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 amount in return for annual premium (it can be monthly, quarterly or even half-yearly) for a predetermined time period. In the event of the untimely death of the Life Assured during the policy term, the nominee of the policyholder receives the Sum Assured. A pre-determined sum assured can also be availed by the policyholder on the maturity of the plan. Generally, endowment policies and unit-linked insurance plans offer maturity benefits.
But beyond this basic analogy of life cover for sum insured, the different types of life insurance policies available in the market differ greatly in terms of their purpose and benefits. Let’s take a look at them and understand which one would be the best fit for you.
Types of Life Insurance Plans
Given below are the common types of life insurance policies that you can avail in India:
1. term life insurance policy
Term insurance is the most sought after life insurance plan in the country. You can have it for a certain time period or duration, 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 insured for a very low premium. This is a great asset to have for the financial security of your loved ones in your absence.
In case the policyholder completes the policy term, there is no benefit. For such a scenario, you can opt for the return of premium benefit, which is provided by many insurance companies. This entitles you to a refund of the premiums paid by you till the end of the policy term. In a way, it can turn your term plan into a savings plan, but without any value addition.
you can use a life insurance calculator To estimate the total premium you will receive at the end.
2. whole life insurance
A whole life insurance policy provides you with life insurance for your entire life and not for a fixed number of years like term insurance. Here, you are given two options; Participating and non-participating schemes. You can choose the one which suits your risk taking ability.
The premium you pay for a participating insurance plan is going to be higher as compared to its non-participating version. But the former one lets you receive dividends at regular intervals. And it keeps on increasing with each passing program. This plan also gives you the facility to withdraw this money as and when required. You can also take a loan against this deposit. But if you die before paying off the loan, your death benefit is affected. Still, it will not become a burden on your loved ones.
3. endowment plan
An endowment plan lets you receive payments even if you end up owing the maturity benefits of your insurance policy. It combines elements of both life insurance and savings. If the policyholder dies before the maturity of the plan, the nominee gets the Sum Assured along with the bonus and benefits earned by the policyholder. The amount of bonus will depend on the number of years of the policyholder.
4. ULIP (Unit-Linked Insurance Plan)
ULIP is the most popular of the variety life insurance plans. It ensures your life and lets you build wealth at the same time. This is the most diverse form of insurance protection that you can have.
Your insurer uses a portion of your premium to insure you, and the remaining amount is invested in the market in a fund of your choice. An individual is free to decide the coverage required and the kind of fund he 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.
When choosing a ULIP, the longer your tenure, the higher will be your investment.
5. child insurance policy
A child insurance policy is designed to secure the financial future of the child of the insured on the untimely death of the individual. It is imperative that you invest in your child’s future so that they can live well even in your absence. You have to make sure that you choose the best plan to help your child get the most out of it.
6. money-back insurance coverage
Choose this plan, and you get a percentage of the sum assured at regular intervals. It is an endowment scheme with ever-increasing liquidity benefits. Payment is disbursed systematically. It is designed to meet short-term financial aspirations.
This can be an added benefit to your monthly or annual income as predetermined in the policy. In addition, the payments you receive are tax-free under Section 10(10D)* of the Income Tax Act, 1961. This alone makes it the most profitable investment for you. Combine this with the insurance you allow for your loved ones. This plan also lets you pay your premium as per your convenience.
Life insurance policies can be customized in a myriad of ways to meet your particular needs. Hopefully, this list can help you decide what kind of policy you need, after which you can delve deeper into it, research it thoroughly and then go for yourself and your loved ones. You can buy the most customized policy.