An individual today has an array of options to choose from when it comes to financial planning. Mostly people focus on the wealth creation aspect and compromise with the protection element. In the wake of raising inflation, change in lifestyle patterns and move to nuclear families, life insurance should be the first step in financial planning. Insuring your life for the financial security of your dependents must be paramount before proceeding to address any other aspects.

Before explaining about the types of life insurance, let’s give some insight on what is a life insurance policy and what is the importance of different types of life insurance policies.

What is Life Insurance?

Life Insurance is a contract which is based on mutual trust. It promises to give a lump sum amount to the nominees of the policyholder in case the policyholder dies. The loss of family's bread-winner is irreplaceable but Life Insurance guarantees that much-needed funds will be provided to the dependents for a financially independent life. It keeps the financial plans of the family and their standard of living on track. 

Importance of Life Insurance

When buying life insurance, you can be overwhelmed by an avalanche of information. The basic premise of Life insurance policy is Protection but there are certain products available in the market which allows the policyholder to use it as a wealth creation & long term savings tool. There are various types of life insurance available in the market today. Types of 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.

Different Types of Life Insurance Policies in India

1. Term Life Insurance 
2. Whole Life Insurance 
3. Endowment Policy 
4. Money Back Policy 
5. Savings & Investment Plans 
6. Retirement Plans 
7. Unit Linked Insurance Plans – Ulips 
8. Child Insurance 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. It 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.

Benefits of Term Life Insurance Plans

• Provides life coverage and financial security to the family of the insured at an affordable premium rate.
• Term insurance plans can be bought online in a simple and hassle freeway.
• As compared to other life insurance policies term insurance plans offer higher coverage at a minimum premium rate.
• Term insurance plans offer flexible payout options to the policyholder.
• The premiums paid towards the term insurance plans are eligible for tax exemption under section 80C of Income Tax Act 1961.
• Term insurance plans also offer the option of additional rider benefit in order to enhance the coverage of the policy.

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.

Benefits of Whole Life Insurance Policy

• One of the major benefitsof whole life insurance plan is that it provides coverage against death for the entire life of the insured i.e. up to 100 years of age.
• Some whole life insurance plans offer the advantage of period payment to the insured. The whole life insurance plans offer survival benefits to the insured in form of period payments.
• Tax benefit can be availed under section 80C and 10(10D) of Income Tax Act 1961.
• Whole life insurance plans offer loan facility to the policyholder.
• The whole life insurance plans can be bought online in a simple and hassle-free way.

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, if the insured dies 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.

Benefits of Endowment Policy

• Endowment plan provides the dual benefit of savings cum insurance coverage.
• Tax benefit can be availed under section 80C and 10(10D) of Income Tax Act 1961.
• Endowment policy offers the benefit of long term savings to the policyholder.
• Endowment plans also come with rider benefits to increase the coverage of the policy.
• Endowment plan also comes with an additional bonus facility as a terminal bonus and reversionary bonus.
• As compared to the other investment options endowment plans are considered as a low risk investment option.

Money Back Policy 

Money back policy gives 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 instalments 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.

Benefits of Money Back Policy

• Money back policies are low-risk savings options which also offer the benefit of life coverage.
• Money back policy offers regular income to the policyholder in particular intervals of time in form of survival benefit.
• Tax benefit can be availed under section 80C and 10(10D) of Income Tax Act 1961.
• Money back policy helps the insured to fulfill the short-term financial goals of life.
• Additional rider benefits are offered under the policy in order to increase the coverage of the policy.
• Money back plans also come with an additional bonus facility.
• Money back plans offer risk free returns to the policyholder.

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.

Benefit of Savings and Investment plans

• Savings investment plans offer the benefits of market linked returns to the policyholder.
• These plans not only provide an opportunity to create corpus over a long period of time but also offers life protection to the family of the insured in case of any eventuality.
• Tax benefit can be availed under section 80C and 80D of Income Tax Act 1961.
• Savings investment plan helps to fulfill the shirt-term and long-term financial goals of life.

Retirement Plans 

A savings and investment plan that provides you with income during retirement is called Retirement Plan. 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 in '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.

Benefits of Retirement Plan

• Helps the insured to create a financial cushion for future so that they can secure the life after retirement.
• The policyholder is entitled to gain tax benefit under section 80C of Income Tax Act 1961. Moreover, in case the insured contributed towards pension plan like National Pension Scheme (NPS), Atal Pension Yojana (APY) then they are eligible for tax exemption under section 80CCD of Income Tax Act 1961.
• During the vesting age, the policyholder receives the monthly pension.
• Retirement plan helps the insured to achieve the long term financial goals of life.

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. A 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.

