Types of Life Insurance

An individual today has an array of options to choose from when it comes to financial planning. Most people focus on the wealth creation aspect and compromise with the protection element. In the wake of rising inflation, change in lifestyle patterns and move to nuclear families, life insurance should be the first step in financial planning.

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Insuring your life for the financial security of your dependents must be paramount before proceeding to address any other aspects. In this article, we are going to discuss different types of life insurance policies.

Overview of Different Types of Life Insurance

Types of Life Insurance Policies Overview
Term Life Insurance Provides full risk cover against any type of eventuality.
Whole Life Insurance Offers life insurance coverage till 100 years of age.
Endowment Life Insurance Policy Provides the combined benefit of life insurance cum saving.
Money-Back Insurance Policy Provides periodic returns along with the benefit of life insurance cover.
Savings & Investment Insurance Plans Provides an opportunity to save and gain long-term investment returns.
Retirement Insurance Plans Helps to create a retirement corpus, so that you can retire gracefully.
ULIP Life Insurance Plans Offers the benefit of investment cum life insurance.
Child Insurance Policy Helps to secure the future of your child.
Group Life Insurance plan  Offer life insurance coverage to a group of people under a single plan

1. 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 policyholder survives until the end of the period, or term, the insurance 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 (one of) the most affordable types of life insurance. It can further be classified into level term insurance, decreasing term life insurance and increasing term life insurance.

2. Whole Life Insurance

Whole life insurance is an insurance plan 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.

Types of Life Insurance

3. Endowment Policy 

An endowment policy is defined as a types of life insurance policies that is payable to the insured if he/she is still living on the policy's maturity date, or to a beneficiary otherwise. Endowment life insurance plans provide you with a dual combination of protection and savings. In this policy, if the insured dies during the term of the insurance 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.

4. Money Back Policy 

Money back policy gives you money during the policy tenure. It gives you a percentage of the sum assured at regular intervals during your policy term. If you live beyond the term of the insurance 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 insurance 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 provide 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.

5. Savings & Investment Plans 

Savings & Investment Plans are the types of insurance plans that 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 categorization that covers both the traditional and unit linked plans.

6. Retirement Plans 

These plans provide you with income during retirement is called the Retirement Plan. These 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.

7. Unit Linked Insurance Plans – ULIPs 

ULIPs are a type of life insurance plan that provide you with a dual advantage of protection and flexibility in investment. It 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 by ULIPs is used to purchase units in investment assets chosen by the policyholder.

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

8. Child Insurance Policy 

A child insurance policy is a saving cum investment plan that is designed to meet your child‘s future financial needs. It allows your kids to live their dreams and 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 fulfill 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.

9. Group Life Insurance 

Group Life Insurance Policy is a type of life insurance coverage that is provided to a group of individuals, generally employees working in a company or organization. The main purpose of group life insurance plans is to offer financial freedom, support, and protection to the family of the concerned employee in case of any eventualities. In case of the employee’s death, when employed with the company, the corresponding group insurance plan would offer the much-required financial guarantee to the inconsolable family. This policy is not only limited to an employer-employee group but also extended to other organizations like bank customers, non-banking financial organizations, NGOs, microfinance institutions, and professional groups. Some group insurance policies also offer coverages for outstanding loans to a group of debtors while some come up with a disability and critical illness benefits.

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 its record.

  • Consult an advisor for additional information and advice on what is best life insurance company for you and your family, if you have any doubts. 

FAQ's

  • What are the main types of life insurance plans in India? 

    A. Following are the types of life insurance plans in India: 
    • Term Insurance 
    • Whole Life Insurance 
    • Endowment Policy 
    • Money-back policy 
    • Savings and investment plans 
    • Retirement plans 
    • Unit Linked Insurance Plans (ULIPs)
    • Child Insurance policy 
    • Group Life Insurance Plan 
  • What are the advantages that different life insurance plans offer? 

    A. The primary benefit of life insurance policies is: 
    • Financial Protection and safety
    • Life coverage 
    • Investment options 
    • Long term savings 
    • Tax savings benefit u/s 80C and 10(10D) of Income Tax Act, 1961. 
  • Is Whole life insurance is expensive in comparison to term insurance plans? 

    A. Typically, whole life insurance has high premium rates when compared with term insurance plans. However, unlike term plans, where the premium amounts increase at the renewal time, and with whole life insurance, the premium amounts stay constant for the whole life. 
  • Can I buy two different life insurance plans at the same time? 

    A. Yes, you can buy two types of life insurance plans. Usually, various individuals invest in a number of life insurance plans to create a well-rounded financial and investment portfolio. 
  • What is a term insurance plan with a return of premium? 

    A. A term plan with a return of premium option is a type of term insurance plan, but with an exception of maturity amount. This policy refunds all your premium amounts if you outlive the policy term. 
  • What are the life insurance tax benefits? 

    A. A policy buyer can avail of various tax savings benefits with different life insurance plans in India. Deductions can be availed u/s 80C of the ITA, 1961 up to Rs. 1.5 lacs on the life insurance premium amount paid. In addition to this, a nominee can also claim tax deductions u/s 10(10D) on the insurance benefits received. 
  • What is the difference between whole life and term life insurance? 

    A.
    Whole Life Insurance  Term Life Insurance 
    It lasts lifelong until the policy is in force  It lasts for a specified tenure only 
    Has cash value  Has no cash value 
    High rates premium  Low rates of premium 
    Suitable for individuals looking for long-term investment plus insurance  Suitable for individuals looking for short-term insurance along with good coverage 
    Premium rates are high initially but stay constant as time passes  Premium increase at every renewal time 
  • How much does life insurance cost? 

    A. Different types of life insurance plans have different rates of premium as it considers certain factors such as annual income, age, liabilities, existing medical conditions, and much more. Amongst the various life insurance plans available in India, one of the most economical options is a term insurance plan, provided that you buy the plan at an early age.

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