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Different Types of Life Insurance Policies in India

IndianMoney.com Research Team | Posted On Saturday, February 16,2019, 03:38 PM

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Different Types of Life Insurance Policies in India

 

 

What is life insurance?

Life insurance is a financial security for any unfortunate event that is inevitable with human life like sudden death, physical disability, accident and retirement. Human life is always associated with the risks of untimely death and physical impairment due to natural and accidental causes. There would be a loss of income to the family when a human life is lost or permanently or temporarily disabled.

The value of human life can never be determined because there are a lot of other things besides money, that a human can provide in his/her existence. However, the insurers determine a lump sum by considering the loss of income to the family in future years. In life insurance, the sum assured is termed as ‘benefit’. Life insurance policies pay out benefits on the event of an untoward event.

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Different Types of Life Insurance Policies in India

Why we need the insurance plan?

The breadwinner of each family must avail a life insurance policy regardless of their income. You must consider contributions of homemakers’ towards the family as the amount of work they do is invaluable. Therefore, homemakers too must consider availing a life insurance policy.

Types of Insurance  

Following are the different types of life insurance policies in India:

Term Insurance: Term insurance is the most basic form of life insurance. Term insurance offers coverage over a pre-defined term and insured must pay premiums periodically to keep the policy active. A normal term insurance policy doesn’t offer survival benefits.

You get nothing if you survive the term of the policy. On the event of policyholder’s death or total physical disablement, nominee or beneficiary would receive proceedings of the term insurance policy called ‘death benefits’ from the insurer. Usually, an individual would be insured up to the retirement age.  

Whole Life Insurance: Under a whole life insurance, you are insured for entire life. Insurer pays out proceedings on an event that causes loss of income to the family which includes death or any untoward incident leading to permanent or temporary physical disablement of the insured. 

Endowment Policy: Endowment policies have predefined maturity and are insurance cum savings plans. Insurer pays out the sum assured on any untoward event causing death. If the policy holder survives the predefined term of the policy, then the maturity proceeds of the policy would be paid out to the policy holder.

Money back policies: Under a money back policy, a certain percentage of the sum assured is paid out on a periodic basis as survival benefits.  When the term of the policy expires, the remaining amount is paid out as maturity proceeds to the insured. 

Children Policies: Children’s education policy is taken on the life of the parent (Life assured under the plan). With children education policies, parents fund various life events of their children. Insurers offer waiver of premiums payable in case of unfortunate death of the parent/proposer in the term of the policy, if you opt for waiver of premium rider.

Annuity (Pension) Plans: Retirement benefits like employee provident fund, gratuity and so on are paid in lump sum. This lump sum is often spent immediately and retired individuals find it difficult to meet expenses as they don’t have regular income anymore. It is advisable to invest in annuity plans while earning. Annuity plans enable you to be financially independent even in retired life.

SEE ALSO: Life Insurance Policies

Unit Linked Insurance Policy

Unit linked insurance plan ULIP, is a combination of insurance and investment. The insured pays premiums on monthly or annual basis. A small part of premiums go toward life insurance and the rest is invested in equity or debt.

What does insurance not cover?

Following are not covered under a life insurance:

  • A life insurance policy would be deemed ‘void’ if any details furnished are wrong or the purpose of availing plan is willful fraud.
  • A life insurance policy does not cover injuries and deaths arising due to sport activities like bungee jumping, zip lining and so on. This is because the insured knows that he/she is exposing himself/herself to a risk.  
  • There are certain diseases that can be prevented by taking precautions. Illness arising due to these diseases is not covered under a life insurance policy unless riders are availed. Usually, sexually transmitted diseases are not covered.
  • You cannot make a claim from a life insurance policy if premiums are not paid or when the policy has expired.

SEE ALSO: Different Types of Life Insurance Policies in India

How much does insurance cost?

Insurance premiums would directly depend on the type of insurance, sum assured and term of the policy. Below table shows the approximate annual premiums cost:

Type of insurance

Term

Sum assured

Annual premiums cost (approx)

Term Insurance

40 years

Rs 1 Crore

Rs 6,800 to Rs 10,500

Unit linked plans ULIPs

20 years

Rs 2 Lakhs

Rs 20,000

Endowment plan

30 years

Rs 10 Lakhs

Rs 20,000 - Rs 25,000

Money back policy

20 years

Rs 5 Lakhs

Rs 20,000 - Rs 25,000

Whole life insurance

20 years

Rs 3 Lakhs

Rs 10,000 - Rs 15,000

Child insurance

20 years

Rs 18 Lakhs

Rs 1 Lakh

How to use the insurance money?

Insurance money can be utilized in the following ways:

Life Stage

Term Plan type to be considered

Insurance money helps in

 

Young and unmarried

Term plan with one time lump sum payout

At this life stage, your liabilities may be education loan or repaying loans that your parents have availed to plan your future. Proceedings received from a life insurance policy can be utilized to clear off these loans.

 

Married with no children

Term plan with a regular monthly payouts

This is the stage in your life when you start a new innings with your spouse. Your income would be utilized to run the household as well as to pay back loans, if any. Monthly payouts of a life policy can be utilized to take care of households and payback the loan at the earliest.

 

Married with children

Term plan with a lump sum payout and an increasing monthly income

When you have children, you prioritize them. You can utilize the benefits of a life policy to plan your children’s future.

 

Parents with children in high school

Term plan with a lump sum payout and increasing monthly income

University education is expensive. In this situation, proceedings received from a term plan can be utilized to fund your children’s education.

 
 

Nearing retirement

Term plan with a life cover and increasing monthly income

Post retirement, you would have not have a sizable regular income. Proceedings of life insurance can be utilized to enjoy your retirement life.

 

SEE ALSO:Why Buy Life Insurance

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