship:  Scholarship recipients can execute the contract by ensuring that they receive adequate allowances within a certain period in the scholarship agreement. This is called commitment.

Single Life Scholarship: If the number of beneficiaries in any primary contract is one in all cases, it is called single life scholarship.

Joint Life Scholarship:  A scholarship in which two or more persons are given a joint-life allowance is called a joint life scholarship.

Temporary Scholarship:  This type of contract specifies a specific time or period for payment of the allowance.

Surrender price

Surrender price is the price or compensation demanded if the policy is completed before the policy’s term expires. Here are some of them:

  • In Bangladesh maximum 60% support price is given.
  • The surrender price is not paid unless the term of insurance is less than two years.

According to Prof. MN Mishra, there are two scholarships for surrender valuation. E.g .:

  • In reserve scholarship, surrender value = surrender value – surrender cost
  • On a savings basis, surrender value = insurance money + accumulated portion of future expenses + future payable bonus (accumulated money + surrender cost)

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