Different types life insurance plans in India – Difference between term plan and ULIP

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Different Types of Life Insurance Policies in India

When it comes to Life insurance, it’s a very complicated topic in India. There are various Life insurance policies available in India but it’s mostly misunderstood. People often mix life insurance with investments and end up in taking the wrong product.

In this article we will go through the the different types of Life Insurance Policies in India and understand key differences between them.

What are the different Types of Life Insurance Policies in India?

There are broadly 7 types of life insurance policies available in India and they are –

  1. Endowment Plan – Insurance +
    Savings
  2. Term Plan – pure risk cover
  3. Unit linked insurance plan (ULIP) – Insurance + Investment opportunity
  4. Money-Back – Periodic returns with insurance cover
  5. Whole Life Insurance – Life coverage to the life assured for whole life
  6. Child’s Plan – For fulfilling your child’s life goals like education, marriage, etc.
  7. Retirement Plan – Plan your retirement and retire gracefully

Let’s now look at in details of the different types of Life Insurance Policies in India

Different Types of Life Insurance Policies in India
Different Types of Life Insurance Policies in India

1. Endowment Plans

The endowment plan is another type of life insurance plan, which is a combination of insurance and saving. unfortunately, this is the most widely popular insurance plan sold in India as traditionally LIC is the biggest Endowment Plan seller in India.

A certain amount is kept for life cover – insurance, while the rest is invested by the life insurance company. In an endowment plan, if the life assured outlives the policy term, the insurance company offers him the maturity benefit. Moreover, Endowment Plans may offer bonuses periodically, which are paid either on maturity or to the nominee under death claim. On death, the death benefit is payable to the nominee.

Endowment plans are also commonly known as traditional life insurance, although, there is an investment component the risk is lower than the other investment products and so are the returns.

2. Term Life Insurance

Term insurance is the simplest form of life insurance plan. Easy to understand and affordable to buy but most ignored and less known of all.

Term insurance provides death risk cover for a specified period. In case the life assured passes away during the policy period, the life insurance company pays the death benefit to the nominee. It is a pure risk cover plan that offers high coverage at low premiums.

There is an option to add riders which widens up the coverage.

The death benefit is payable as a lump sum, monthly payouts, or a combination of both.

There is no payout if the life assured outlives the policy term. However, these days there are companies offering Term Plans with Return of Premiums (TROPS), where insurance companies pay back all the paid premium amount in case the life assured outlives the term period. But, such plans are costlier than the vanilla term insurance plan.

The best way to find out which term insurance plan is good for you is simply logging into the portal like https://www.policybazaar.com  and check out which policy suits you the most.

3. Unit Linked Plans (ULIPs)

A unit-linked plan is a comprehensive combination of insurance and investment, this is often sold as an investment but it’s truly a combo product between investment and insurance. The premium paid towards ULIP is partly used as a risk cover (insurance) and part is invested in funds.

One can invest in different funds offered by the insurance company depending on his risk appetite. The insurance company then invests the accumulated amount in the capital market i.e. in bonds, equities, debts, market funds, or a hybrid fund.

4. Money-Back Life Insurance

The money-back plan is a unique type of life insurance policy, wherein a percentage of the sum assured is paid back to the insured on periodic intervals as survival benefit.

Money-back plans are also eligible to receive the bonuses declared by the company from time to time. This way, the policyholder can meet short-term financial goals.

5. Whole Life Insurance

A whole life insurance policy covers the life assured for whole life, or in some cases, up to the age of 100 years. Unlike, term plans, which are for a specified term.

The sum assured or the coverage is decided at the time of policy purchase and is paid to the nominee at the time of death claim of the life assured along with bonuses if any.

However, if the life assured outlives the age of 100 years, the insurance company pays the matured endowment coverage to the life insured.

The premiums are higher as compared to term plans. Whole life insurance plans also offer partial withdrawals after completion of the premium payment term.

6. Child Plan

The child plan helps to build a corpus for a child’s future growth. Child plans help to build funds for a child’s education and marriage. Most of the Child Plan provides annual instalments or a one-time payout after the age of 18 years.

In case of an unfortunate event, the insured parent passes away during the policy term – immediate payment is payable by the insurance company. Some child plans waive off the future premiums on the death of the life insured and the policy continues till maturity.

7. Retirement Plan

The retirement plan helps to build a corpus for your retirement. Helping you to live independently financially and without worries. Most of the child plans provide annual instalments or a one-time payout after the age of 60 years.

In case of an unfortunate event, the life assured passes away during the policy term – immediate payment is payable to the nominee by the insurance company. The death benefit will be higher of coverage or fund value or 105% of premiums paid. Vesting Benefit will be payable if the life assured survives the maturity age. In this case, the payout will be fund value which has to be utilised for buying an annuity.


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