Home » What are the types of Life Insurance plans and their benefits?

What are the types of Life Insurance plans and their benefits?

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A life insurance policy is a must in life because it provides monetary assistance to the family of a person in the unfortunate event of his death thus bringing forth their vulnerabilities during bad times. Life insurance can be a pure risk coverage plan that only provides insurance or it could be a combination of insurance and investment. To be able to select the best policy according to your needs you have to be aware of the broad features of the types of insurance policies. Some of the types of insurance policies are-

  • Term Life Insurance-

Term Life Insurance is a pure and simple type of life insurance that offers only the death benefit and no maturity benefit. The payout is there only if the policyholder dies during the term of the insurance policy. The insurance payout will be made even on death due to sickness or accident.

The policy gives maximum coverage with minimum premium paid and its objective is to provide financial protection to the nominees in case of policyholder’s death. The main factors on which the term insurance depends are the cover amount, age of the insured, policy term, smoking habit, and the payout type (fixed monthly, monthly with increment or lump sum).

  • Endowment Plan-

The Endowment plans are also commonly known as traditional life insurance and the risk covered is lower than other investment products but the returns are also lower. In these plans, a certain amount is kept for life cover and the remaining amount is invested. If the policyholder outlives the policy period the company pays him the maturity benefit along with a bonus if applicable.

The endowment plans may offer bonuses periodically which are paid on maturity or to the nominee in the unfortunate case of death of the policyholder. This type of life insurance is sold as a savings plan such as children’s education or marriage that is 10-15 years away. The plan allows you to opt for riders to increase the coverage. The premium that the policyholder has to pay is high.

  • Money Back Life Insurance Policy-

The Money Back life insurance policy offers a percentage of the sum assured money back at regular intervals during the policy term. The policyholders are eligible to receive bonuses declared by the company from time to time that help them to meet their short-term financial goals. In the case of the unfortunate death of the policyholder, the death benefit is received by the nominee.

Due to the guaranteed returns offered by this type of life insurance policy the rate of return is low and is suitable for investors who are risk-averse and have a limited understanding of investments. The premium rates are high, but with regular payouts received it can help you to plan finances better and meet events like child’s education and marriage or other short-term financial goals. You can opt for additional riders to increase the insurance coverage.

  • Whole Life Insurance Policy-

The Whole life insurance covers the policyholder for the whole life as against other policies that cover the insured for a specific period. One feature of the whole life policy that distinguishes it from other policies is the cash value component that keeps increasing over a period of time. The policyholder has the option to partially withdraw the sum assured or borrow a sum against the policy. It covers the policyholder till the age of 100 years.

The sum assured is decided at the time of issue of policy and is paid to a nominee at the time of death of policyholder along with bonus if any, and if the policyholder lives to the age of 100 years the company pays him the maturity benefits along with the applicable bonuses according to the policy. It is ideal for people who wish to protect the interest of their family and looking to secure the financial future of their loved ones.

  • Unit Linked Insurance Plans (ULIPS)

The Unit-linked Insurance Plans provide 3 key benefits that include insurance, investment, and tax savings. A part of the premium payment is used to provide insurance cover and the remaining premium is invested in equity and debt schemes. In this insurance plan, the cash value of the policy varies according to the prevailing net asset value (NAV) of the investment assets.

The aggressive ULIPs invest 80-100% of the premium in equities, the balanced ULIPs invest 40-60% of the premium in equities and the conservative ULIPs invest 20% of the premium in equities. You can choose the funds depending on your risk appetite. The insurance company invests the amount collected into equity, debt, bonds, hybrid, or money market funds. You can opt for riders to increase the coverage and the maximum life cover that ULIPs provide is up to 10 times the annual premium. Partial withdrawal of the funds is allowed during the policy tenure.

  • Child Insurance Plan-

The Child Insurance Plan is a saving and investment plan that helps you to meet the child’s financial needs. You can start investing in the policy from the time a child is born and withdraw once the child becomes an adult. Along with the life cover, it gives either a one-time payout or payouts at regular intervals for events in your child’s life like higher education, marriage, etc. In case the parent passes away the payment is made to the family or the child. Many of the insurance companies waive off the premium of the policy in case of the death of the policyholder (parent) and make payment to the child on maturity. A loan facility is available under the child insurance plan and the policy helps in building your child’s future.

Retirement Plan-

The retirement plan helps you to build a retirement corpus and live an independent life without financial worries. They are also called pension plans and offer a lump sum or monthly payouts to reduce your financial worries during retirement. After the age of 60 years, you can opt for a single payout or opt for annual payments. The accumulated corpus is invested by the insurance company in various assets to generate a regular income for you.

In case if the policyholder passes away during the policy term the nominee is paid immediate payment and the death benefit is higher than the coverage or 105% of premiums paid. You can get tax benefits under Section 80C.

The best way to select a life insurance policy is to first find out your goals and then select a policy that will give financial stability to your family when you are not there any longer in this world. Compare the plans provided by different insurance companies, the policy terms, conditions, and the claims settlement ratio. You may even contact your financial advisor for his advice on the best insurance policy.

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