Life insurance is the most popular insurance product in the market today. It is a must in any individual’s financial portfolio. It provides life cover to the policyholder for a sum assured in exchange for an annual premium (it can be monthly, quarterly or half-yearly as well) for a predefined time period. The nominees of the policyholder receive the sum assured in the event of an untimely death of the insured during the policy period. A pre-decided sum assured can also be received by the policyholder upon maturity of the plan. Generally, endowment policies and Unit-linked insurance plans provide a maturity benefit.
But beyond this basic similarity of a life cover for a sum assured, the different types of life insurance policies available in the market vary greatly in terms of their purpose and benefits. Let us take a look at them and understand which one would be the most suitable for you.
Types of life insurance plans
Given below are the common types of life insurance policies you can avail yourself in India:
1. Term Life Insurance Policy
Term insurance is the most sought-after type of life insurance plan in the country. You can get it for a fixed time period or term, thus the name.
Unlike other life insurance plans, a term policy does not offer maturity benefits. But at the same time, it offers a large sum assured for a very low premium. It is a great asset to have for the financial security of your loved ones in your absence.
In the case of the policyholder outliving the policy term, there are no benefits. For such a scenario, you may opt for a return of premium benefit, which is provided by a lot of insurance companies. It makes you eligible for a refund of the premiums you have paid till the policy term’s end. In a way, this can make your term plan a savings plan, but without any value addition to the money saved.
You may use a life insurance calculator to have a rough idea of the total premium you may receive at the end.
2. Whole Life Insurance
A whole life insurance policy provides you life cover for your entire life, not for a fixed number of years like term insurance. Here, you are offered two options; participating and non-participating plans. You can choose the one that goes well with your risk appetite.
The premium you pay for a participating insurance plan is going to be higher when compared with its non-participating variant. But the former lets you receive dividends at regular intervals. And it continues to increase with every passing schedule. The plan also lets you withdraw this money as and when required. You may also take a loan against this deposit. But if you die before you can repay the loan, your death benefit gets affected. Even then, it will not be a burden to your loved ones.
3. Endowment plan
An Endowment plan lets you get paid even if you outlive your insurance policy due to the maturity benefits it offers. It combines elements of both life cover and savings. If the policyholder dies before the plan matures, the nominee gets the sum assured along with the bonus and the profit the policyholder earned. The amount of the bonus will depend on the number of years the policyholder lived.
4. ULIP (Unit-Linked Insurance Plan)
ULIP is the most popular among the different types of life insurance plans. It ensures your life and lets you create wealth at the same time. It is the most diverse form of insurance protection you can have.
Your insurer uses a portion of your premium to insure you, and the remaining amount is invested in the market, in the fund of your choice. An individual is free to decide the coverage needed and the kind of fund he/she wants to invest in. You can withdraw part of the amount after the lock-in period of the policy. And if you feel that your investment is not performing well, you can switch it to another fund, and that too is completely free of cost.
When choosing a ULIP, the longer the duration, the higher your investment will go.
5. Child insurance policy
A Child Insurance Policy is designed to secure the financial future of the insured’s child upon the untimely death of the person. It is a must that you invest in your child’s future so that they may live well, even in your absence. You have to ensure that you choose the best plan to help your child get the maximum benefits from it.
6. Money-back insurance coverage
Opt for this plan, and you receive a percentage of the sum assured at regular intervals. This is an endowment plan with an ever-increasing liquidity benefit. The payout is distributed systematically. It is designed to fulfill short-term financial aspirations.
It can be an added advantage either to your monthly or yearly income as predefined in the policy. Furthermore, the payouts you receive are tax-exempt under Section 10(10D)* of the Income Tax Act of 1961. This alone makes it the most rewarding investment you can have. Combine it with the insurance you allow your loved ones to have. The plan also lets you pay your premium at your convenience.
Life insurance policies can be customized in a myriad of ways to cater to your particular needs. Hopefully, this list can make you decide the kind of policy you needs, after which you can delve deeper into it, research well and then purchase the most optimized policy for yourself and your loved ones.