In the insurance market you have many different options for buying life insurance. There are different types of life insurance available and different types of life insurance policies.
When you’re shopping around for a life insurance policy, the easiest way to get started is to realize that there are essentially two kinds of policies: term life insurance and whole life insurance. Term life insurance lasts for a specific amount of time (the “term”) and expires at the end of the policy. Whole insurance, on the other hand, is a form of permanent life insurance. There are more insurance plans that fall into these two categories, each with their own benefits and drawbacks.

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Types of Life Insurance :

  • Term life insurance
  • Whole life insurance
  • Universal life insurance
  • Variable life insurance
  • Variable universal life insurance
  • Simplified issue life insurance
  • Guaranteed issue life insurance
  • Final expense insurance
  • Group life insurance

Types of Insurance Policies :

There are five different types of life insurance policies available. 

  • Term Plan Policy
  • Whole Life Insurance Policy
  • Endowment Policies
  • Moneyback policy
  • Unit Linked Insurance Plans (ULIPs)

Term Insurance :

A term insurance policy is a pure life cover and its structure is very simple to understand. 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. It does not come with any maturity benefit (apart from Term Plan with Return of Premium or TROP).

* It provides higher cover for lesser premium as compared to other life insurance products.

* TROP comes with a maturity benefit, which is the sum total of all premiums paid. No interest amount is paid on that.

Whole Life Insurance Policy :

As the name suggests, a whole life insurance policy gives you a cover for life. 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.

* Unlike other insurance policies, it does not have a defined term. The sum assured is paid to the dependent upon the death of the policyholder.

* Apart from the sum assured upon your death, it also has a saving component. You can re-invest it letting the cash amount grow or can remit a part of the cash value during your lifetime. You can also avail a loan against the saving component.

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, insurers promise to pay the assured sum to the nominee in case of the untimely death of the policyholder. Meanwhile, if the policyholder survives the policy term, he/she receives a lump sum payout as the maturity benefit.

* Apart from the sum assured there is a saving component. You can use this to make goal-based savings and in case of financial emergencies, you can avail of a loan against it.

Moneyback policy :

Moneyback 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. 

* The biggest advantage of moneyback policies is the liquidity it provides, i.e. you receive a percentage of the sum assured at the regular interval.

Unit Linked Insurance Plans (ULIPs) :

Unit linked insurance plan, better known as ULIP, is a combination of insurance and investment. 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.

* Though there is no guaranteed return, ULIP provides a higher return than traditional policies with a savings component.

 Term plan is a pure life cover that focuses on offering your dependents the sum assured in case you were to die. Hence, it is a must-have for every earning member of a family. 

However, if you are planning to buy a second life insurance policy, try to assess what you need it for. And once you know the purpose, evaluate all the policies to understand which one will give you maximum benefit. Your decision to buy life insurance should be determined by three factors – requirement, the benefits you get from the policy, and your ability to pay the premium. 

Saving and Investment Plans :

Saving and investment plans are the types of life insurance plans that provide you the assurance of lump sum funds for you and your family’s future expenses. While providing an excellent saving tool for your short term and long term financial goals, these plans also assure your family a certain sum by way of an insurance cover. This is a broad categorization that covers both the traditional and unit linked plans.

Retirement Insurance Plans :

These plans provide you with income during retirement, hence the name. These plans are offered by life insurance companies in India and help you build a retirement corpus. On retirement, this corpus is invested for generating a regular income stream which is referred to as a pension or annuity.

Child Life Insurance Policy :

A child insurance policy is a saving cum investment plan that is designed to meet your child’s future financial needs. It allows your kids to live their dreams and gives you the advantage to start investing in the child’s plan right from the time the child is born and provisions to withdraw the savings once the child reaches adulthood. Some child insurance policies do allow intermediate withdrawals at certain intervals.

How do you select the right type of life insurance?

Term life insurance policies are usually the best solution for most people who need life insurance. They’re usually the most affordable, they’re simple to understand, and they provide the straightforward protection that most people shopping for a policy at an insurance company are looking for.
But that doesn’t mean that other life insurance policy types are wrong for everyone. Some people tout the benefits of permanent life insurance policies are that they’re like "forced savings" for people, like a mortgage. Many people struggle to adequately save for retirement, and a permanent policy provides separate cash accumulation for something they’d be paying for anyway (their life insurance policy).
Simplified issue and guaranteed issue life insurance are options for people who might not be able to benefit from the paramedical exam portion of the application process. Final expense insurance is available for elderly consumers who don’t want to burden their family with burial costs.
In the end, you should speak to a licensed independent broker or agent or a financial advisor to determine which policy is right for you. Knowing the pros and cons of your choices will make you an informed consumer so you’ll be able to better understand the options you’re presented – and make the right choice for your family.

