If you look at the history of insurance in India, you will learn that life insurance is the first insurance type that was introduced in the country. Initially offered only to the British, it was later offered to Indians to protect their loved ones from unforeseen circumstances. Insurance has its roots in the ancient times too. Many ancient texts mention the existence of an idea wherein groups of people would collect resources and store them for emergency situations such as a natural calamity. The modern-day life insurance companies work in a similar manner. They collect money from all the policyholders and create a fund of sorts from which the benefits would be paid out in case of death of the insured person.
Life insurance has certainly evolved from what it was in the 1800s. Today, we can buy life insurance policies online and pay renewal premiums online too. Further, we are presented with an array of life insurance products, each serving the basic purpose of risk protection but also providing monetary benefits to help individuals with financial commitments. Thus, life insurance has become a form of investment. Let us now look at the many types of life insurance policies available in the market and how they differ from each other.
Term plans are the most inexpensive life insurance plan types from the lot. This is because these are pure protection covers and do not act as a form of investment. The policy is issued for a fixed term, which could range from 5 years to 30 years. On the insured person’s demise during the policy period, the insurance company will provide the death benefit to the nominee. Insurers offer a lump–sum payout or payout in the form of instalments or a combination of both. However, if the person outlives the policy period chosen by him/her, no benefit will be available to him/her or his/her family. Select insurance companies offer a rider, called the Return of Premium rider, that refunds all premiums paid if the insured were to survive till the end of the policy term. The rider will have to be purchased by paying an extra premium amount and is hence more expensive than the base term insurance plans.
Unit-Linked Insurance Plan
As the name suggests, Unit-Linked Insurance Plans (ULIPs) are connected to markets and invest in different funds to get returns. Policyholders can look at the NAVs of funds and choose which type of fund they want to invest in. The premium paid towards the policy will provide a life cover to the insured person as well as be invested in funds chosen by him/her. Policyholders can choose to invest in equity, debt, or hybrid funds. The returns provided to the individuals depend on the performance of the funds. Also, in case of death of the insured person, the nominee will receive a death benefit as decided upon by the insurer and insured.
Endowment Life Insurance
Endowment life insurance falls under the category of savings plans. The money invested in the policy will prove to be fruitful at a later point in time as a part of the premium paid is invested by the life insurance company. In case of death of the insured person, the death benefit is provided to the nominee of the policy. If he/she survives the term chosen at the inception of the policy, he/she will receive a lump–sum amount called the maturity benefit. A few insurers offer the option to receive the benefit in installments too. Thus, endowment life insurance policies act as long-term investment instruments. The risk associated with endowment plans are lower than others and the returns are low too.
Money Back Life Insurance
Money Back life insurance plans, on the other hand, are ideal for those looking for a life insurance cover that also helps meet short-term financial goals. These plans are similar to endowment plans as they issue a death benefit if the assured passes away or provide him/her with a maturity benefit on surviving the term of the policy. The difference between the two types is that money back policies do not wait until the very end of the term to give away the maturity benefit. A percentage of the sum assured amount, known as the survival benefit, is given to the policyholder in pre-defined frequencies. Towards the end of the term, the remaining amount is given as the maturity benefit. In case of death of the individual, the sum assured chosen is given to the nominee of the policy.
Whole Life Insurance
A whole life insurance policy offers life coverage for the assured’s entire life or, in some cases, until he/reaches the age of 100 years. On the death of the individual, the beneficiary will receive a lump-sum death benefit plus bonuses, if any. However, if the person lives up to 100 years, he/she can claim the maturity benefit. Since the corpus of this type of life insurance is high, individuals can make partial withdrawals or take loans against the policy too.
While these are the basic types of life insurance, insurers offer special plans such as retirement plans or child plans. While retirement plans help individuals save up for their post-retirement period, child plans help people make disciplined savings right from the beginning so that they can provide financial aid to their children at important milestones such as graduation or marriage. So, shop around for the best-suited life insurance product that meets your requirements. Read the policy document carefully before making the final deal with the insurance company.