Types of Life Insurance Plans

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  • How do we classify life insurance in terms of tenure?

    • • Term Insurance – It promises the risk cover for a specific term mutually agreed upon by the insurer and the insured.
      • Permanent Life Insurance – It promises the risk cover throughout the insured's life rather than a limited term. It can further be sub-classified into Whole Life Plan, Variable Life Plan and Universal Life Plan.
  • How do we classify life insurance in terms of returns?

    • • Term Insurance – It promises the insured of a risk cover but no returns.
      • Term Return of Premium – It promises the insured of a risk cover as well as returns.
  • How do we classify life insurance in terms of investment?

    • • Endowment Plans – A debt oriented form of traditional life insurance in which returns are low but guaranteed.
      • ULIPs – An equity oriented form of non-traditional life insurance in which returns are high but not guaranteed.
  • How do we classify life insurance in terms of purpose?

    • • Child Plans – These plans serve two purposes, financial security of children and building up a corpus for funding their education and marriage.
      • Retirement Plans – These plans enable the insured to build up a corpus till retirement to be used as regular annuities thereafter.
      • Money Back Plans - These plans are designed for those who prefer regular payouts through the policy term rather than getting a lump sum at the end.

Types of Life Insurance

There are various types of life insurance available in the market today. These life insurance policies can be classified in terms of the customer segment they cater to such as child insurance plans, retirement plans and savings and investment plans. On the other hand they can be categorised by the benefits/ coverage that they provide such as term life insurance, whole life policy, endowment policy.

Term Life Insurance

Term life insurance is a type of life insurance that provides a death benefit to the beneficiary only if the insured dies during a specified period. If the insured survives until the end of the period, or term, the coverage ceases without value and a payout or death claim cannot be made. Term life insurance is income replacement that remains active for a specified number of years. Term life insurance is the most affordable type of life insurance. Term life insurance plans can further be classified into:

• Level Term Life Insurance: where the death benefit remains the same throughout the policy term and the renewal premium is constant.

• Decreasing Term Life Insurance: where the death benefit under the plan decreases with time and the renewal premium is constant.
  For example: Mortgage redemption policies, credit life insurance.

• Increasing Term Life Insurance where the coverage and premium increase.

Whole Life Insurance

Whole life insurance is a type of life insurance that provides you coverage throughout your lifetime provided the policy is in force. Whole life insurance policies also contain a cash value component that increases over time. You can withdraw your cash value or take out a loan against it as per your convenience. In addition, in case of your unfortunate demise before you pay back the loan, the death benefit paid to your beneficiaries will be reduced.

Endowment Policy

An endowment policy is defined as A type of life insurance that is payable to the insured if he/she is still living on the policy's maturity date, or to a beneficiary otherwise. An endowment policy provides you with a dual combination of protection and savings. In an endowment policy, in the event of death of the insured during the term of the policy, the nominee receives the sum assured plus the bonus or participating profit or guaranteed additions, if any. The bonus or profit is paid for the number of years that the insured survives in the policy term.

Money Back Policy

Money back policy give you money during the policy tenure. A money back policy gives you a percentage of the sum assured at regular intervals during your policy term. If you live beyond the term of the policy then you will receive the remaining portion of the corpus and the accrued bonus also at the end of the policy term.

But in case of an unfortunate event before the full term of the policy is over; the beneficiaries are entitled to receive the entire sum assured regardless of the number of installments paid out. Money back policies are the most expensive insurance options offered by insurance companies as they offer returns to the insured during the policy tenure.

Money Back policy gives way for a person to plan the course of his life with a sum that is expected in regular intervals. Plans such as children’s education, children’s marriage can be executed in a better way with the help of this policy.

Savings & Investment Plans

Savings & Investment Plans provide you the assurance of lump sum funds for you and your family‘s future expenses. While providing an excellent savings tool for your short term and long term financial goals, these plans also assure your family a certain sum by way of an insurance cover. This is a broad categorisation which covers both the traditional and unit linked plans.

Retirement Plans

A savings and investment plan that provides you with income during retirement are called retirement plans. Retirement plans are offered by life insurance companies in India and help you to build a retirement corpus. On maturity this corpus is invested for generating a regular income stream, which is referred to as pension or annuity. Retirement plans are further classified into.

• ‘With cover‘ and ‘without cover‘ plans: ‘with cover‘ pension plans offer an assured life cover in case of an eventuality and the ‘without cover‘ pension plan, the corpus built till is given out to the nominees in case of an eventuality. There is no life cover in without cover plans.

• Immediate Annuity Plans: In case of immediate annuity plans, the pension commences within one year of having paid the premium

• Deferred Annuity Plans: In case of deferred annuity, the pension does not commence immediately; it is ‘deferred‘ up to a time, which is decided upon by the policyholder.

Unit Linked Insurance Plans – Ulips

Unit linked insurance plans are a type of life insurance plan that provide you with a dual advantage of protection and flexibility in investment. An unit-linked insurance plan (ULIP) is a type of life insurance where the cash value of a policy varies according to the current net asset value of the underlying investment assets.

The premium paid is used to purchase units in investment assets chosen by the policyholder.

Types of Unit Linked Insurance Plans (according to investment):

• Aggressive ULIP‘s which invest 80-100% in equity.
• Balanced ULIP‘s which invest 40-60% in equity.
• Conservative ULIP‘s which invest up to 20% in equity.

Types of Unit Linked Insurance Plans (according to death benefit)

• Type I ULIP: It gives the higher of the sum assured or fund value as death benefit
• Type II ULIP: This plan pays the policy holder both benefits i.e. sum assured plus fund value as death benefit.

Child Insurance Policy

A child insurance policy is a saving cum investment plan that is designed to meet your child‘s future financial needs. A child insurance policy allows your kids the freedom to realize their dreams. Child insurance policy gives you the advantage to start investing in the children‘s plan right from the time the child is born and provisions to withdraw the savings once the child reaches adulthood. Some child insurance policy do allow intermediate withdrawals, at certain intervals.

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