Types of Life Insurance policies you should know about

The only thing certain about life is that it is uncertain. You never know when your best or worst moments may come. We can never be prepared enough to receive bad news. But the best we can do is to get life insurance. It ensures that in case of an unfortunate event,  you and your loved ones remain financially secured.. 

But, which life insurance policy would be ideal as per your requirements and situation? Let’s find out.

What Are the Different Types of Life Insurance?

Primarily, there are 9 different types of life insurance plans available in India, which have been explained below: 

Term Insurance

• Term Insurance policies are affordable as the cost of premiums is less compared to  other life insurance policies.

Term Insurance with Return of Premium

This is quite similar to a term insurance plan. The only added facility is that of getting maturity benefits. You get back all your paid premiums as a maturity benefit if you survive the entire duration  of the policy.  

Benefits:

• Unlike normal term insurance plans, this policy offers a maturity benefit if you survive the tenure of the insurance policy.

• Term insurance is cheaper than other life insurance plans

Unit Linked Insurance Plans (ULIPs)

The premiums that you pay for this policy get divided into two segments. The first part of it goes towards life insurance while the other part gets invested in securities of your choice, such as stocks, bonds, mutual funds, etc. These plans generally have a lock-in period of 5 years. In the unfortunate event of your death,  the nominee gets all the benefits.

Benefits:

• It offers dual benefits of investment and insurance.

• You can switch your investment from one fund to another.

• It also provides the facilities of partial withdrawal (after the lock-in period), life insurance riders, and top-up.

• The maturity amount is tax-free if your yearly premium is below Rs 2.5 lakh.

Endowment Plans

Endowment plans have a higher cost of premium than a term plan. This plan offers two kinds of benefits. If the policy holder dies, the nominees can claim death benefits. If the policy holder lives throughout the term of the plan, he can also claim survival benefits.

Benefits:

• You get a bonus over and above the sum you receive on the maturity of the policy.

• The maturity amount is tax-free if your annual premium is below Rs 5 lakh.

• The premium payments are flexible. 

Retirement Plans

Retirement plans assist you in saving a lump sum amount of money for your post-retirement years. With the help of a retirement plan, you can increase your chances of building up a good fortune. You can invest throughout your life to reap the benefits of the plan, once you retire.

Benefits:

• These plans provide comparatively higher returns by investing your premiums in equity and debt markets.

• The maturity amount is tax-free if your annual premium is below Rs 5 lakh.

• This plan offers both death and survival benefits.

Child Insurance Plans

After a child attains the age of 18, this plan offers maturity benefits either as annual instalments or as a one-time payout. Additionally, there is built-in parental insurance protection. Child plans offer an immediate payment to cover the child's costs, in case of the untimely demise of the policyholder. 

Benefits:

• You have flexibility in paying premiums.

• You can choose where the premiums would get invested.

• This plan offers loyalty and other bonuses.

• This has a dual tax saving feature; you get tax benefits on both - premiums paid and maturity amount. 

Money-Back Policy

It is a type of endowment plan with the advantages of greater liquidity and regular payouts. These payouts are called Guaranteed Cash Benefits (GCB). Money-back plans support you in achieving your immediate money objectives. 

Benefits:

• You can receive bonuses as and when declared by the insurance company.

• You get maturity benefits.

• Returns generated are tax-free.

• The premium payments are flexible. 

Whole Life insurance

Whole life insurance is for people who have financial obligations in their advanced years. It offers coverage for up to 99 years. The greatest benefit of this product is that it offers you both lifelong protection and an easy way to leave a legacy for your children. 

Benefits:

• You can avail loans against this type of insurance policy.

• You get tax-free maturity benefits on paying premiums for a period of 5 years.

Takeaway

With multiple types of insurance policies available in the market, it can be hard to choose the ideal one for you. You must avoid falling into the trap of opting for cheaper life insurance policies and always consider reading the fine print and the benefits you will be getting while purchasing a life insurance policy.