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Life insurance is a legal contract between the policyholder and the insurer, which guarantees payment to the beneficiaries in the event of the death of the policyholder or when the policy matures. The insurance company pays the lump-sum amount to either the insured or the beneficiaries based on the terms of the contract.
A life insurance policy is an agreement consisting of details of financial coverage that the insurance company will provide to the policyholder in exchange for a payment over a decided period. This payment that the policyholder makes to the insurance company is called a premium, while the lump-sum amount paid to the nominee in the event of the policyholder’s death is called the death benefit or the sum assured on death. Certain types of life insurance policies also offer the full amount along with bonuses to the policyholder on the maturity of the policy, if he/she survives the entire tenure of the policy.
There are several types of life insurance policies that offer different types of benefits, tax saving options, etc. Life insurance policies offer tax exemption under Section 80C and 10(10D) of the Income Tax Act, 1961. Let’s take a look at the different types of life insurance policies available in the market and their salient features and benefits:
Here are some of the reasons why you should opt for Term Life Insurance:
The following points are some reasons why one should not delay or hesitate to renew their life insurance policies:
Endowment policies are a combination of protection and savings plans. In case of the demise of the insured during the tenure of the policy, the insurance company pays the death benefits along with the bonus amount to the nominee of the policy. On the other hand, if the insured survives the entire policy term then the insurer pays the maturity benefits to the policyholder at the end of the term.
The duration of the policy is usually about 10-35 years. Generally, endowment plans have high premium amounts, thereby making it suitable for people who want to utilize this policy as both a good protection cover and a great savings plan as the insurance companies pay the profits accumulated as a bonus.
Endowment plans offer the following benefits to the policyholder. Here is a brief detail about the core benefits of endowment plans:
The beneficiary of endowment plans are eligible to receive the Current Sum Assured with applicable bonuses, in case the policyholder passes away before the policy matures; at the same time, the policyholder is entitled to receive the same if he/she survives until the maturity of the policy.
Currently, most of the insurance providers offer various inbuilt or add-on riders, such as Accidental Death rider, Permanent Disability rider, Hospital Cash rider, Critical Illness or Terminal Illness cover, Premium Waiver riders, etc., to help policyholders further improve these plans.
Endowment plans offer various types of bonuses, like Terminal Bonus, Reversionary Bonus, Final Addition Bonus, etc., that can be claimed by the policyholder or the beneficiary of the policy by fulfilling certain conditions or eventualities.
As the name suggests, the money-back life insurance policy offers a fixed percentage of sum assured amount to the policyholder at pre-fixed intervals. The benefit offered to the insurance holder on the maturity of the policy is known as survival benefit. This plan is best suitable for individuals who want to gain the benefit of investment along with the element of liquidity. Moreover, money back plans are also eligible for the bonus as declared by the insurance company.
Insurance companies pay regular monetary benefits to the policyholder as long as the policy is valid, these payouts, however, do not impact the death benefit amount. Money-back policies have affordable premiums making it suitable for individuals who are looking for policies that provide both a protective cover as well as an income at regular intervals.
Like endowment plans, money-back policies come packed with a full-fledged set of benefits offered to the policyholder. Here is a rundown to the core benefits of money-back plans:
Money-back policies are the only life insurance plans that offer triple benefits, which include the survival benefits, maturity benefits and insurance cover; only these plans offer insurance cover and investment returns at the same time.
The insured is eligible to receive the FSA (Full Sum Assured) on the maturity of the policy; this condition is irrespective of the applicability of and amount to be paid to the policyholder under survival benefits; this helps the policyholder to get a survival and maturity benefit combo under a single plan.
This is probably the selling point of money-back policies, which refers to the accumulation of returns after a certain period after the investment, as in the premiums paid under the policy add up after a period and keep on stacking.
