What are Different Types of Life Insurance Policies in India?

What are Different Types of Life Insurance Policies in India?

Life insurance plans are considered to be an effective financial tool by several individuals. People wish to purchase life insurance policies to support their retirement. However, only a few know that the insurance companies offer different types of life insurance policies. The policyholders may choose the best-suited plan which shall help them post their retirement.

Different Types of Life Insurance Policies

Let us discuss the types of life policies in order to understand the most suited plan after retirement.

Term Insurance Plans

Term insurance plans are one of the different types of life insurance policies. It is designed to protect the family against financial crisis in case of the demise of the breadwinner. For example, the dependents in a family may count on only one member (primary wage earner) for their livelihood. The term insurance plan is likely to bear the financial expenses of the aforesaid dependents in case of the death of the head of a family.

The term insurance plan is not market-linked. In addition, the premium that is to be paid by a policyholder is lower as compared to other life insurance policies. Moreover, the premium becomes more affordable if one purchases it in early life. The exponents of insurance products suggest individuals give their priority to such plans as soon as they obtain a permanent livelihood.

The beneficiaries of the term life insurance plan may utilize its outcomes for several purposes. In case of no income, the family may use the coverage in order to pay their daily expenditures. This may include education costs, wedding expenses, etc. Further, in case of any outstanding debt, the coverage can be utilized to pay the dues. This may include car loans, home loans, etc. The family may pay such costs with the insurance cover.

ULIPs (Unit Linked Insurance Plans)

The Unit Linked Insurance Plans (ULIPs) include both insurance and investment. The premium in this plan is divided into two parts. The first part of the premium goes towards providing life insurance. At the same time, the other portion is expected to invest in various instruments. This includes equity, debts or both. Therefore, the policyholder may obtain life insurance coverage along with an opportunity to invest in capital markets.

Let us discuss some features of ULIP.

  • The ULIP has a five year lock-in period. Earlier, it was three years. However, upon an amendment made by IRDAI, the lock-in period was extended to five years.
  • ULIP is considered to be one of the types of life policies which offers flexibility to the policyholder. The policyholder may choose to invest in any type of capital. This includes equity, debt or a balance of both.
  • One may find different types of life insurance policies. However, it is important to look for policies which offer transparency to the policyholder. The ULIP is an ideal investment cum insurance plan which offers transparency to the policyholder. As a result, the insured may track the performance, returns and premium of the investment instrument. In this plan, the policyholder is responsible for the returns on the investment.
  • The ULIP plan allows the policyholder for partial withdrawal of funds. In addition, the maturity amount under the ULIP plan is tax-free. Therefore, the policyholder is not required to pay any tax on the maturity amount.
Endowment Insurance Plans

A policyholder must make investment in endowment insurance plans if he wishes to fetch guaranteed returns along with the life insurance. The endowment plans offer life insurance coverage to the policyholder. In addition, it also offers the opportunity to save on a regular basis. The policyholder under the endowment insurance plan receives a lump sum amount upon the maturity period of the policy. However, if the policyholder is not alive, the nominee shall receive the maturity amount.

Like ULIP, the endowment plan also offers flexibility to the policyholder. The insured may decide the suitable method to pay the premium amount under this plan. In addition, the policyholder may also decide the time frame to pay the premium amount. The endowment plan also offers bonuses to the policyholder. Such bonuses are paid additionally on the sum assured.

The returns generated by the policyholder at the maturity of the endowment plan are fully tax-free under section 10(10D) of the Income Tax Act of 1961. In addition, the policyholder may also claim a tax deduction on the premium amount.

Money Back Policy

Money back is one of the different types of life insurance policies. It is known for offering coverage during the policy tenure. In addition, the policyholder may also fetch the survival benefits at the end of the tenure of money back policy. Money back is a wise insurance product if one looks to protect the future of the dependent or family. It is a plan which fulfils multiple needs in a single investment.

Money back is a long-term investment plan. It is a safe plan to keep the investment protected against inflation and taxes. People invest in such a plan in order to ensure the completion of family goals even after the demise of the policyholder.

Let us discuss how the money-back product works.

