Simple Guide to Types of Life Insurance Policies in India
By Vikas Chandra Das
By now, you must have heard about the benefits a life insurance policy has.
In the current times, you would get a plethora of options when you plan to purchase a life insurance policy. Broadly, a life insurance policy can be categorized into one which is pure insurance i.e. pure risk coverage plan, and the other which is a combination of insurance and investment.
So, let us talk about the different types of life insurance policies in detail.
An overview of different types of life insurance policies
Types of life insurance policies
Features
Term Life Insurance
Provides risk coverage in case of eventuality
Whole Life Insurance
Life insurance coverage till 100 years of age
Endowment Life Insurance
The combined benefit of life insurance and saving
Money-Back Insurance
Basic periodic return along with life insurance cover
Retirement Insurance
Creation of a retirement corpus
ULIP Life Insurance
The benefit of life investment and life insurance
Child Insurance
Provisions for the security of your child’s future
Term Life Insurance
Features of Term Life Insurance
1.
Term Life Insurance is one of the simplest forms of life insurance plan which would provide a death benefit to the beneficiary in case of your death during a specific period.
2.
Term life insurance can be said as a pure risk cover plan which can offer high coverage at low premiums.
3.
Term life insurance is otherwise known as income replacement which would remain active for a specific period.
4.
The death benefit of term life insurance is payable in the form of a lump sum, monthly pay-out, or can be in the form of a combination of both, as chosen by the policyholder at the inception.
5.
However, in most term life insurance plans, there is no pay-out if you would outlive the policy term.
6.
However, there are some variants like TROP (Term Plan with a Return of Premium) option, wherein the premium paid by the policyholder would be paid back to the nominee if the life assured dies within the policy tenure. However, these plans are more expensive than regular term plans.
Whole Life Insurance
Features of Whole Life Insurance
1.
Whole Life Insurance would provide coverage throughout the lifetime of the insured person or till he is 100 years old.
2.
In addition to the sum assured, the whole life insurance policy also includes a saving component in it or otherwise known as a cash value component.
3.
You are eligible to withdraw the cash value or take a loan against the cash value according to your convenience.
4.
The sum assured of the whole life insurance policy is decided at the time of purchase of the policy and is paid to your nominee at the time of your death.
Endowment Life Insurance
Features of Endowment Life Insurance
1.
Endowment life insurance plans are also a combination of protection and savings.
2.
In this policy, a specific amount of the premium is allocated as the life cover whereas the remaining is invested by the insurance provider.
3.
If you die within the policy tenure, the nominee would receive the death benefit and the policy would end. However, if you outlive the policy term then the maturity benefit would be offered to you.
4.
Endowment plans might also offer you bonuses that are paid at the time of the policy maturity or on earlier death.
5.
The major benefit of the Endowment plan is that it acts as a tool for long-term financial planning and would help in earning returns on maturity since it is a guaranteed return product.
Money-Back Insurance
Features of Money-Back Insurance
1.
Money-back policies are insurance plans with interim benefits in order to meet your regular liquidity goals.
2.
Money back policy helps you in obtaining money during the tenure of the policy.
3.
You can obtain a certain percentage of the sum assured at regular intervals during the policy tenure, provided you are alive. This is otherwise known as Survival Benefit. The rest of the sum assured along with bonuses, if any, would be paid out to you once the entire policy duration is over as Maturity Benefit.
4.
You can also receive the bonuses declared by the insurance provider from time to time at the end of the policy tenure.
5.
In this plan, if you happen to die within the policy tenure, the entire Death Benefit would be paid to the nominee, irrespective of the amount paid to you earlier as Survival Benefit.
Retirement Plans
Features of Retirement Plans
1.
Retirement plans help you in building a corpus for your retirement by which you can live independently without any worries.
2.
Retirement plans are best known as a long-term savings plan for retirement planning.
3.
In case of your unfortunate demise during the policy term, the death benefit would be paid as an immediate payment would be made to your nominee and the policy would terminate.
4.
Vesting benefits can be payable if you would be able to survive the maturity age when you can choose your pension options.
5.
The amount of pension depends on your option chosen and would continue for the rest of your life.
ULIP Life Insurance
Features of ULIP Life Insurance
1.
ULIP or Unit Linked Insurance Plan is a comprehensive combination of insurance and investment together.
2.
The premium which you pay for a ULIP is partly used for risk coverage and partly invested in funds, as per your choice.
3.
Based on your ability to take risks, you can invest in the funds which are being offered by the insurance provider. The accumulated amount is invested as bonds, debts, equities, or hybrid funds, etc.
4.
If you happen to die within the policy tenure, the death benefit would be paid to your nominee.
5.
However, if you survive till the end of the policy term, the accumulated fund value would be paid to you as your Maturity Benefit.
Child Insurance
Features of Child Insurance
1.
A child insurance plan would help in building a corpus for the future of your child.
2.
Mostly, child insurance plans would provide the payment in the form of annual instalments or a one-time pay-out after the age of 18 years. This fund can be used for the marriage or higher education of your child.
3.
Moreover, in case of your death, most insurance providers also provide waivers of future premium so that the policy would continue till maturity and the policy benefit is provided to the child as per schedule.
You must set your goals and also consider expenses that can come up in the future and then look for the most appropriate insurance plan which would be helpful to your family in case of an unprecedented incident. Remember to do proper research before purchasing the life insurance policy as it is a long-term commitment and read the policy document properly. These are the plan types in general but most insurance policies offer a wide range of other benefits also. Thus, you must read all the features and benefits of the plan that you wish to opt for and then make an informed decision.