Life Insurance FAQ’s:

Life Insurance is a contract between a person and a life insurance company to reimburse his/her beneficiary (usually a spouse or child) at the time of his/her demise. The reimbursement amount is pre-decided based on the terms of the policy.
Life Insurance is useful to provide your family with financial security in case circumstance throws you into a situation where you cannot earn or in the case of your premature demise. It helps keep your family in a position to enjoy financial security even after your demise. Life insurance policies also offer you the ability to save, which helps provide financial stability.
Life Insurance is not necessary but is a smart investment to make, especially if you have a dependent spouse and children. It offers your family the benefit of financial support even after your death. In addition to this, it offers a number of advantages and provides a lot of flexibility on your investment. For example, you can add a critical illness rider to cover the cost of expenses for surgeries and operations; you can withdraw a part of your maturity benefit in case of an emergency or for your child's education or marriage, etc. Life Insurance policies come with a lot of flexibility.
The amount that you receive on maturity depends on the amount of premium you pay. The maturity benefit you need depends on your standard of living, income, spending habits, etc. You should aim to receive a maturity amount equal to 8 to 10 times your annual salary.
The cost of life insurance depends on the type of policy you take, the amount of premium you pay, the sum insured, your age and the benefits you expect to receive when your policy matures. Different types of life insurance plans and different types of life insurance policies have different costs.
Yes, there are options available to you to pay your premium. You can pay your premium monthly, quarterly, half-yearly or yearly. You can also pay it in one lump sum. However, a monthly premium is the most common because the amount is relatively small and it is easier to monitor and be prepared for a more frequent premium payment.
Correct. If you stop premium payments of your policy, it amounts to discontinuation of the policy and you cannot claim any tax benefits. However, if you discontinue paying your premiums after 2 years from the commencement of your policy, the tax will not be deducted on the premium paid in the year when your policy ends. The amount of tax deducted on the premium paid in the preceding year is taxable in the year when the policy terminates.
In the case of a Unit Linked Insurance Plan you are not entitled to receive any tax benefits if you stop paying premiums earlier than 5 years from the commencement of your policy.
In calculating your (individual or HUF) total income, any sum paid by you, other than in cash, out of your income that is chargeable to tax to effect or to keep in force insurance for your health or the health of your spouse or children and to effect or to keep in force an insurance on the health of your parent or parents up to Rs. 15,000 for each person mentioned in (i) and (ii) in the previous year and in case the person is a senior citizen up to Rs. 20,000 for each person mentioned in (i) and (ii) in the previous year shall be allowed a deduction.
No, you will have to pay no tax on the maturity proceeds of a life insurance policy. In fact, under a pension plan you can even withdraw up to one-third of the total maturity amount in cash and that too will be tax-free. All this is provided that you have paid all your premiums and you have not let your policy lapse.
With the increasingly uncertain times, especially tumultuous financial markets and fragile economies, getting an insurance cover for you and your family has become imperative. There are different types of life insurance plans available in the market.

Choosing the right kind of insurance cover not only determines the care that we receive should our health take a wrong turn, but it can be the wild card in your financial plan. There are many benefits of an insurance cover. However, topping the list of benefits is the financial support that a family gets in the event of the untimely death of the income provider. While getting an insurance cover is an important aspect of a sound financial future, choosing the right insurance cover is equally important.

First and foremost, choosing an insurance policy must be based on your current and projected income, or simply put your current and projected ability to pay the insurance premiums, your medical state, your age, future financial plans, etc.

Secondly, you also need to look at:

Cost-benefit ratio:
The cost of the insurance cover depends upon many reasons, some mentioned above and other factors depending on what is covered in the cover or its riders. Thus, you have to keep a close eye on the cost of buying insurance and ensure that it justifies the benefits covered under the policy. Simply put, a right balance must be struck between the cost and benefits available.

Cover:
You need to ensure that the insurance covers all your dependents and that it also covers the majority of health problems.

Thirdly, the promises made by different insurance companies are all fine. However, it depends on you whether you need a pure insurance cover or you need an insurance cover coupled with an investment opportunity. 
As you make progress in life, your financial situation will change. Choose a term plan takes these situations and needs in mind. Here are the differences between the 4 types of term plans and how they might be helpful.

  • Level term insurance - Under this plan, the premium amount remains fixed throughout the policy term. This is a regular term insurance plan.
  • Decreasing term insurance – Different life stages are marked by different liabilities. During early years, one may have the responsibility of loan repayments, children, siblings, or aged parents. However, with time, after your children and siblings can support themselves and loan repayments have been successfully completed. You have lesser dependents to look after. This will automatically lower your insurance coverage needs. Decreasing plans are ideal for such situations as the sum assured amount decreases by a fixed percentage each year.
  • Increasing term insurance – Under this plan, the sum assured amount will increase by a pre-set percentage to take care of increasing costs due to inflation. Increased costs need a higher cover and this is where increasing insurance plans come in useful.
  • Monthly income plan – Under this plan, the sum assured benefit is paid out in regular monthly installments to help the dependents take care of monthly recurring expenses.
There are many types of life insurance policies floating in the insurance market today. There is currently no limit to the number of life insurance-related policies an individual can purchase. The more the merrier.
What price are you willing to pay for peace of mind? For the feeling that even in the worst case scenario, your family will not have to face financial difficulties. It is estimated that a 35-year-old needs to pay only Rs 2,620 a month to protect his family’s financial future from the uncertainties that life can throw at him.

Hope the above was helpful for your understanding & clarity as far as the plans and policies of the insurance world.

Disclaimers:

*Tax benefits are as per the Income Tax Act, 1961, and are subject to any amendments made thereto from time to time’

The article is meant to be general and informative in nature and should not be construed as solicitation material. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a sale


Consult with your financial advisor before making any decisions on insurance purchase.

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