- Date : 20/02/2018
- Read: 4 mins
Broadly speaking, there are only two types of life insurance policies – ones that offer only a death benefit (Term insurance) and others that offer death + maturity or investment benefit (e.g. Endowment Plans or Unit Liked Insurance Plans).
Life Insurance is not a single big thing. It is a lot of small things.
To meet the varied needs of the investors, insurance companies offer different types of life insurance policies.
Below are the major categories of life insurance in India.
1. Term Insurance Plans
As the name suggests, term insurance plans are protection plans availed for a definite number of years (called ‘term’). These are pure protection plans and can offer you a large cover at a low cost. You can opt for a term plan to cover a liability like a home loan or a business loan. Some term insurance policies also provide terminal illness benefits. Apart from being the most cost-effective, term plans are the simplest to understand and can be availed online. Such plans do not offer maturity or surrender benefits.
2. Whole Life Insurance
Whole Life Insurance plans offer lifelong cover. They are characterised by levelled premiums throughout the insured’s life. Based on the nature of the product, whole life insurance plans can also serve as a mode of savings for retirement or asset creation or even work as a pure protection plan.
3. Endowment Policy
An endowment plan is a specified-tenure insurance, linked to savings. It provides dual benefits viz:
- Payment of sum assured to the beneficiary on death or permanent disability
- Life insurance maturity for endowment policy proceeds to the insured on surviving the term. The proceeds are complemented with a bonus, which is at the prerogative of the insurer.
4. Money Back Plans or Cash Back Plans
Money back plan or cash back plan assures a certain amount of money at pre-determined points in time. The balance amount is paid as a maturity benefit at the expiry of the term. Full sum assured is provided throughout the duration irrespective of the paid benefits.
5. Unit Linked Insurance Policy (ULIPs)
Unit Linked Insurance Plans are dynamic plans that offer benefits of insurance as well as investment. Here, a part of the premium is allocated towards life cover and the rest is invested in avenues like stocks, government bonds, corporate debt, etc.
Based on your risk profile, investment objective and time horizon, you can select from different types of funds with varying levels of risk-return objectives. In case your outlook towards the market changes, you can shift the investments from one fund to another. Additional benefits like life insurance riders, top-ups and partial withdrawals are also available with ULIPs.
6. Child Plans
Child insurance plans can help parents to build a financially secure future for their children. In such a plan, the parent is the life assured, while the child is the beneficiary. The money invested throughout the paying term of the policy can be used for future requirements like education, marriage, business, etc. in the child’s life. Such plans also offer premium waiver options in case of the unfortunate death of the parent.
7. Annuity/Pension Plans
Annuity/ pension plans are characterized by payment of a fixed amount to the insured at old age or the age of retirement. These plans supplement the insured’s lifestyle by providing a regular income post retirement. Such plans can also be tailored to payout the pension amount to a beneficiary (after the death of the life assured).
There are two types of annuity plans:
1. Immediate Annuity: As the name suggests, here the annuity payments start immediately. The premium for this plan is paid as a lump sum.
2. Deferred Annuity: This plan allows you to pay premiums regularly (till the vesting stage) or even as a single lump sum amount. You can redeem one-third of the corpus along with the tax-free interest on the vesting day, while the remaining two-thirds is allocated towards annuity (pension).
Annuity/ pension plans are available as traditional insurance plans as well as ULIPs.
Tax benefits for all plans can vary as per the provisions of the Income Tax Act. Consult your tax advisor for guidance.
If you want to find out how is life insurance premium calculated and how much cover you need, use our free Life insurance calculator.