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In this article, we will discuss the different life insurance types along with their benefits so that you can opt for the best life insurance policy for maximum benefits as per your insurance needs.
But first, let’s understand what life insurance policy is all about?
Life insurance is basically a contract or agreement between the policyholder and an insurance provider. The insured agrees to pay a premium to the insurer for a certain number of years (or for throughout the life) and in return, the insurance company promises to pay a lump sum amount to the beneficiary upon the demise of the insured during the policy tenure. For a few life insurance policies, the insurance company even pays a maturity benefit to the insured if he/she outlives the policy tenure. However, these terms vary from policies to policies.
Now that you are completely aware of what is life insurance all about, you must check the different life insurance types:
Let’s know each of these life insurance types in more detail:
Term life insurance is the purest form of life insurance. You pay a premium to the insurer for certain numbers of years and in return, the insurance company promises to pay a sum assured as a death benefit to the nominee upon the premature death of the policyholder during the policy tenure. It doesn’t come with any survival benefit (apart from Term insurance plan with return of premium or TROP).
Term plans are the most affordable type of life insurance as premiums are relatively cheaper when compared to other types of life insurance policies. The best thing is that it offers comprehensive coverage at low premiums.
The endowment policy is a traditional life insurance plan that is a combination of insurance & savings. This type of life insurance policy is somewhat similar to term life insurance plans when it comes to paying out on the demise of the policyholder. However, if the policyholder survives the policy term, he/she receives a lump sum amount as a survival benefit.
As its name suggests, the whole life insurance policy covers the life assured for the entire life or, in some cases, up to the age of 100 years. If the premium amount is paid consistently, the insurance company agrees to pay the sum assured to the beneficiary upon the sudden demise of the insured. In addition to the sum assured, it also has a saving component. Thus, it provides the nominee bonus, if applicable. However, if the policyholder crosses the age of 100 years, the insurer provides with life assured with a survival benefit equals to the endowment corpus.
A unit-linked insurance plan, commonly known as ULIPs is an insurance com investment plan that offers life cover in addition to the great opportunities to build a corpus over time. The premium paid for the ULIPs plan is partially utilized for insurance i.e. risk cover and partially invested in different funds. The insured can invest in different funds like debt, equity, and balance funds that are provided by the insurer based on his/her risk appetite.
Though there are no assured returns, a lump sum amount is paid to the insured upon the maturity of the policy. However, if he/she dies during the policy term, the insurer pays a sum assured to the beneficiary.
The money-back policy is a blend of protection and savings. But, it is a unique type of life insurance policy, in which some portion of the sum assured is paid back directly to the insured regularly during the policy term. This way, the insured can attain his/her short-term financial goals. The remaining amount of the sum assured in addition to the bonus is paid at the maturity of the policy. This kind of benefit is not available in any other life insurance types. However, if the insured dies during the policy tenure then the complete sum assured is paid to the beneficiary irrespective of the survival benefits that the insured has already received.
Child insurance plans help in creating a corpus for the future growth of a child. Generally, it assists in funding the education & marriage of the child.
This type of life insurance plan offers installments annually or in a lump-sum pay-out considering the major milestones of a child’s life after the age of 18 years. In an unforeseen event, the insured parent dies during the policy term then immediate payment is payable to the child by the insurer. Some of the child insurance plans waive off all the future premiums on the demise of the life assured & the policy benefits continue devoid of any disruption till maturity.
The retirement plan helps an individual to create a stable financial source for his/her retirement years. It helps the policyholders to become financially independent and entitles them to live their life with complete peace of mind. The majority of the retirement plans offer annual pay-out or a one-time lump sum amount after the age of 60 years. In an unforeseen event of the death of the policyholder during the policy tenure, the insurance company pays the sum assured to the beneficiary.
Now, you must be aware of the life insurance types and their benefits. So, if you’re planning to buy a life insurance policy to protect yourself and your loved ones, make sure you assess what you need it for? After knowing the main purpose, evaluate all the types of life insurance policies that which policy provides you the maximum benefit. Your decision to opt for life insurance must be determined by 3 key factors- insurance needs, the benefits you will get from that particular policy, and your ability to pay the premium.