Term Life insurance policies are one of the most common types of life insurance policies. This type of life insurance policy pays a death benefit to the nominee of the policy in the event of the policyholder’s demise. However, the insurer pays no maturity amount on the survival of the policyholder. This policy has the lowest premium amount making it suitable for individuals looking to secure the financial future of their families while having to pay reasonable premiums.
Term Life Insurance Policy offers the following set of benefits:
As compared to other types of insurance policies, a Term Life Insurance Policy offers higher Sum Assured values at lower premium rates, which makes it one of the most cost-effective life insurance plans; the average premium rates for these plans are lower as compared to their siblings and they offer returns starting from 105% of the premiums paid.
Apart from offering life coverage for the policyholders as well as financial protection for the family members of the policyholders, these plans offer well-round protection against various critical illnesses, whereby these illnesses are mentioned in the policy documents and are agreed upon by the insured and the insurer before the commencement of the policy.
A Term Life Insurance Policy offers all kinds of support to the policyholders, which include safety, provision for the policyholder’s dependants from his/her liabilities and loans, numerous add-on protection covers and support in case of permanent or total disability.
These plans are specifically designed to secure the financial future of the individual after retirement. These are traditional life insurance policies that are non-participatory. There are two different types of pension plans offered i.e., immediate pension plan and deferred pension plan.
In the immediate pension plan, the annuity is paid out immediately after the payment of the lump-sum amount by the policyholder. Whereas, in a deferred pension plan, the premium paid by the policyholder is accumulated over a fixed period and the pension is paid out to the insured after the completion of the deferred phase.
The policy does not have any fixed term; the annuity kicks in after the retirement of the policyholder and the premiums are reasonably priced. These types of life insurance policies are suitable for individuals looking for regular income post-retirement.
The core benefits of the pension plan or annuity plan are as follows:
One of the best benefits of possessing an Annuity or Pension plan is that it provides a steady cash inflow or a stable income for people after their retirement, wherein the frequency of the income can be anything between yearly and monthly, which allows the insured to cover his/her living expenses and look after his/her financial needs.
Annuity/Pension plans, apart from providing a stable source of income for the policyholders post-retirement, also offer insurance cover for them by protecting their financial interests and income in case of their premature or untimely death.
These are a combination of protection and savings policy which are participatory. Insurance companies pay death. A Whole life insurance policy provides coverage until 100 years of age. The policy offers the bonus facility along with the death or the maturity benefit. The policy duration covers the entire life of the policyholder. The policy has a high premium amount, thereby making it a good fit for individuals looking to secure their families' financial future and interests.
Here is a rundown to the core benefits offered by whole life insurance plans:
The nominee or the beneficiary of the policy is eligible to receive the TSA (Total Sum Assured) value along with applicable benefits, in case of the untimely death of the policyholder before the maturity of the policy and provided that all the premiums have been duly paid on time.
A Whole Life Policy offers whole life coverage, as in providing insurance coverage through a death benefit to the policyholder until he/she reaches 100 years of age and offers financial security for his/her near and dear ones.
Under a Whole Life Policy, the interest rate on premiums to be paid is pre-defined and does not change, as in increase or decrease, over the policy term.
Unit Linked Insurance Plans are a combination of protection and investment plan, which offers insurance coverage to the family of the insured along with the benefit of investment returns. Insurance companies pay death benefits to the nominee, whereas they pay maturity benefits to the policyholder on survival at the end of the policy term.
Insurance companies pay the accumulated amount as bonuses. Unit Linked Insurance Plan provides an opportunity to accumulate wealth in the long-term by investing in the market linked securities like equity, debt, and balanced fund. The premiums are usually on the higher side owing to the investment costs involved thereby, making it suitable for individuals with high-income looking to both diversify their portfolios and secure the financial interests of their families.
Unit Linked Insurance Plans offer triple benefits – insurance and investment clubbed with tax benefits. Here is a brief detail of the key benefits offered by ULIP plans:
Unit Linked Insurance Plans provide the policyholder with the opportunity to get returns and life insurance coverage, all at the same time, through their investment and saving patterns along with market-linked returns as well as offering survival or maturity benefit to the policyholder and financial security under death benefit to their family members.
