Nowadays, it is imperative to get yourself and your family financially covered through the innumerable life insurance schemes available in India. But with so many different kinds of schemes available, choosing the right insurance policy that is suitable for you and your family can be challenging. It is therefore important to make a list of what you expect from an insurance plan and be clear about your future goals and the kind of funds you expect in returns.
The basic premise of life insurance policy is protection, but there are certain products available in the market which allows the policyholder to use it as a wealth-creation and long-term savings tool. So explained below are the various types of life insurance plans available in the market today to help you make your choice:
Term life insurance: Term life plans offer insurance in its ‘purest’ form as it was meant to be. It is a type of life insurance that provides a death benefit to the beneficiary only if the insured dies during the specified period. If the insured survives until the end of the period or term, the coverage ceases without value and a payout or death claim cannot be made. Term insurance plans can be bought online in a simple and hassle-free way. As compared to other life insurance policies, term insurance plans offer higher coverage at a minimum premium rate.
Whole life insurance: Whole life insurance provides you coverage throughout your lifetime (up to 100 years of age) provided the policy is in force. Whole life insurance policies also contain a cash value component that increases over time. You can withdraw your cash value or take out a loan against it as per your convenience. In addition, in case of your demise, before you pay back the loan, the death benefit paid to your beneficiaries will be reduced. Some of the whole life insurance plans offer survival benefits to the insured in the form of periodic payments.
Endowment policy: An endowment policy is defined as a type of life insurance that is payable to the insured if he/she is still living on the policy’s maturity date, or to a beneficiary otherwise. An endowment policy provides you with a dual combination of protection and savings. In an endowment policy, if the insured dies during the term of the policy, the nominee receives the sum assured plus the bonus or participating profit or guaranteed additions, if any. The bonus or profit is paid for the number of years that the insured survives in the policy term. Endowment plans are popular as they provide the dual benefit of savings cum insurance coverage. They also come with rider benefits to increase the coverage of the policy. But these policies might not provide you with the kind of financial coverage your family may actually need in case of your untimely death unless you pay very high premiums. That’s why many even consider endowment plans as a low-risk investment option to save tax that also offers insurance.
Money back policy: Money back policy gives you money during the policy tenure. A money back policy gives you a percentage of the sum assured at regular intervals during your policy term. If you live beyond the term of the policy then you will receive the remaining portion of the corpus and the accrued bonus also at the end of the policy term. But in case of an unfortunate event before the full term of the policy is over; the beneficiaries are entitled to receive the entire sum assured regardless of the number of instalments paid out. Money back policies are the most expensive insurance options offered by insurance companies as they offer returns to the insured during the policy tenure.
Savings and investment plans: Savings and investment plans provide you with the assurance of lump sum funds for you and your family’s future expenses. Savings-investment plans offer the benefits of market-linked returns to the policyholder. These plans not only provide an opportunity to create corpus over a long period of time but also offers life protection to the family of the insured in case of any eventuality.
Retirement plans: A savings and investment plan that provides you with income during retirement is called retirement plan. Retirement plans help you to build a retirement corpus. On maturity, this corpus is invested for generating a regular income stream which is referred to as pension or annuity. Retirement plans are further classified into ‘with cover’ and ‘without cover’ plans: ‘With cover’ pension plans offer an assured life cover in case of an eventuality and in ‘Without cover’ pension plan, the corpus built till is given out to the nominees in case of an eventuality. There is no life cover in without cover plans.
Unit-linked insurance plans (Ulips): Ulips are a type of life insurance plan that provides you with a dual advantage of protection and flexibility in investment. In Ulips, the cash value of a policy varies according to the current net asset value of the underlying investment assets. The premium paid is used to purchase units in investment assets chosen by the policyholder. Ulip plan offers the dual benefit of investment cum insurance coverage.
Child Insurance Policy: A child insurance policy is a saving cum investment plan that is designed to meet your child‘s future financial needs. The child insurance policy gives you the advantage to start investing in the children‘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.