The money-back plan offers several benefits. This includes the following.

  • Investment opportunities,
  • Maturity benefits, and
  • Survival benefits.

The policyholder may set the financial goals to fulfil upon investing in the money-back product.

Let us discuss it with an example.

Mr A purchased a child money-back policy. The current age of his child is 10 years. The policyholder purchased the money-back plan for a sum assured INR 20 lakh in 2023. The tenure of the policy is determined as 25 years. Mr A pays the premium throughout the tenure of the policy. As per the terms and conditions of the policy, the policyholder is likely to receive 20% of the amount assured to him at regular intervals every five years. Further, it was also decided that the policyholder shall receive the bonus if applicable to the policy. 

Now, Mr A may utilize the sum as follows.

  • 2028: Mr A may utilise INR 4 lakh (20% of the sum insured to pay out the tuition fee of his child.)
  • 2033: In the tenth year, the child shall be 20 years old. Therefore, the second instalment of INR 4 lakh can be used for the higher education of the child. 
  • 2038: When the child turns 25, another instalment of INR 4 lakh can be used to pay the marriage expenses of Mr A’s son.
  • 2043: The fourth payment can be kept for the retirement of investment purposes. 
  • 2048: The policyholder shall receive the remaining INR 4 lakh and the policy shall be bound to be terminated. 

If the policyholder dies during the policyholder, the INR 20 lakh shall be receivable by the nominee. 

Whole Life Insurance Plans

The whole life insurance plan offers life coverage for 99 years to the policyholders. Unlike other policies, which cover the policyholder for 10 to 30 years, the whole life insurance plan ensures extended coverage and protects for 99 years. The whole life insurance plan also enables the policyholder to leave behind a legacy for the upcoming generations. It is an ideal choice for individuals who are financially dependent in their old age. In case of the demise of the policyholder, the benefits of the whole life insurance plan shall be transferred to the nominee of the policy.

Child Insurance Plans

The child insurance plan helps an individual to build a significant corpus for the future of the child. It is a wise plan for parents to give financial independence to their children. The maturity amount in such plans is utilized for the education and marriage of a child.

The child insurance plan offers the maturity benefits either in an instalment or one-time payout post the child turns 18. It also offers insurance coverage for the parents. For example, if the parents of the children die, the child insurance plans shall start covering the expenses of the child with immediate effects.

The child insurance plans also allow the policyholder to choose the instrument in order to invest the premium, The policyholder has the liberty of choosing equity or debt or a balance of both as the financial instrument.

Retirement Insurance Plans

As the name suggests, the retirement insurance plan is designed to help the policyholder build a considerable income for his retirement. The policyholder may gain financial independence during retirement after making an investment in a retirement insurance plan. In addition, the retirement insurance plan also allows the policyholder to choose a nominee who shall take advantage of such a plan in the absence of the policyholder. The retirement plan offers better returns. In addition, the income accumulated by the policyholder shall not be taxable.

Conclusion

One may find different types of life insurance policies. It is important to understand the terms & conditions and the benefits of such policies in order to choose the wise one. In addition, life insurance plans are generally tax-free. Hence, the individuals may also invest to save the tax and obtain a fair outcome.

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FAQs

Que. What are the types of Units Linked Insurance Plans?

Ans. Types of Unit Link Insurance Plans

  • Equity
  • Liquid Funds
  • Debt
  • Balanced Funds
  • Guaranteed & Non-Guaranteed Plans
  • Single and Regular Premium
  • Cash Funds
  • Life-staged ULIPs
Que. What are some common kinds of life policies?

Ans. Here are some common types of life insurance plans.

  • Whole Life Insurance
  • Group Insurance Plan
  • Money Back Plan
  • Endowment Plan
  • ULIP
  • Whole Life Insurance
Que. Is there any policy which never expires?

Ans. Whole life insurance plans do not contain an expiry date. It continues till 100 years of age of policyholder.

Que. What are the things to consider before buying life insurance plan?

Ans. A policyholder must consider the following things before purchasing an insurance plan.

  • Goal
  • Sum assured
  • Policy term

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