This article aims to demystify the complexity of life insurance types, guiding you through a thorough exploration of the myriad of policies available in the market today. From the most straightforward term insurance policies to more complex variants such as whole life, child life, and endowment life insurance policies, we intend to illuminate the unique characteristics and benefits of each type.
How Many Types of Life Insurance Policies Are There?
Listed below are the types of life insurance policies available in India -
- Term Insurance
- Term Insurance with Return of Premium
- Unit Linked Insurance Plans
- Money Back Policy
- Endowment Plans
- Group Life Insurance
- Whole Life Insurance
- Retirement Plans
- Child Insurance Plans
Without further ado, let’s understand what plans in each category have to offer -
- Term Insurance Plans: Term insurance plans provide a death benefit to beneficiaries if the policyholder dies within the policy term. These plans are typically cost-effective and are not linked to the market, offering financial protection to the policyholder's family in the event of their untimely demise. However, it must be noted that term insurance plans do not provide any maturity benefits if the policyholder outlives the policy term.
- Term Insurance with Return of Premium: This is similar to term insurance but with a return of premium feature. If the policyholder survives the policy term, they receive back all the premiums paid. In case of the policyholder's death during the term, the death benefit is paid to the beneficiaries.
- Unit Linked Insurance Plans (ULIPs): ULIPs combine the benefits of insurance and investment. A part of the premium is used for life cover, while the rest is invested in different funds based on the policyholder's risk appetite. If the policyholder survives the policy term, they receive the fund value as a maturity benefit.
- Endowment Insurance Plans: Endowment plans offer life coverage while also functioning as a savings tool. If the policyholder survives the policy term, they receive the sum assured plus any bonuses. However, in case of the policyholder's death during the term, the sum assured is paid to the beneficiaries.
- Money Back Insurance Plans: Money back plans provide periodic payouts of the sum assured at regular intervals during the policy term. If the policyholder outlives the policy term, they receive the remaining sum assured and any bonuses. In case of death during the term, the full sum assured is paid to the beneficiaries.
- Whole Life Insurance Plans: Whole life insurance plans offer lifelong coverage (usually up to 99 years). These plans guarantee a death benefit to the beneficiaries irrespective of when the policyholder dies. Some plans also have a cash value component that can be borrowed against or withdrawn during the policyholder's lifetime.
- Child Insurance Plans: Child insurance plans are designed to secure a child's future expenses such as education or marriage. They provide a maturity benefit - either annually or as a one-time payout when the child reaches a certain age. In case of the policyholder's death during the policy term, an immediate lump sum is paid to cover the child's expenses.
- Retirement Insurance Plans: These plans help accumulate a corpus for post-retirement days, ensuring a steady income in the non-working years. They offer lump sum amounts or annuities to the policyholder on surviving the term. If the policyholder passes away during the policy term, the sum assured is paid to the beneficiaries.
- Group Life Insurance: Group life insurance covers a group of people under one master policy, typically provided by an employer. The coverage continues as long as the individual is part of the group. If a member passes away while part of the group, their beneficiaries will receive a payout from the policy.
Key Features of Life Insurance Policies
Let’s take a closer look at the aforementioned categories to comprehend each type of life insurance policy in brief –
|Type of Insurance Policy
|Term Insurance Plans
- Offer pure protection and are not linked to market performance
- Lower and more affordable premiums, especially if bought early in life
- Option to add riders for additional protection
|Term Insurance Plans with Return of Premium
- Provide death benefits as well as maturity benefits
- Return the premiums paid upon surviving the policy period
- Premiums can be calculated using an online term insurance calculator
|Unit Linked Insurance Plans (ULIPs)
- Combination of insurance and investment to provide potential wealth creation
- Offer investment in different fund options based on risk appetite
- Flexibility provided for partial withdrawals and fund-switching, allowing alteration of investment strategy
|Endowment Insurance Plans
- Guarantee returns along with life insurance protection
- Offer savings options and a lump sum amount on maturity
- Provide an opportunity to benefit from bonuses
|Money Back Insurance Plans
- Regular percentage of the sum assured is returned at steady intervals
- Assistance in meeting short-term financial goals
- Lump sum payout on maturity
|Whole Life Insurance Plans
- Offer life coverage for 99 years, providing financial protection for an extended period
- Ideal for those with financial dependents in old age
- Guaranteed income on maturity after premium payments for 5 years
|Child Insurance Plans
- Assist in building a corpus for the child's future expenses
- Maturity benefits provided - either annually or as a one-time payout
- Choice provided in investment options and flexibility to switch between them
|Retirement Insurance Plans
- Designed to help accumulate wealth for post-retirement
- Ensure financial independence in non-working years
- Provide insurance benefits for the financial security of one’s loved ones
|Group Life Insurance
- Covers a group of people under one master policy
- Coverage continues as long as the individual is part of the group
- Generally provided as part of an employment benefit
How Life Insurance Policies Work – Real-Life Example
Let’s understand how the given life insurance policies work through the example of Jainam -
- Term Insurance Plans: Jainam, a 30-year-old software developer, purchases a term insurance plan with coverage of 30 years. If Jainam, unfortunately, passes away within this term, his beneficiaries will receive the sum assured, helping them maintain their standard of living in his absence. However, if Jainam survives the term, no benefits are payable at the end of the policy period. This plan primarily acts as an income replacement tool in the event of the policyholder's untimely death.