These plans offer long-term investment opportunities, by providing a base for the investment for a longer duration, as compared to other plans, for the policyholders, which helps them to counter the volatility of the market and in turn receive a high ROI (Return of Investment).
Unlike most other types of life insurance policies, Unit-linked Insurance Plans protect the financial interests of the policyholders by allowing them to withdraw a chosen portion of the amount of money invested in case of any financial emergency.
As the name suggests, a Child Insurance Policy is a type of insurance pan dedicated to act as financial sources and provide financial security for children. This plan is perfect for those who want to provide for their children and plan the future such that their absence doesn’t make it financially hard for their child to survive.
It is a combination of investment and insurance plan as it meets the financial requirements of the child during times of need. The policyholder or the parent acts as the insured, whereby the Sum Assured at maturity is offered to the child. Also, in case of the untimely death of the parent, the child is liable to receive as much as 150% of the SA value.
Key benefits of child insurance plans are discussed below:
A Child Insurance Policy aids the policyholder, the parent, in financially planning his/her child’s future by allowing them to build a corpus for their child’s education and other requirements, through timely premium payments and stacking it to help meet their future educational expenses; it can also act as collateral while applying for a loan for the child’s higher studies.
These policies offer the insured with the option to partially withdraw the amount of money invested, to nurture or enhance a potential field that the child has a talent or affinity in; in short, these plans offer the option to withdraw a portion of the money invested and use it to pay for the expenses incurred for helping the child pursue his/her talent.
Universal Life Insurance is a type of permanent life insurance, somewhat like the Whole Life Insurance Policy, yet it comprises of an investment or savings element. Also, when comparing with other types of life insurance plans, especially term insurance policies, this plan has considerably low premium rates along with flexibility. The price tag of these plans refers to the minimum amount of premiums that are required to possess the policy. Also, these plans, unlike traditional and pure life insurance plans, can accumulate cash value, which makes them much more attractive.
Universal Life Insurance Policy offers the following benefits:
The beneficiary or the nominee of this policy is liable to receive the Sum Assured in case of the premature demise of the policyholder, including the fact that this amount can be increased or decreased, which depends on the policyholder or the beneficiary, and makes the death benefit adjustable.
Unlike most other life insurance plans, the cash value under a Universal Life Insurance Plan is guaranteed to keep on increasing.
Universal life Insurance Policies have lower premium rates, in addition to the fact that these plans can be acquired by paying the minimum amount of premium as defined in the policy document, as compared to Whole Life and other Insurance Plans, which makes them much more affordable than the others.
A Variable Life Insurance Plan, just like the previous plan, is a type of permanent insurance policy. But, unlike the Universal Life insurance Plan, this plan revolves around an investment or saving component only and primarily focuses on that. Variable Life Insurance Plans have numerous sub-accounts under them, mostly more than 50 options, in which the cash values of the policy can be invested. Also, these plans are market-dependent, as in; they will deliver more returns when the market is running up and vice versa
Variable Life Insurance Plans come packed with the following set of benefits:
Just like other life insurance plans, the variable life insurance policy also offers a death benefit, in the form of the current Sum Assured value to the beneficiary of the policy in the event of the premature death of the policyholder; while this plan offers a guaranteed death benefit, the amount of money liable to be reimbursed to the beneficiary can increase depending on the investment factor and the performance of the market.
The most notable difference, as well as the unique selling point of a Variable Life Insurance Policy, is that it offers a wider range of investment options for the policyholder or the investors to invest in, which makes this an ideal insurance product for those who want to get valued returns and insurance coverage under a single policy.
