Know about different types of life insurance policies available in India

In the present age, insurance policy is essential for every earning person to ensure financial safety for the family-members. At the same time, it is also essential to know about different types of life insurance policies to choose the most suitable one. In this article, the author discusses different types of life insurance policies offered in India.

In the present age of uncertainty, life insurance has become a necessity. Every earning person must have life insurance. It is very much necessary to protect the near and dear ones in case of any untoward happening. However, at the same time it must be remembered that insurance is not an instrument for investment. It provides a protective umbrella to the family members of the earning person. However, many people get confused and are hoodwinked by unethical insurance agents because common people do not understand the differences among various types of life insurance. In this article we are trying to expand different types of life insurance plans available in India.

Term Insurance

From the specific name it can be understood that term insurance plans are protection plans for a definite number of years (in insurance sector it is called 'term'). Term Insurance plans are pure protection plan. Term insurance offers a large cover at a comparatively low cost. Term insurance can be used to cover a large loan like home loan. Some term insurance plans also provide terminal illness benefit. Term insurance plans are most cost effective and are the simplest to understand by common men.

Term insurance plans can be purchased online in India. However, it must be remembered that Term Insurance plans don't offer maturity benefits or surrender benefits. It is helpful to the nominee in case of unfortunate death of the policy holder.

Endowment Policy

Endowment policies are most well-known. These insurance policies are for a specific tenure. These policies are linked to savings. Endowment policies provide following benefits:-
(a) Payment of sum assured in case of death/ permanent disability of the policy-holder.
(b) The insured person gets the maturity proceeds (total premium paid + bonus accrued) after completion of the tenure of the policy.

Money Back Policy

Money Back policies are also known to the policy-holders of India. These policies are sometimes called cash back plans. Such plans assure payment of certain amount of money at certain point of policy tenure which is pre-determined. The remaining amount (along with the bonus) is paid as a maturity benefit at the expiry of the policy term.

Unit Linked Insurance Policies

Unit Linked Insurance Policies (ULIPs) are new entrants in this field. In this type of policy, a part of the premium is used to provide insurance cover. The other part is used for investment purpose. The part which is used for investment purpose is invested in equity and bonds as per the choice made by the policy holder. The choice can be reviewed and changed by the policy-holder generally ones in every year. Additional benefits like top-up and rider are also available in this type of policy.

Whole Life Insurance

Whole life Insurance plans provide lifelong cover to the policy-holder. These plans are characterized by the fact that the insured person has to pay the premia throughout his/her life. Some whole life insurance plans can also be used as a method of saving.

Annuity/ Pension Plans

These are not life insurance plans in the strictest sense of the term. But with the passage of time, annuity plans are assuming more importance. Annuity/ Pension Plans generally pay fixed amount to the insured person at his/her old age or at the time of retirement. There are two types of annuity plans:
  1. Immediate Annuity: In this type of annuity. annuity payment starts immediately. The entire premium for this plan is paid at one go.
  2. Deferred Annuity: This type of plan allows the policy-holder to pay regular or a single lump- sum amount. He/She can redeem one-third of the corpus along with the tax-free interest on the vesting day. The remaining amount is allocated towards future payment of pension.

Annuity/ pension plans are offered as traditional insurance plans and also as ULIPs.

Child Plans

Child insurance plans help parents to build a financially secure future for their children. In such plan, the life of the parents is assured and the child becomes the beneficiary of the policy. The money invested in child plans can be utilized for the education or marriage of the children in future. Such plans also offer premium weaver option in case of demise of the parents.

Concluding comments

It is essential for all to understand different types of life insurance policies. This would enable them to choose suitable policy according to their specific requirements. This would also help them not to get cheated by unethical insurance agents.

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Author: DR.N.V. Srinivasa Rao13 Jun 2017 Member Level: Platinum   Points : 4

The author explained very clearly the various life insurance policies available. Very educative. There is another insurance policy called Keyman Insurance. This policy will be made by an organisation against a Keyman working in the organisation. In case anything happens to the Keyman, the insurance amount will be paid to the organisation. The premium will be paid by the organisation. The policy amount paid by the company can be shown as expenditure and tax exemption can be availed. The beneficiary will be the organisation.

Guest Author: Abhishek Mehta04 Jul 2017

The article provides information about various insurance plans. When buying an insurance policy one needs to have in depth knowledge about various plans. I wanted to buy a policy for myself and was looking for various companies. Came across Tata AIA policy. There are various policies to suit specific needs. It provides flexibility in choosing various policies and gives great returns. Also, they have online calculator to calculate the best cover for you.

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