What are the principal types of Life Insurance?
Life Insurance policy is one of the most vital investments an individual can make for their families and loved ones. The purpose of getting life insurance is to provide monetary support to the beneficiaries in case of an unfortunate death of the policy holder during the policy period.
There are different types of life insurance in India offering benefits to fulfill your different family goals. Thus, it’s important to understand the differences in each life insurance policy before you get one.
1. Term Insurance Plans
Term insurance is the simplest and most basic form of life insurance policy that provides life cover for a pre-specified time period. The beneficiary receives a predetermined sum insured on the death of the policy holder within policy period.
These are the most widely purchased life insurance in India as you can get a relatively higher sum insured at pocket friendly premium rates.
Term Insurance with benefits such as return of premium on maturity, increasing or decreasing sum assured on yearly basis, convertibility option is offered by several life insurance companies in India.
You can opt for additional riders along with a Term Insurance like Personal Accident cover, child support, etc to increase the total coverage of your sum insured.
2. Whole Life Insurance Plans
Whole life insurance policies are also termed as Permanent Plan as they provide a life cover for 99 years. In case, the policyholder survives up to 100 years, they would receive the matured endowment coverage as a maturity benefit. Thus, a Whole Life Insurance provides you with dual benefits of life cover and matured endowment.
You can consider buying a Participating or a Non-Participating Whole Life Insurance policy depending on your financial requirements. The premiums for a Participating policy are generally higher, but you can get the benefit of receiving regular dividends. While, the premiums are low for non-Participating policies as these policies do not offer dividend to policyholders.
3. Unit Linked Insurance Plans (ULIPs)
Unit Linked Insurance Plans or ULIPs offer benefits of having both insurance and investment. The premiums paid for the purchase of these plans are divided into two: one portion is used to cover the cost of life insurance cover and the other portion is invested in equity funds, debt funds or other securities.
Policyholders have the choice to select and switch amongst different funds available in these plans.
ULIPs are gaining popularity in India due to tax-savings benefits on LTCG. Investments by Individual and HUF in ULIPs are eligible for deduction under Section 80C. Further, Section 10(10D) provides an exemption for any sum received under ULIP, including the sum allocated by bonus on such policy.
4. Child Insurance Plans
Child Insurance Plans are a unique type of life insurance in India as it offers a life cover to the policyholder only for a single financial goal of ensuring financial well-being of their child. Purchasing these policies would ensure that your child’s future needs such as education, marriage, etc are taken care of in your absence.
5. Endowment Plans
Endowment Plans offer dual benefits of insurance and savings. These life insurance policies in India are best suited for individuals who want an insurance coverage along with a sizable savings component.
The policyholder receives the benefits of insurance coverage until maturity and a lump sum payment on maturity of their policy. You can consider buying an Endowment plan with or without profits depending on your financial requirements and risk appetite.
6. Money Back Plans
Money Back Plans are one of the best life insurance in India as the policyholder gets a certain percentage of their total sum insured at regular intervals as a Survival benefit and the remaining sum assured would be given on maturity of the policy.
In case, the policyholder dies during the policy period, the beneficiaries of the policy would receive the entire sum insured without any deductions.
7. Retirement Plans
Retirement Plans are offered with an aim to provide you financial stability after retirement along with a life cover. Under these plans, the policyholder would pay premiums until retirement to create a corpus. And after retirement, the corpus generated by the policyholder over the years would be distributed back to them as a regular income for a predetermined time period.
These plans also provide a life cover to the policyholder. Hence, if the policyholder dies during the policy period, the beneficiaries would receive the sum insured.
8. Group Insurance Plans
Group life insurance in India is usually taken by corporations for the financial well-being of their employees and clients.You can avail the benefits of getting a life insurance cover at cheap premiums under a group insurance plan. However, one should know that the coverage offered under these group insurance plans are valid only until you remain a part of the group.