A Final Expense Life Insurance Plan is also a type of permanent life insurance that comes under or is the subset of Whole Life Insurance policy. This plan is specifically designed to meet the financial needs of the policyholder for his/her healthcare expenses, which is its primary objective. Various medical bills, funeral service charges, etc. are taken care of by this policy.
Following are the key benefits of Final Expense Life Insurance Plans:
The premium to be paid under this policy are fixed and remain level and are payable to the beneficiary or the policyholder after the age of 100 years; also, the beneficiary can choose whether to divert the death benefit value towards burial expenses or not, in accordance to the premium frequency and mode selected.
As the name suggests, a Group Life Insurance Policy is a type of life insurance that offers life coverage to a group of people. This policy is perfect for the employees of an organization that seek life insurance coverage for all the members under a single plan, which is known as the Master Life Insurance Plan.
Group Life Insurance Plans have the following benefits:
Group Life Insurance Policies have no upper limit when it comes to the number of people protected under the plan, as in all new employees of an organization will get automatically enrolled under such a plan.
In the event of the death of a member under a Group Life Insurance plan, the applicable Sum Assured value will be paid to the nominee of the plan who is chosen by the person that died.
These plans offer credit protection, as in protection from the loss incurred due to the death of a person with loans or liabilities, along with life insurance coverage that helps the employees as well as their supervisors to protect their financial interests.
While different types of life insurance policies require a different set of requirements, there are a few standard sets of documents required for almost all the policies.
The list of documents that are required to be furnished for applying for these policies are:
There are many different benefits of the life insurance policy. Here we have listed some of the features and benefits of the life insurance policy.
The following points are some reasons why one should not delay or hesitate to renew their life insurance policies:
Life insurance policies serve as a protective life cover for the policyholder. In the unfortunate event of the demise of the policyholder, the life insurance policy is to ensure that the families of the deceased policyholder get financial support and stability for the future. The life insurance policies also provide maturity benefits to the policyholder on survival along with accumulated amounts of interest, as bonus thereby providing them financial resources to utilize for the rest of their lives.
As per the Indian Income Tax Act, 1961, all types of life insurance policies are eligible for tax-exemption and offer attractive tax benefits under sections 80C and 10D. The premium paid towards the life insurance policy up to the maximum limit of Rs 1.5 Lakh and the maturity proceeds are tax exempted U/S 80C and 10(10D) of the IT Act. The tax benefits involved with the plan enable the policyholder to save a considerable amount of money in forms of tax savings.
Life insurance policies grant policyholders an opportunity to participate and benefit from financial growth without taking any financial risk. The yearly bonuses and dividends get added to the maturity or death benefit.
Certain types of life insurance policies offer a regular pension post-retirement. This helps to boost the financial standing of the individual post-retirement and makes sure that the policyholder has a steady source of income even after retirement.
Life insurance policies are one of the safest and most profitable long-term investment options. The long duration of investment, coupled with strict regulations and guidelines issued by The Insurance Regulatory and Development Authority of India (IRDA), ensures that the invested amount remains safe. It is the responsibility of the insurance company to safeguard the investments owing to the rules, and policies, thereby, ensuring that the money invested in the long-term reaps profitable returns.
Investing in the life insurance policy s is the best way to inculcate the habit of savings as it requires the policyholder to invest a certain amount of premium periodically. This practice of saving money at regular intervals over a long period ensures that an individual accumulates a substantial amount of money to meet various financial requirements throughout life.
Policyholders of a life insurance policy are eligible to receive a loan against their insurance plan. However, the facility of loan differs from plan to plan. The provisions of the loan facility enable the policyholders to meet unplanned financial requirements without having to disrupt the benefits offered by the insurance policy.
