Six types of life insurance are available in India. Each type of insurance policy is geared towards meeting different life cover and investment goals. Life insurance is simply a contract between the policyholder and the insurance company. The policyholder pays a premium to the insurance company for a specific number of years and in return, the insurer promises to pay a sum assured to the nominee upon the death of the policyholder.
Broadly speaking, life insurance can be divided into
- Pure risk coverage plan
- A combination of insurance and investment/savings component
Over the years, life insurance policies have evolved enormously and now there are various types of plans designed to meet all the coverage needs of the insured.
There are six different types of life insurance policies available, and here are their features and benefits:
Term Plan: A term life insurance policy is one of the simplest and most affordable life insurance plans that you can buy. You pay a premium to an insurance company for a specific number of years and in return, in case you were to meet with an untimely death, the insurer promises to pay the sum assured to your family. This type of life insurance gives you maximum coverage with minimum premium
Endowment Policies: Endowment plans are again a combination of savings and protection. If the premiums are paid on schedule for a specific number of years, in case of death, the sum assured is paid to the nominee or family. In case the insured outlives the policy term, the sum assured amount plus accumulated bonus is paid out.
Whole Life Insurance Policy: As the name suggests, a whole life insurance policy gives you a cover for entire life or in some cases up to 100 years. If the premium amount is paid regularly, the insurer promises to pay the sum assured to the nominee of the policyholder after the death of the policyholder. Apart from the sum assured, it also includes a saving component. In the rare event that the policyholder lives more than 100 years, the maturity amount is paid to the insured.
Moneyback policy: Money back policies are also a combination of savings and protection. But the key advantage of this policy is that a portion of the sum assured is paid to you at a regular interval during the policy tenure. The remaining amount along with the bonus is paid at maturity. This benefit is not available for any other life insurance policy. However, if the policyholder dies during the policy tenure then the entire sum assured is paid to the nominee, this is despite the survival benefits that the policyholder has already received.
Child plan: A child insurance plan helps to build capital for important events in a child’s life such as higher education, overseas studies, marriage, etc. Most child plans provide one time pay-out or annual payments after the child reaches 18 years of age. In case the parent passes away during the policy term, payment is made to the child or family. Some insurance companies waive off the premiums in case of death of the policyholder and make the payment after maturity period.
Unit Linked Insurance Plans (ULIPs): Unit linked insurance plan, give you the triple advantage of insurance, wealth creation and tax-saving investment. In ULIPs the money that you pay as premium is partly invested on funds and partly on risk cover. The investments are made in debt and equities by a fund manager assigned by the insurance provider. However, the policyholders can choose whether he/she wants to invest in debt or equity and in what proportion. Though there are no guaranteed returns, a lump sum amount is paid to the policyholder at maturity. However, if he/she dies during the policy tenure, the insurer pays him/her a sum assured.
When you buy a life insurance policy, don’t go buy hype, advertisements or what your friends or colleagues are buying because your profile and requirements may be different.
