Types of Life Insurance

Know How to Buy Different Types of Life Insurance Policy

In the insurance market, you have many different options for buying life insurance. There are different types of life insurance policies available in accordance to your needs and requirements.

When you’re shopping around for a life insurance policy, the easiest way to get started is to realise that there are essentially two kinds of policies: term life insurance and whole life insurance. Term life insurance lasts for a specific amount of time (the “term”) and expires at the end of the policy. On the other hand, Whole insurance is a form of permanent life insurance. There are more insurance plans that fall into these two categories, each with its own benefits and drawbacks.

Types of Life Insurance :

  • Term Insurance
  • Child Insurance Plans
  • Savings Plan & Investment
  • Term Insurance with Return of Premium
  • Unit Linked Insurance Plans
  • Endowment Plans
  • Moneyback Policy
  • Whole Life Insurance
  • Group Life Insurance
  • Retirement Plans

Term Insurance

A term insurance policy is a pure life cover, and its structure is very simple to understand. You pay a premium to an insurance company for a specific number of years, and in return, in case you were to meet with an untimely death, the insurer promises to pay the sum assured to your family. It does not come with any maturity benefit (apart from Term Plan with Return of Premium or TROP).

  • It provides higher cover for a lesser premium as compared to other life insurance products.
  • TROP comes with a maturity benefit, which is the sum total of all premiums paid. No interest amount is paid on that.

Whole Life Insurance Policy

As the name suggests, a whole life insurance policy gives you a cover for life. If the premium amount is paid regularly, the insurer promises to pay the sum assured to the nominee of the policyholder after the death of the policyholder. Apart from the sum assured, it also includes a saving component.

  • Unlike other insurance policies, it does not have a defined term. The sum assured is paid to the dependent upon the death of the policyholder.
  • Apart from the sum assured upon your death, it also has a saving component. You can re-invest it letting the cash amount grow, or you can remit a part of the cash value during your lifetime. You can also avail of a loan against the saving component.

Endowment Policy

Endowment plans are again a combination of savings and protection. If the premiums are paid on schedule for a specific number of years, insurers promise to pay the assured sum to the nominee in case of the untimely death of the policyholder. Meanwhile, if the policyholder survives the policy term, he/she receives a lump sum payout as the maturity benefit.

  • Apart from the sum assured, there is a saving component. You can use this to make goal-based savings, and in case of financial emergencies, you can avail of a loan against it.

Moneyback Policy

Moneyback policies are also a combination of savings and protection. But the key advantage of this policy is that a portion of the sum assured is paid to you at a regular interval during the policy tenure. The remaining amount, along with the bonus, is paid at maturity. This benefit is not available for any other life insurance policy. However, if the policyholder dies during the policy tenure, then the entire sum assured is paid to the nominee; this is despite the survival benefits that the policyholder has already received.

  • The biggest advantage of moneyback policies is the liquidity it provides, i.e., you receive a percentage of the sum assured at the regular interval.

Term Insurance with Return of Premium

Traditionally, term insurance plans don’t provide any maturity benefits but with the TROP plans the survival benefit offered is the return of the premiums paid. The time where the difference between a basic term insurance policy and a term insurance with return of premium (TROP) becomes clear is when the policy matures. At the time of maturity, the insurer will return the entire premium paid by the policyholder towards the policy.

Unit Linked Insurance Plans (ULIPs)

Unit linked insurance plan, better known as ULIP, is a combination of insurance and investment. The investments are made in debt and equities by a fund manager assigned by the insurance provider. However, the policyholders can choose whether he/she wants to invest in debt or equity and in what proportion. Though there are no guaranteed returns, a lump sum amount is paid to the policyholder at maturity. However, if he/she dies during the policy tenure, the insurer pays him/her a sum assured.

  • Though there is no guaranteed return, ULIP provides a higher return than traditional policies with a savings component.

A term plan is a pure life cover that focuses on offering your dependents the sum assured in case you were to die. Hence, it is a must-have for every earning member of a family.

However, if you are planning to buy a second life insurance policy, try to assess what you need it for. And once you know the purpose, evaluate all the policies to understand which one will give you maximum benefit. Your decision to buy life insurance should be determined by three factors – requirement, the benefits you get from the policy, and your ability to pay the premium.

