There are different types of life insurance based on various goals an individual may have; such as life insurance coverage, children’s education or marriage, regular income, retirement solutions, etc.
In this blog, we will explain different types of life insurance policies and their benefits so that you can make a sound decision.
Term insurance 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 a Term Plan with a Return of Premium or TROP).
Many term plans come up with additional riders, such as accidental death benefits, critical illness, permanent disability benefits, etc. You can choose these riders while buying term insurance if needed, but you must pay the extra premium above the base plan.
Benefits of Term Insurance Plan
- It provides higher coverage for lesser premiums 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.
Related read: 10 Benefits of Term Insurance
2. Whole Life Insurance Policy
As the name suggests, a whole life insurance policy gives you a life cover. 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.
Benefits of Whole Life Insurance Policy
- 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 can remit a part of the cash value during your lifetime. You can also avail a loan against the saving component.
3. Endowment Policies
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.
Benefit of Endowment Policies
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.
4. Moneyback policy
Moneyback policies are also a combination of savings and protection. However, 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.
Benefit of moneyback policies
The biggest advantage of moneyback policies is the liquidity they provide, i.e. you receive a percentage of the sum assured at regular intervals.
5. 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.
Benefits of ULIP
Though there is no guaranteed return, ULIP provides a higher return than traditional policies with a savings component.
6. Children Insurance Plan
Children’s insurance plans are specifically designed to fund the children’s education or marriage. The parents can buy these plans on behalf of their children by paying the regular premium. In these plans, the maturity amount is paid to the children once they reach different age levels.
In case of the unfortunate death of the parents, children receive the lump sum amount to meet their expenses. Also, some insurance companies provide premium waivers in case of the unfortunate death of the parents, and children receive the maturity amount as per the insurance plan.
Benefits of Children’s Insurance Plan
- Your children receive funds regularly, which they can use to fund their education costs.
- Also, if you have a daughter, consider investing in such plans to save for her marriage.
7. Group Insurance Policy
A group insurance policy is a type of life insurance policy that provides coverage to multiple individuals under one master policy. Employers or organisations typically purchase it to provide insurance coverage to their employees. This policy typically offers benefits like health, life, and disability insurance to the employees at very lower costs than individual plans due to group rates.
This life insurance benefits from the employer are generally part of employment benefits, which may vary from organisation to organisation. Group insurance benefits are only available till you are employed in the company or organisation.
8. Annuity (Pension) Plan
Annuity plans are also known as retirement plans, specifically designed for retirement planning. Under these plans, you have to invest regularly for a predetermined period, and in return, you receive regular income post-retirement. Besides a periodic contribution, you can invest a lumpsum amount, wherein you can deposit a big chunk of your money in one go and enjoy the benefits of an annuity.
These plans also come with death benefits and the nominee receives the sum assured in case of the policyholder’s unfortunate death.
Benefits of Annuity (Pension) Plan
- You can accumulate a good corpus for your retirement, which will help you to earn regular pension income.
- Knowing that you will have a steady income stream in retirement can give you peace of mind. You can enjoy your retirement years without being concerned about your finances.
9. Retirement Plan
The retirement plan is an insurance plan that focuses on accumulating wealth for your retirement. In this plan, you pay a regular premium to the insurance company. In return, you get a lump sum payment or regular annuity payment after retirement based on the type of plan you have chosen at the time of buying the policy.
Retirement plans also come with death benefits. This means in case of unfortunate death during the policy tenure, the insurance company pays a lump sum amount to the nominee. Overall in this plan, you get the benefit of regular income as a pension to cover your daily expenses after retirement, and financial protection for your loved ones.
Bottom Line
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 plan to buy a second life insurance policy, try to assess what you need it for. Once you know the purpose, evaluate different types of life insurance policies
To understand which one will benefit you most. 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.