Types of Life Insurance products in India

Types of Life Insurance

Taking out a life insurance policy covers the risk of dying early, by providing for your family in the event of your death. It also manages the risk of retirement – providing an income for you in non-earning years. Choosing the right policy type with the coverage that is right for you therefore becomes critical.

There are a variety of policies available in the market, ranging from Term Endowment and Whole Life Insurance, to Money Back Policies, ULIPs, and Pension plans. Let's see what each of these is about, so that you can consider the one that best suits you.

Term Insurance

Term Insurance, as the name implies, is for a specific period, and has the lowest possible premium among all insurance plans. You can select the length of the term for which you would like coverage, up to 35 years.

Payments are fixed and do not increase during your term period. In case of an untimely death, your dependents will receive the benefit amount specified in the term life insurance agreement.

You can customise Term life insurance with the addition of riders, such as Child, Waiver of Premium, or Accidental Death.

Endowment Insurance

Endowment Insurance is ideal if you have a short career path, and hope to enjoy the benefits of the plan (the original sum and the accumulated bonus) in your life time.

Endowment plans are especially useful when you retire; by buying an annuity policy with the sum received, it generates a monthly pension for the rest of your life.

Whole Life Insurance

Whole Life Policies have no fixed end date for the policy; only the death benefit exists and is paid to the named beneficiary. The policy holder is not entitled to any money during his or her own lifetime, i.e., there is no survival benefit. This plan is ideal in the case of leaving behind an estate.

Primary advantages of Whole Life Insurance are guaranteed death benefits, guaranteed cash values, and fixed and known annual premiums.

Money-Back Plan

In a Money-Back plan, you regularly receive a percentage of the sum assured during the lifetime of the policy. Money-Back plans are ideal for those who are looking for a product that provides both - insurance cover and savings.

It creates a long-term savings opportunity with a reasonable rate of return, especially since the payout is considered exempt from tax except under specified situations.

ULIP

Unit-linked Insurance Plans (ULIPs), introduced by the private players, are hugely popular, because they combine the benefits of life insurance policies with mutual funds. A certain part of the premium is invested in listed equities/debt funds/bonds, and the balance is used to provide for life insurance and fund management expenses.

Pension Plan

Insurance companies offer two kinds of pension plans - endowment and unit linked. Endowment plans invest in fixed income products, so the rates of return are very low.

Unit-linked plans are more flexible. You can stop contributing after 10 years and the fund will keep compounding your corpus till the vesting date. You can opt for higher exposure in the stock market for your plan if your risk appetite allows it. Lower risk options like balanced funds are also offered.