- Term Insurance with Return of Premium: Suppose Jainam opts for a term insurance plan with a return of premium with a coverage period of 30 years. If Jainam outlives the policy term, he will receive all the premiums he paid over the term. This is unlike the traditional term insurance plan and provides Jainam with a survival benefit.
- Unit Linked Insurance Plans (ULIPs): If Jainam decides to buy a ULIP, he is essentially buying a combined insurance and investment product. A part of his premium goes towards providing life cover, while the rest is invested in various funds of his choice. If Jainam passes away during the policy term, his beneficiaries will receive the death benefit. However, if he survives the term, he will receive the fund value as a maturity benefit.
- Endowment Insurance Plans: Jainam invests in an endowment plan for a policy term of 20 years. In case he passes away within the policy term, the sum assured would be payable to his beneficiaries. But if he survives the policy term, he will receive the sum assured plus any bonuses declared by the insurer, providing him with a lump sum saving upon maturity.
- Money Back Insurance Plans: Jainam chooses a money-back plan for a policy term of 20 years with the sum assured of INR 100,000. This plan promises periodic payouts, say every 5 years. This way, Jainam will receive a percentage of the sum assured at regular intervals while the policy is in force. At maturity, he will get the balance sum assured plus any bonuses. If he passes away during the term, his beneficiaries will receive the full sum assured irrespective of the payouts already made.
- Whole Life Insurance Plans: Suppose Jainam opts for a whole life insurance policy. In this case, he is covered for his entire life or up to 99 years. The policy guarantees a death benefit to his beneficiaries upon his death, whenever that may be. If the policy has a cash value component, Jainam may also have the option to withdraw or borrow against this value during his lifetime.
- Child Insurance Plans: Jainam, a loving father, purchases a child insurance plan for his 5-year-old son's future education. The policy will mature when his son turns 18. If Jainam passes away before the policy matures, the insurance company will immediately pay a lump sum to the family and also waive future premium payments while the policy continues to be in force until maturity.
- Retirement Insurance Plans: Jainam contributes to a retirement insurance plan for a term of 30 years to ensure a steady income after his retirement. If he passes away during the policy term, his family would get the sum assured. On the other hand, if he survives the term, he will receive a lump sum amount or annuities during his retirement years.
- Group Life Insurance: Jainam's employer provides group life insurance as part of their employee benefits, where he and his coworkers are all covered under one policy. The benefit remains active as long as Jainam continues to be an employee of the company. If he passes away while still employed, his beneficiaries will receive a payout from the policy.
The landscape of life insurance policies is indeed vast. It encompasses a multitude of types, each designed to cater to specific financial needs and life situations. These policies range from term insurance plans offering pure death protection to more refined offerings such as ULIPs and endowment plans that meld insurance with investment. Whole life insurance plans, meanwhile, provide lifetime coverage, while specialised plans cater to particular life stages and goals such as child plans and retirement plans.
The breadth of these options underscores the importance of understanding the distinguishing features, benefits, and potential drawbacks of each type. By elucidating these nuances, this article on ‘How many types of life insurance policies are there?’ empowers you to make informed decisions tailored to your unique circumstances.
Remember, the right life insurance policy isn't a one-size-fits-all solution; it's the one that fits your lifestyle, your goals, and your family's needs the best, securing your peace of mind in the process.
Policybazaar Insurance UAE – Helping you navigate the wilderness of the insurance world!