Types of Life Insurance Policy

What are the Types of Life Insurance Policy?

Life insurance plans protect your family members from the uncertainties of life, like accidents, illnesses, or worse, death. Therefore, it is important that you buy the right plan for yourself and loved ones.

Life insurance can be broadly categorized under the following two types:

• Pure Protection Plan/Term Insurance: Term Insurance Plan, also known as a pure protection plan, offers a lump sum death benefit to the family or loved ones in the event of the policyholder's unfortunate death, providing financial security for their future.

• Savings Plan: A Savings Plan offers life coverage benefits and helps you plan for long-term goals, like buying a home or funding your child’s higher education. It also ensures future returns if you outlive the plan. The types of life insurance saving plans include Endowment Plan, ULIP, Retirement Plan, Child Insurance Plan, Money Back Plan, etc.

What Are The Different Types of Life Insurance Policy Available In India? 

Here is a list of the different types of life insurance products that are offered by the top life insurance companies in India 2023:

Let’s discuss the insurance products in detail: 

1. Term Life Insurance

   • Term life insurance is the most convenient and affordable form of life insurance. It provides death benefits to the nominee if the policyholder dies during the term. No benefits are paid if the policyholder survives the term. But certain variants of term plans also offer payouts on maturity, like TROP (Term plan with return of premium) and 100% refund of premiums at no cost term insurance if the policyholder survives the policy term.

   • These types of life insurance policies also give you the option of adding riders with the base plan, such as accidental death benefit or critical illness. These important term insurance riders provide you and your loved ones additional protection at a nominal premium paid along with the regular premiums.

   Let’s understand this with the help of an example:
   A 20-year-old non-smoking, healthy male can secure a life cover of Rs. 1 Crore for his family members for the coming 30 years if he buys a term plan worth Rs. 897 per month.

2. Term Insurance with Return of Premium

   • Term return of premium plans is the term plan variant that offers a benefit amount to the nominee in case of the policyholder’s untimely death or provides the entire premiums paid at the end of the policy term as a maturity benefit.

   • Under this type of term insurance plan, you can receive the entire premium amount you paid on outliving the policy term. Moreover, you can calculate the premiums easily for term insurance using an online term insurance calculator.

   For example: A 20-year-old non-smoking, healthy male can secure a life cover of Rs. 1 Crore for his family members for the coming 30 years if he buys a term plan worth Rs. 1,122 per month.

3. Whole Life Insurance

   • Whole life insurance plan is one of the types of life insurance policy that provides you coverage for 99 or 100 years. In comparison to a short tenure of 10 to 30 years, the long coverage time of these plans ensures family protection for an extended time.

   • This plan is ideal for those individuals who have financial dependents in old age also. One of the main benefits of this plan is that it provides lifetime protection to the policyholder and leaves a legacy for their kids.

   • These plans offer financial stability. After the payment of premiums of 5 years, you receive a guaranteed income at maturity. In addition to this, the income received from this plan is free of taxes, subjected u/s 10(10D) of the total premium amount paid. 

4. Endowment Insurance Plan

   • An endowment plan is a life insurance plan that offers dual benefits of life cover and wealth creation. With this plan, you can receive a lump sum payout on the plan's maturity. In case of the policyholder’s death during the plan term, the beneficiary/nominee receives a death payout. 

   • Endowment plans are suitable for individuals who want guaranteed returns with the protection of life insurance. These plans also give you the option to benefit from bonuses, which are payable additionally over and above the policy’s life cover.

5. Money Back Policy

   • Money back policies are the types of life insurance policy where the policyholder receives a percentage of life cover at regular intervals. Simply put, the money back plan is an endowment policy with increased liquidity benefits and systematic payments. 

   • These plans are specifically designed to meet the short-term financial goals. This policy provides survival benefits 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 these types of life insurance policy, you will receive the remaining portion of the corpus and the accrued bonus also at the end of the policy term.

   • However, 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, and without any deductions. 

