Getting a life insurance plan is a landmark moment in a person’s financial planning journey. Simply put, life insurance allows you to regularly invest a fixed sum of money, which accumulates and is paid out on occurrence of the insured event, which could be the policyholder’s death or the completion of the term period.

In a life full of uncertainties, life insurance can be a source of comfort, ensuring that your dependants and dear ones have the benefit of financial coverage in the happening of the insured event.

While awareness around life insurance is increasing in India, the FY 2021-22 Economic Survey shows that only 3.2% of the country’s GDP comprises life insurance penetration. Also, most people are not aware that they can choose between different types of life insurance, to find the one best suited to their life goals and family needs.

Before deciding what kind of life insurance plan to buy, it is vital to do your research and browse the options available. Some plans could suit a person with multiple dependents, while some may suit someone wishing to meet their children’s higher education dreams. Still others would prefer to save a portion of their income towards a retirement income, while others would want to grow their wealth along with getting the protection of life cover. Broadly, there are various types of life insurance products available in India. Here’s a synopsis of the different types of life insurance in India, and how each of them work, to help you make the right decision.

 

Term Plan

Term plans, or term insurance policies (with or without return of premium), are one of the most popular forms of life insurance in India. The reason for this is that term plans are less expensive and are structured more simply than other life insurance plans. In a term plan, the policyholder pays the insurance company a fixed premium regularly over a pre-agreed period. In return, at the end of the term or in the event of the insured event, the insurer pays out an assured sum of money, as per the plan features, to the policy holder or his beneficiaries.

Benefits

• Term plans can give higher coverage at a lesser premium, since they are structured purely as a financial protection plan.
• Some term plans are also available with a maturity benefit. These are called Term Insurance with Return of Premium (TROP) plans, where the maturity benefit is often equal to the sum total of premiums paid over the entire term, without interest.

 

Whole Life Insurance Plan

Unlike the relatively shorter terms that term plans offer, a whole life insurance plan offers long-term coverage of up to 100 years. This ensures financial coverage throughout the life of the policyholder, with a guaranteed benefit in the event of the policyholder’s death. Few whole life insurance plans offer policyholders the option to pay the premium for the first five to 15 years, after which the benefits continue for their entire life.

Benefits

• Whole life insurance plans come with a savings component, which can be reinvested to watch your money grow.
• A policyholder can also avail of loans against the savings component of whole life insurance plans.

 

Endowment Policies

Endowment policies combine the features of both life insurance and savings plans. As such, they can make eminent investment sense for those looking to save money for financial goals. Along with the lump sum that the policyholder receives on the maturity of the policy, endowment policies also allow them to receive bonuses which are paid with the basic sum assured by the policy.

Benefits

• The savings component of endowment policies allows a policyholder to work towards financial goals by ensuring that the policyholder is saving a portion of their income through regular premium payments.

 

Moneyback Policies

Moneyback policies are another form of life insurance that combine savings and protection. What differentiates moneyback policies from other life insurance plans is that they offer regular payments of a percentage of the sum assured throughout the policy term. Moneyback policies assure regular payouts before the completion of the term period.

Benefits

• The payouts received through moneyback policies can be used to meet short-term financial goals.
• Moneyback policies offer more liquidity than other forms of life insurance due to their flexible payouts.

 

Unit Linked Insurance Plans (ULIPs)

ULIPs are plans that combine both insurance and corpus creation, through market linked returns. Through a ULIP, a person can choose to invest money either in equity funds, debts funds or a combination of funds. Though there is no guaranteed return, ULIPs offer policyholders a chance to get returns depending on the performance of their invested funds. Policyholders can invest their money in funds of their choice, depending on the amount of risk they are willing to take on. ULIPs also come with a death benefit that is paid to a nominee in the event of the policyholder’s death.

Benefits

• ULIPs allow policyholders to create corpus by investing funds and benefiting from market-linked returns, while offering the protection of a life insurance plan.
• Annuities / Pension plans:

Pension or retirement plans and annuities are instruments that help you save a certain sum for your golden years.

Pension plans or retirement plans help you accumulate your savings over a stipulated period so that you are financially secure after you retire from active work life. In these plans, the policy holder contributes a specific sum regularly until retirement, and the accumulated amount can be used by the policyholder on maturity / vesting in part to get a lumpsum corpus as well as purchase an annuity plan as a regular income in the retirement years.

An annuity plan requires a policy holder to make a lump sum or staggered investment, which is used by the life insurance company to provide regular annuity to the policyholder over the selected period or for life, with or without return of premiums. Policy holders can opt for immediate annuity, deferred annuity, fixed or variable annuity.

Benefits

^# Pension plans and annuities help to create a financial cushion for your retirement years, and also helps in dealing with unforeseen eventualities. They secure a regular cash flow post retirement.
Reading the terms and conditions of any life insurance plan before purchasing it, and making certain that it works for your needs is always essential. Making sure you are adequately covered and your family’s needs are taken care of under the plan of your choice is paramount. With the options available in India currently, it is not just easy but also sensible to plan for the future and live an assured life with adequate life insurance coverage!