Financial planning is a crucial part of everyone’s life. As an earning individual, you can easily find several options to choose from to plan for the future. Along with creating wealth over the long term, it is equally important to keep in mind the life protection element. Amidst the rising inflation rate and changing lifestyles, life insurance purchase should be one of your top priorities.
Although the overall insurance penetration in India was 3.71% of the GDP in the financial year 2019, which is lower than the world average of 6.31%. One possible reason behind this low penetration is the availability of various types of life insurance plans. Many people feel more confused than excited to have different types of life insurance available for their needs.
Since there are several types of life insurance available in the market, you should first understand which one is suitable for you before making any buying decision.
In this blog, we will cover various types of life insurance to help you make an informed decision.
What are The Different Types of Life Insurance?
Given below is a table that covers the popular type of life insurance policies in brief:
|Types of Life Insurance
|Full risk cover against the event of death
|Life insurance coverage with investment benefits
|Insurance cum investment plan to meet your child’s financial needs
|Insurance and investment benefits to help you retire without financial worries
|Combination of life insurance and savings
|Money Back Insurance
|Life cover along with periodic returns
|Whole Life Insurance
|Life cover till the age of hundred years
|Group Life Insurance
|Life insurance coverage for a group of people under one plan
Let’s talk about each of these types of life insurance policies in detail.
Eight Types of Life Insurance Plans Available in India
1. Term Insurance
Also known as term life insurance or term plan, term insurance is one of the most popular types of life insurance. It provides death benefits to the nominee in case the life insured dies within the chosen policy period. In case the policyholder survives the coverage tenure chosen, he/she is not eligible for any financial benefit under a pure term plan. In other words, policyholders who buy this type of life insurance plan cannot file a death benefit claim on survival post the policy term.
Term insurance is the most sought-after type of life insurance as it is easy to understand and acts as an income replacement tool for the family of an insured individual. It is also the most affordable form of life insurance.
A ULIP or Unit Linked Insurance Plans is a unique type of life insurance that provides multifold benefits of life cover, investment, and tax savings. The ULIP premium that you pay is partly used to offer life insurance coverage while the rest of it is used to purchase units in different investment assets. You can select a ULIP plan based on your risk appetite and investment duration.
In this type of life insurance, the policy’s cash value does not stay the same but varies as per the current NAV (Net Asset Value) of underlying assets. You can use an online ULIP calculator to get an estimate of the premium payable to gain a specific corpus for various financial needs in life.
Also Read: All About Life Insurance Plans
3. Child Insurance Plans
As the name suggests, these types of life insurance policies are meant to create wealth to fulfill various goals in your child’s life. You can invest in a child plan for the goal of higher education or marriage of your child. In case the policyholder (parents) passes away during the chosen child insurance plan tenure, the insured child will receive the sum assured as defined in this type of life insurance.
You can start investing in a child insurance plan after your child is born and benefit from its provisions a certain amount later for your child’s financial needs. You can also find child insurance plans that allow intermediate withdrawals during the plan tenure. Before you invest in any of these types of life insurance, make sure you get thorough knowledge about the plans, their benefits, and features.
4. Retirement Plans
These types of life insurance plans help the insured in living a retired life free from financial worries. They provide either a lumpsum amount or regular income during the retirement period and are meant to build a retirement corpus.
By investing in retirement plans, you become eligible to receive a specific sum of money during the vesting period. In case you die prematurely during the plan tenure, the policy nominee will receive the benefits defined under these types of life insurance.
Recommended Read: All About Pension Calculator for Retirement
5. Endowment Plans
Endowment plans are more commonly known for their combined benefits of savings and life insurance. It means you can save money regularly under these plans while also getting life insurance coverage. As the benefits of these types of life insurance plans, you will receive a lumpsum amount at maturity on surviving the chosen plan term.
With endowment plans, you can build financial support for your family to help them achieve several financial goals even in your absence. The selected sum assured is payable to the nominee in case of your unexpected demise.
6. Money Back Insurance
A money back policy, as the name suggests, gives a certain amount to the insured at regular intervals during the policy period. In case the life insured survives the chosen term of the policy, he/she also receives the remaining corpus along with accrued bonuses.
The other side of these types of life insurance policies is that the policy nominee receives the entire sum assured in case of the unfortunate demise of the insured individual. This benefit is payable irrespective of the number of premiums being paid earlier.
Since these plans provide returns to the insured, they are one of the most expensive types of life insurance offered by various insurance companies.
7. Whole Life Insurance
This type of life insurance plan provides coverage to the insured individual for the entire lifetime. What differentiates whole life insurance from other types of life insurance is its coverage tenure, which is up to 100 years of age. These policies also have a cash value component that tends to increase over time. The insured is eligible to withdraw this component or use it to borrow a loan against it as per needs.
You should also know that the unfortunate instance of your demise after you have borrowed a loan against such a policy will reduce the death benefit payable to the nominee.
8. Group Life Insurance
Group life insurance is a less-known type of life insurance that provide life insurance coverage to a group of individuals under a single policy. A unique characteristic of this type of life insurance plan is that the insured individual gets the insurance benefits as long as he remains a part of the insured group. This is different from other individual types of life insurance in which the benefits continue as per the chosen policy period.
It is generally purchased by employers to provide life cover to all their employees under one plan.
How to Select the Right Types of Life Insurance?
The purpose of buying any type of life insurance policy available in India is to plan for the financial needs of your loved ones. Hence, it is crucial that you consider the following aspects while buying different types of life insurance plans in life:
- Understand each of the types of life insurance thoroughly.
- Assess your needs and evaluate them with the benefits of each life insurance policy type.
- Select adequate sum assured under the policy.
- Check how the policy premium varies with age, sum assured, and additional benefits using an online life insurance premium calculator.
- Consider your income to select a plan you can easily afford along with other financial needs.
Recommended Read: How to Compare Life Insurance: A Comprehensive Guide
1. Which type of life insurance is best?
The suitability of different types of life insurance plans varies from one individual to another. In general, different life insurance plans are best suited for different life stages, as given below:
- Best suited for young earning individuals – Term insurance
- Best suited for organizations – Group life insurance
- Best suited for married couples having a child – Child Insurance Plans
- Best suited for those who want worry-free retirement – Retirement Plans
2. At what age should I buy any type of life insurance?
There is no specific age to buy different types of life insurance as there are several influential factors involved to make the final buying decision. Typically, it is advisable to buy life insurance in your 20s or 30s to get suitable plans at the best rates.
3. Who needs life insurance policies the most?
Every earning individual with dependents should buy life insurance after analysing different types of life insurance plans carefully.
4. Are life insurance plans worth it?
Life insurance purchase decision is a crucial step in life as it determines the financial coverage that your loved ones will get in your absence.
5. Can I buy multiple types of life insurance policies for myself?
There are no such limits on the number of life insurance policies you can buy. However, it is crucial to consider the total coverage you get under all the policies you purchase. For more clarity on this aspect, you should explicitly ask a reliable life insurance company in India.
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