In this world of uncertainties, one thing we all want to be certain about is taking care of our loved ones, even in our absence! A life insurance policy just ensures that. It is a contract between you and the insurance company in exchange for the premium that you pay. Not only this, a life insurance policy, depending upon the type chosen, can help you save for the future with financial protection.
Choosing the correct form of life insurance coverage is one of the most crucial aspects of living a comfortable, stress-free life. A life insurance policy ensures that your loved ones will be well taken care of even when you are no longer around. This comes with an added advantage of helping you develop a sizeable corpus to meet your future financial goals.
Prospective policyholders in India can choose from a variety of life insurance products. Individuals can select the best life insurance plan depending on their needs. In this article, let’s learn about the many types of life insurance and its benefits for you.
Type of Life Insurance Policies in India
The following are the main types of life insurance policies available in India:
-
Term Life Insurance, often known as a Term Plan
The most common sort of life insurance is term life insurance. Term insurance is often considered the most basic and pure form of life insurance. It provides a lump sum death benefit to your family, in case of your untimely demise while the policy is in effect.
The most distinguishing aspect of a term insurance policy is the high sum assured provided at affordable premium rates. As a result, it is significantly more affordable than other types of life insurance coverage. For example, if you buy a term insurance plan from Edelweiss Tokio Life, you can get it for the cost of your daily entertainment.
Term life insurance, in general, does not provide maturity benefits. However, certain types of term plans, such as Term Plans with Return of Premiums (TROP) provide maturity benefits, if you outlive the policy period. In addition, you can also increase a term plan’s coverage by purchasing extra riders, such as accidental death benefit or critical illness riders.
-
Whole Life Insurance
Whole life insurance, as is evident by the name, is a type of life insurance that provides life coverage until the policyholder’s demise. You can choose a participating or non-participating whole life coverage based on your financial needs and risk tolerance. A participating policy, also known as a par policy, passes on the profits earned by the life insurance company to the policyholder. Let us explain.
A non-participating plan, also known as a non-par plan, will offer you only the guaranteed benefits, i.e., the sum assured will be paid to your loved ones in case of your unfortunate demise or, the maturity benefits that will be paid when the policy matures. On the other hand, a participating life insurance policy will pay out guaranteed benefits and non-guaranteed bonuses or dividends depending on the life insurance provider’s profits.
Even if the premiums for participating whole life insurance are relatively high, you may receive dividend payments. On the other hand, a non-participating policy has reduced premium rates, without periodic dividends or payouts.
-
Unit Linked Insurance Plan (ULIP)
A ULIP provides the advantages of both market-linked investment and term insurance. The premiums paid for ULIPs are divided into two parts: one part is used to provide life cover to the policyholder, while the other part is invested in a variety of financial products, such as market-linked equity funds, debt funds, and balanced funds.
Since you can quickly swap or reroute your premiums between several funds, ULIPs are incredibly versatile financial products. Moreover, since the proceeds are exempt from LTCG (Long Term Capital Gains), ULIPs are also promoted as having a tax-saving advantage over other market vehicles. However, as per the current taxation regime, the maturity proceeds of a ULIP bought on or after 1st February 2022 are exempt from LTCG tax only if the total yearly premium is less than ₹2.5 lacs.
-
Endowment Policy
An endowment policy serves as both an insurance and a savings tool. Endowment plans seek to offer maturity benefits to the life insured in the form of a lump sum payment after the policy term concludes. If you are someone who is looking for a high life cover and a significant savings component, endowment plans are the best type of life insurance.
The maturity benefit that you receive is the same sum assured that your beneficiaries may receive in case of your unfortunate demise. Note that the lump sum maturity amount may vary depending on the type of endowment policy you opt for. Endowment plans can be broadly divided into two categories: with profit and without profit. The primary difference between the two is that with-profit endowment plans have bonuses (if applicable) that are added to their basic sum assured, whereas there are no bonus additions in the case of without-profit plans. You can pick between these two types depending on your risk tolerance.
-
Money-Back Policy
A money-back policy gives you a portion of the total sum assured at regular intervals as Survival benefits. Then, on the policy’s maturity, the remaining sum-assured amount is given back. In contrast, if you pass away during the period, your dependents will get the whole sum assured without any reductions.
-
Retirement Plan
A retirement plan is a sort of life insurance that emphasizes on giving you financial stability and security post-retirement. A reliable source of consistent income can be produced by investing in retirement plans. The money you have accrued over the years will be transformed into a monthly income stream when you retire. Death benefits are another aspect of retirement plans. Therefore, if the policyholder dies while the insurance is in effect, their beneficiaries will get the sum assured.
-
Child Insurance
A child insurance plan is a savings and investment strategy that offers financial security for your child’s future in the terrible event of your passing. It is perfect for ensuring that your child’s future needs are met, even if you are not there.
-
Group Insurance Plan
A single-life insurance policy that covers a group of persons is known as a group life insurance policy. Group insurance typically covers a minimum of 10 members, unlike individual life insurance policies, which cover one person for a specific time.
These plans are usually taken by employers, banks, corporations, and other homogeneous groups of people for their employees. The single umbrella policy that covers the group is the Master Policy. You have insurance coverage if you are a member of the group, and your coverage ends if you quit the group.
What Kind of Life Insurance Policy Should I Pick?
Each person has a unique set of requirements, which vary as per their life goals. For you, a particular life insurance policy might not be as appealing as it would be for someone else. Therefore, selecting the policy that best meets your needs is crucial.
Here are some tips to help you select a suitable life insurance policy for yourself:
-
Decide based on the objective
Different life insurance plans might aid in achieving various objectives. The objective that you wish to accomplish with your life insurance policy should be your most important consideration. For example, you may wish to secure the financial future of your loved ones in case of your absence, in which case a Term Life Insurance plan would be an ideal choice for you. On the other hand, you might be looking to accumulate wealth for the fulfillment of life goals like your child’s education or a comfortable retirement, in which case a ULIP or an Endowment plan would serve you well.
-
Consider the Sum Assured
Choose a cover amount that can accommodate your family members’ needs, wants, and daily expenses. As a general guideline, you should choose a sum that is at least ten times your annual income, considering the inflation rate.
-
Policy Term
Some policies have shorter tenures, while others are in effect for longer periods and are designed to achieve long-term objectives. Choose a policy term that matches your objectives. For example, if you have taken a personal loan with a repayment period of 5 years, you can purchase a term insurance plan to cover the liability of that loan and make sure that your family will not be burdened with it in case of your absence. On the other hand, if you are a young professional, a term plan with a policy tenure of 40 years would ensure that your dependents have comprehensive financial security to keep on living their lives in case you are no longer around to support them.
-
Riders
Riders can provide an additional sum by covering events not included in the base policy. The addition of riders to your policy makes it more comprehensive.
-
Check The Insurer’s Information
Finally, please do some research on the insurance provider in addition to the policy itself. Watch out for these factors:
➢ Claim Settlement Ratio
➢ Solvency Ratio
➢ Exclusions
Conclusion
The factors mentioned above will assist in selecting the finest life insurance plan to fulfill your life goals. The greatest way to spare your loved ones from the financial distress they might experience in your absence is to protect them with a life insurance policy. Companies like Edelweiss Tokio Life Insurance provide a host of life insurance plans designed to cater to a variety of prospective insurance buyers, so you can start by visiting their website and checking them out.
Interesting Related Article: “3 ways Life Insurance Can Protect Your Small Business“