   • Money-back policies also have a maturity benefit. So, you receive a lump sum payment at maturity that can be used to protect your future or help fulfill the dreams of your family in case you outlive the policy term.

6. Retirement/ Pension Plans

   • Retirement plans are types of life insurance policy that are specifically designed to build a large corpus for your after-retirement days that help you financially in your non-working years. These plans allow saving and then investing for a long tenure, thus providing the potential to collect a handsome amount.

   • Retirement plans provide insurance benefits with which you can ensure financial protection for your family members by investing in retirement plans. These plans offer a number of options to withdraw your money like lump sum payment, regular income, or a combination of lump sum and regular.

7. Unit Linked Insurance Plans – ULIPs

   • ULIP plans provide the dual benefits of investment and insurance. It provides a life cover that offers financial security for your family members, as well as builds wealth through market-linked returns from systematic investments. With this, you get the opportunity to invest your amount in different options of funds depending on your risk appetite.

   • These types of life insurance policies come with a lock-in time of 5 years, and the amount can be invested in hybrid funds, equities, bonds, etc. They offer the option of fund-switching and partial withdrawals. They also provide wealthy boosters and loyalty additions that help generate more wealth.

   *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. In case of an unforeseen death where the life assured’s parent passes away during the policy tenure, child insurance plans can provide instant payout to cover the expenses of a child. 

   • Child Insurance Policies allow 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.

9. Group Life Insurance

   • Group Life Insurance Policy is one of the types of life insurance policy that is provided to a group of individuals, generally as an employment benefit. 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 of these types of life insurance policies also offer coverage for outstanding loans to a group of debtors, while some come up with disability and critical illness benefits.

How do you Choose the Right Types of Life Insurance?

Here is how you can select the right types of life insurance for yourself:

• Assess your goals: Different life insurance plans can help achieve different goals. You should always be clear about the goal that you want to fulfill with your life insurance which can help you choose the suitable types of life insurance policy.

• Consider the Life Cover (Sum Assured): Determine the needs of your loved ones as well as your daily expenses before selecting a cover that helps fulfill all of your and your family’s needs. The general thumb’s rule is that you should always choose a sum assured that is at least 10 to 15 times your yearly income. You can also use a human life value calculator to see the life cover amount you can purchase.

• Policy Tenure: There are various types of life insurance policy available in India with different policy terms. You should select a plan with a suitable policy term that will help you achieve your desired goals in life.

• Available Riders: Most types of life insurance policy offer the option of adding riders to the base plan. These riders can enhance your sum assured and cover eventualities like accidental disability, terminal illness, waiver of premiums, critical illness, and accidental death.

• Check Insurer’s Details: Before selecting the ideal types of life insurance policy, make sure to check the Claim settlement and solvency ratio of the company along with the exclusions of the plan.

• Consultation: Consult a financial advisor for additional information and advice on what are the best types of life insurance policy for you and your family if you have any doubts.

What are the Important Points to Keep in Mind While Buying a Life Insurance Plan?

Below are some of the key points to keep in mind before you buy life insurance plan:

• Keep in mind your responsibilities and future life goals before choosing a life cover.

• Check the claim settlement ratio (CSR) for 5 consecutive years of the insurer from which you want to buy life insurance plan.

• Keep in mind the premium amount, due date of premium payment and all the necessary information regarding the plan that will be of help to you in the long run.

• Make sure you ask all about the additional benefits/riders before you buy the life insurance plan.

• For ease in the life insurance claim process, make sure your nominees are aware of the insurance documents’ location and other credentials.

How to Buy the Best Type of Life Insurance Plan from Policybazaar?

You can buy the best type of life insurance policy in India online from the comfort of your home using the following steps:

• Step 1: Go to the Policybazaar’s homepage and visit Term Insurance 

• Step 2: Enter your name, contact information, gender, and date of birth

• Step 3: Fill in your occupation type, annual income, educational background, and smoking habits

• Step 4: Select the most suitable plan and proceed to pay

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