Benefits of Unit Linked Insurance Plan-ULIP

• ULIP plan offers the dual benefit of investment cum insurance coverage.
• ULIP offers the facility to switch between funds.
• The premium paid towards ULIP plans is eligible for tax benefit under section 80C of Income Tax Act.
• Additional rider benefits are offered under the policy in order to increase the coverage of the policy.
• ULIP plans allow the insurance holder to make a partial withdrawal within the tenure of the policy.

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 to live 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 policies do allow intermediate withdrawals at certain intervals.

Life insurance is not just to fulfil the daily expenses of the family in the absence of breadwinner. It should be capable enough to bail out the family during large financial exigencies. So, one should always choose one or two best types of life insurance which can support his/her family in different stages of life.

Benefits of Child Plan

• Secured the future of the child financially even in the absence of the parents.
• Child insurance plans offer premium waiver benefit in case of demise of the insured during the tenure of the policy.
• Tax benefit can be availed under a different section of Income Tax Act 1961.
• A secured loan can be availed under the child insurance plan.
• Offers flexible premium payment options.

Which Type of Life Insurance you should buy for your family?   

With the uncertainties of life, it is now imperative to get yourself, your wife and your children covered under one of the plethoras of life insurance schemes available in India. Traversing through the maze of plans and selecting the appropriate one that is suitable for you and your family is a herculean task. Every family has different requirements, goals, and expectations. There is no one-size-fits-all solution because each family is unique.

It is therefore important to make a list of what you expect from an insurance plan. You should be clear about what are your future goals, funds for emergencies, milestones like a college education, hospitalization, children’s marriage, and other unforeseen expenses. You might also like your plans to provide for post-retirement expenses.

Create a blueprint of your insurance plan as it is an essential part of your family’s financial stability. This plan should secure each member of your family and ensure their financial independence and provide peace of mind. Every member of the family is important, and the death of any family – particularly the sole breadwinner is an emotional and financial body blow to the family unless the adequate cover is taken to reduce the pain of the loss of a loved one.

The best way is to do some research about the various plans that may be suitable for you and your family. You can also speak to financial advisors or insurance agents. The agents will invariably try to sell you something in their bouquet of plans they are authorized to market. Then there is also the matter of “commission” that can be made. Be cautious about what you buy. Insurance policies are generally long-term investments and should not be purchased in haste.

While researching for an appropriate plan or plans for the family be sure to compare quotes, features, and benefits of all the shortlisted plans. Look out for plans that offer the best coverage and good value for money. To be doubly sure you can take the advice of a trusted life insurance agent who will help you to learn about the different options available for you and your family. Some agents work independently of any insurance companies, so the bias against anyone or group of insurance companies is highly reduced.

Considering all things equal, the premium will vary from company to company. Shop around and get the price that fits your budget. Be sure that you will be getting what is mentioned in the plan and take some time reading the fine print.

Here are some pointers that you have to bear in mind while deciding to buy an insurance plan. 

Different Types of Deciding Factors for Buying Life Insurance

• The best time to buy an insurance policy is when you are young. The premiums are low and affordable. You can add on or buy additional cover when you get married and subsequently when you have children.
• Buy insurance cover as you go along. Few years down the line your payout will be handsome in the event of your untimely death.
• If you are healthy not only your premium will be low you will be offered no medical exam policy.
• Get multiple quotes from agents or log on to sites that offer insurance policies.
• Keep the policy basic. Do not load it with every available rider. You opt for riders that will come in handy for you and your family.
• Whole life insurance is an excellent long-term solution and is adequate for most families. It is also more affordable.
• Many individuals tend to over-insure themselves. Calculate what your financial goals are and insure accordingly. A financial advisor will be able to help yours with the quantum of insurance you need.
• Premiums are calculated on the following parameters.
  Your overall health, Your family health history, Your age, Your gender, Your lifestyle habits, engagement in extreme sports, working in hazardous conditions and where you live. Other than these the actuaries will calculate the final premium. 

Why should I Buy an Insurance Policy?

Life Insurance is a life saver when the single breadwinner passes away. When you buy a life cover the insurance company pays the nominee the sum assured plus bonus (if applicable). It gives the family financial stability and carry on with life and more importantly – peace of mind.

Life insurance helps you to achieve short term and long term financial goals. It also helps in planning your child’s future and your retirement plans.

If you are serious about your financial freedom and the financial security of your family, then it is time to sit down and work out the financial goals that you anticipate will come along during your lifetime. Providing for various expenses will be part of your goals and should be considered while purchasing an insurance policy.

How do you select the Right Types of Life Insurance?

Firstly, set your goals, expectations and other expenses that may crop up during your lifetime.

Look for plans that will give your family financial stability when you are no more.

Check out the best insurance companies and compare the plans offered by them.

Take a close look at the policy inclusions and exclusions, life coverage, claim settlement ratio and claim settlement record.

Consult a financial advisor for additional information and advice on what is best for you and your family, if you have any doubts. 