Group Life Insurance

Group life insurance, as the name suggests, provides life insurance cover to a defined group of people such as employees of an organization, members of a professional association, or a housing society all under a single contract or insurance policy.

Saving and Investment Plans

Saving and investment plans are the types of life insurance plans that provide you with the assurance of lump sum funds for you and your family’s future expenses. While providing an excellent saving tool for your short term and long-term financial goals, these plans also assure your family a certain sum by way of an insurance cover. This is a broad categorization that covers both the traditional and unit linked plans.

Retirement Insurance Plans

These plans provide you with income during retirement, hence the name. These plans are offered by life insurance companies in India and help you build a retirement corpus. On retirement, this corpus is invested for generating a regular income stream which is referred to as a pension or annuity

Child Life Insurance Policy

A child insurance policy is a saving cum investment plan that is designed to meet your child’s future financial needs. It allows your kids to live their dreams and gives you the advantage to start investing in the child education 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.

How to Buy Life Insurance Policy in India?

Term life insurance policies are usually the best solution for most people who need life insurance. They’re usually the most affordable, they’re simple to understand, and they provide the straightforward protection that most people shopping for a policy at an insurance company are looking for.

But that doesn’t mean that other life insurance policy types are wrong for everyone. Some people tout the benefits of permanent life insurance policies are that they’re like "forced savings" for people, like a mortgage. Many people struggle to adequately save for retirement, and a permanent policy provides separate cash accumulation for something they’d be paying for anyway (their life insurance policy).

Simplified issue and guaranteed issue life insurance are options for people who might not be able to benefit from the paramedical exam portion of the application process. Final expense insurance is available for elderly consumers who don’t want to burden their families with burial costs.

In the end, you should speak to a licensed independent broker or agent or a financial advisor to determine which policy is right for you. Knowing the pros and cons of your choices will make you an informed consumer so you’ll be able to better understand the options you’re presented – and make the right choice for your family. You should go for life insurance company with impressive claim settlement ratio (CSR). The claim settlement ratio can be defined as a metric used to gauge the percentage of life insurance claims an insurer has settled during a financial year against the number of claims it has received including pending claims from the previous year.

Disclaimer:

*Tax benefits are as per the Income Tax Act, 1961, and are subject to any amendments made thereto from time to time.

The article is meant to be general and informative in nature and should not be construed as solicitation material. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a sale.

Consult with your financial advisor before making any decisions on insurance purchase.

#For 30 Year Old Male, Endowment Plan Option, online purchase of policy excluding underwriting extra premium & GST.
^As lumpsum payout at the end of 20th year.

ADVT No.- II-Mar-2022-3823

Suggested Plans

Bharti AXA Life Guaranteed Wealth Pro

  • A non-linked, non-participating individual savings life insurance plan
  • Flexibility to choose the payout structure
  • Multiple income options
  • Option to receive tax free income beginning from the second policy year itself
  • Option to get lifelong income along with life cover till 100 years of age

Bharti AXA Life Flexi Term Pro

  • A Non-linked, Individual, Non-participating Pure Risk Premium Life Insurance policy
  • The plan offers two options: Without Return of Premium and With Return of Premium
  • Under the Without Return of Premium variant, you have the option between Single Life cover or Joint Life Cover i.e., cover for your spouse under the same policy.
  • Flexibility in policy and premium payment terms

Life Insurance FAQ’s

Why is Life Insurance useful?

Life Insurance is useful to provide your family with financial security in case circumstance throws you into a situation where you cannot earn or in the case of your premature demise. It helps keep your family in a position to enjoy financial security even after your demise. Life insurance policies also offer you the ability to save, which helps provide financial stability.

How do I decide on the amount of life insurance I need?

The amount that you receive on maturity depends on the amount of premium you pay. The maturity benefit you need depends on your standard of living, income, spending habits, etc. You should aim to receive a maturity amount equal to 8 to 10 times your annual salary. 

How much does life insurance cost?

The cost of life insurance depends on the type of policy you take, the amount of premium you pay, the sum insured, your age and the benefits you expect to receive when your policy matures. Different types of life insurance plans and different types of life insurance policies have different costs.