Let us make a comparative study of the different types of life insurance policies available:
|Parameters||Endowment Plans||Money-Back Policies||Term Life Insurance Policy||Annuity/Pension Plans||Whole Life Policy||Unit Linked Insurance Plans(ULIP)|
|Overview||offers the combined benefit of insurance and savings||offers a fixed percentage of sum assured amount at pre-fixed intervals||A policy that provides insurance coverage to the beneficiary in the event of the demise of the insured||Traditional life insurance policy which is participatory||Combination of protection and savings policy||Combination of the protective cover and investment option|
|Maturity Benefits||The policy gives maturity benefits on the survival of the policyholder||The policy gives maturity benefits on the survival of the policyholder||The policy does not give any maturity benefit||The policy does not give any maturity benefit||The policy gives maturity benefits on the survival of the policyholder||The policy gives maturity benefits on the survival of the policyholder|
|Death Benefits||The policy gives death benefits to the nominees in the event of the demise of the policyholder||The policy gives death benefits to the nominees in the event of the demise of the policyholder||The policy gives death benefits to the nominees in the event of the demise of the policyholder||The policy gives death benefits to the nominees in the event of the demise of the policyholder||The policy gives death benefits to the nominees in the event of the demise of the policyholder||The policy gives death benefits to the nominees in the event of the demise of the policyholder|
|Premium Cost||Premium costs of this policy are high||Reasonably affordable premium costs||Very affordable premiums, lowest across all the types of policies.||Moderately priced premiums, most of these policies require a one-time payment||Premiums are on the higher side due to the investment aspect||Premiums are on the higher side due to the investment aspect|
|Parameters||Child Life Insurance Policy||Universal Life Insurance Policy||Variable Life Insurance Policy||Final Expense Life Insurance Policy||Group Life Insurance Policy|
|Overview||This policy offers financial security to the child in the parent’s absence||This policy offers whole life coverage along with return on investments at low premiums||This policy offers whole life coverage along with return on investments||This policy covers the medical or funeral expenses incurred by the policyholder or the beneficiary||This policy offers life insurance coverage for a group of people under a single master plan|
|Maturity Benefits||The policy gives maturity benefits on the survival of the policyholder||The policy gives maturity benefits on the survival of the policyholder||The policy gives maturity benefits on the survival of the policyholder||The policy gives maturity benefits on the survival of the policyholder||The policy does not give any maturity benefit|
|Death Benefits||The policy gives death benefits to the child in the event of the demise of the policyholder||The policy gives death benefits to the nominees in the event of the demise of the policyholder||The policy gives death benefits to the nominees in the event of the demise of the policyholder||The policy gives death benefits to the nominees in the event of the demise of the policyholder||The policy gives death benefits to the nominees in the event of the demise of the policyholder|
|Premium Cost||Moderate to high priced premiums||Very affordable premiums, lowest across all the types of policies||Premiums are on the higher side due to the investment aspect||Reasonably affordable premium costs||Moderate to high priced premiums|
There is a specific set of parameters that need to be considered before buying a new life insurance policy. These parameters range from the health conditions of the individuals to the financial status of the applicant. Some of these critical factors are:
Premiums are an essential factor to consider before choosing the life insurance policy. It is essential to select a plan that has a premium amount that the policyholder can pay on time, failing which the policy can lapse. The different types of life insurance policies have different premium costs depending on the investment and coverage aspects of the policy, and one should choose as per their requirement and suitability.
Claim settlement ratio is one of the primary factors to consider before zeroing in on a plan. This ratio is the percentage of received claims that have been settled by the insurance company. Therefore, a higher claim settlement ratio is considered to be a mark of a more reliable company.
One of the greatest benefits of buying a life insurance policy is to ensure that your dependants have financial security at all times. Therefore, it is important to choose a plan that provides maximum coverage for the dependents and fulfil their financial needs in case of any eventuality. It is important to consider any other aspect that is relevant to the nature and benefits of the insurance policy.
The tenure of the policy is important concerning the financial goal of the policyholder. Different types of policies have different term periods, and applicants can choose the policies to meet their specific financial requirements. For example, people who need a policy that cover their retirement plans can go for Annuity/Pension plans, which has a time frame designed to provide the annuity post-retirement