At What Age do you Buy an Insurance Policy

The older you are, the greater your responsibility to yourself and your family at this stage in your life, when you between 30 and 40 years old you would be blessed with kids and maybe dependent parents. You may even have a personal loan to set up your home.

Moreover, if you are the sole breadwinner in the family it would be disastrous for the family he leaves behind. It would be a total financial and emotional breakdown. An ideal plan would be a term plan. At this stage in your life, it is recommended that you consider Child plan, endowment with money bank option as well as ULIPs.

These insurance plans help you to meet your long and term financial goals. Also, if you have children and planning for their future and education, then a child plan is a good solution.

When you are in your 40s you have settled in life and are doing well, career-wise. This is the time that you think of different investment opportunities. You are looking for different life insurance plans to meet your financial goals. In this case, Endowment money back option and ULIP is a good option to consider. At the same time, you can start planning for your retirement. You wish to start a retirement corpus. Select a retirement plan and start saving for a rainy day.

When you are in your 50s much of your financial responsibilities, have reduced. Children are starting their career and are almost ready to fly solo. Any outstanding loans (if any) will be almost paid off or even paid in full. This is the time that the retirement plans that you made years ago come in handy so that you can be financially independent and retire rich. 

Which type of Insurance is Suitable for you and Your Family

The type of Life Insurance that you purchase will depend on the size of the family, your stage in life, your financial situation and your short and long-term objectives. Before you buy all the options carefully and seek the help of a knowledgeable insurance agent to clear out any doubts that you may have.

The different type of Insurance policies you should continue includes:

Term Insurance Policy – One of Be Cheapest Types of Life Insurance

As the name suggests, this policy is for a specific period. It is typically for 10, 20 or 30 years. In the event of the death of the policyholder, the insurance company pays the sum assured plus any bonus (if applicable) to the nominee mentioned in the policy document. This is the most affordable insurance policy and is appropriate when you need insurance for a specific period of time. This can be bought when you have a mortgage to be paid.

Whole Life Insurance Policy – One of the Best types for Long Term

Whole Life Insurance policy protects you as long as the policy is kept active by paying the premium regularly. This policy has a cash value and can be helpful as you age and need some finances for non budgeted expenses.

ULIP /Endowment Plan/Money Back Plan – One of the Best Investment types of Life Insurance

These plans are a type of life insurance that is a combination of life insurance and investment plans. These are good investments to fulfill short and long-term financial goals. You can opt for these plans to pay off your loans on maturity.

Child Plan – Best type of Life Insurance for your Childs Future  

If you are married with children, you may want to consider looking for financial options that will build a corps for the child’s education. A child plan would be a good idea to meet the child’s educational needs.

Retirement Plan – Best Type of Life insurance for Golden Age

If you have disposable income after providing financial security for your family and you have planned for your child’s education and marriage, then it is the right time to plan for a retirement corpus to take care of your retired life. Planning for your retirement is your passport to financial freedom and peace of mind. You don’t have to depend on your employer for retirement benefits anyone else to support you in your old age.

Insurance Cover by Employers

Many Employers offer to cover its employee with some sort of group term insurance policy. This is fine as long as you are single and have no dependents. However, if you have a spouse and kids who are dependent on you, then you have to buy an individual policy to protect your family from any financial turmoil that may occur in the event of your untimely death. Having individual policies for you and your family members is important.

Buying Life Insurance Policy for Your Spouse

It is a good idea to buy a life insurance policy for your spouse even if they are not employed. As a member of the family, your spouse will “Hold-the-fort” and take care of children’s transportation to and from school, cooking and all other chores associated with housekeeping. Although we do not place a price on these services, it has a value that cannot be equated with any currency.

Buying Life Insurance Policy for Your Children

Buying life insurance for your children has its own advantages. Parents don’t like the very thought of buying life insurance for their child’s death and find it repulsive and heartbreaking. However, if viewed objectively, life insurance can pay for the funeral and all associated expenses.

In fact, there are two very good life insurance policies for children:

Child Term Life Insurance

This is similar to any other term policy. The sum assured is paid to the nominee in the event of the death of the child. Later on, the policy can be converted into a permanent life insurance policy.

Child Whole Life or Child Universal Life

Apart from the death benefits, the policy enables the child to open a savings account later.

Also, purchasing a policy when a child is healthy may offer protection later in life if health problems develop and purchasing life insurance is difficult or too costly. A great way to start building a financial nest egg for your child would be a child whole life insurance policy, which accumulates cash value over time.

How much insurance cover you will need is your personal decision. You are in a better position to define your financial goals that you perceive during your lifetime and how much you can spend on premiums. It is important to strike a balance between over insured and underinsured. There are avenues that will help you make an informed decision. Apart from financial advisors, you can also check out the various website like policybazaar.com to help you decide.

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