Types of Life Insurance

Term life insurance offers affordable and simple coverage. It provides a guaranteed amount to the nominee (the person legally entitled to the benefit) in the event of the death of the policyholder during its term. A policyholder is required to pay regular premiums (monthly, quarterly, or annually) to keep the policy active.

When the policyholder survives the policy term, term insurance does not offer a maturity benefit, unless they choose the return of premium option. With its low cost and focus on protection, term insurance is the best way to safeguard your family's financial future. 

Term Insurance with Critical Illness Rider⁵

The critical illness rider is an optional addition. This add-on is available with term insurance at a nominal additional charge. During the term of the policy, the policy offers a lump sum payout in the event that the policyholder suffers a serious illness (e.g., cancer, heart attack, stroke). 

This rider covers treatment costs, recovery expenses, and income loss, while the base life insurance coverage remains unaffected.  

Term Insurance with Return of Premium (TROP)

TROP plans combine protection with value. When the policyholder survives the entire term, the premiums paid are returned⁴ to them as a maturity benefit, unlike regular term policies that only offer a death benefit.    

In the event that the policyholder passes away during the term, the nominee will still receive the sum assured. TROP plans have slightly higher premiums but are highly appealing to those who seek protection with the added benefit of getting their money back.

ULIPs are suitable for building wealth, investing in your child's education, and planning for retirement because of their required five-year lock-in. The ability to switch funds without incurring tax penalties is a significant benefit that enables you to adjust to shifting market conditions.  

ULIPs also facilitate partial withdrawals after the lock-in, thus being helpful for mid-term financial requirements. Although they offer a chance for market-related growth, investment risk is entirely undertaken by the policyholder. Additionally, funds, NAVs, and charges are disclosed in ULIPs, which ensures transparency e process transparent.

An endowment plan combines life insurance protection with savings, making it a dual-benefit product. With the plan, you can build a corpus as well as provide financial security for your family in the future.

In this plan, there are two possible outcomes:

1. If the policyholder passes away during the term, the nominee is entitled to receive the death benefit.

2. If the policyholder survives the term, they receive a maturity benefit. It's basically guaranteed payouts with bonuses (if the plan is participating).

Let's say someone buys an endowment plan with a term of 30 years and a sum assured of 20 lakh. In this case, if the person expires during the term, the nominee will receive ₹20 lakh. If the person survives, they will receive the maturity amount plus applicable bonuses.

As endowment policies are not market-linked and contain low-risk, they are most suitable to those who seek guaranteed⁷ returns and plan for education, retirement, or long-term requirements. 

A child insurance plan combines protection with long-term savings, ensuring funds are available for your child's milestones. Typically, parents or legal guardians of children are both the life assured and the premium payer, while the child is the beneficiary.    

One vital feature of the policy is that it continues even after the parent passes away. A waiver of future premiums is usually offered in this plan. When the child reaches adulthood, the plan matures. Maturity benefits may be timed to achieve goals like higher education, skill development, or marriage.

A parent buying a child plan for their five-year-old can ensure that when the child turns 18, the college expenditures will be covered regardless of life's uncertainties. Additionally, some plans allow partial withdrawals or loyalty additions, which adds flexibility.

It provides coverage up to 99 or even 100 years of age, ensuring the death benefit is paid whenever the policyholder dies. This plan offers lifelong protection, unlike term insurance, which ends after a fixed period. Hence, it is suitable for the long-term planning of a legacy or the protection of dependants.  

Premiums can be paid either for the entire policy term or for a limited duration, such as 10-15 years. Cash value is also built into many plans, and participating policies may add bonuses over time. Some policies have a surrender value or maturity benefit if they are discontinued or survive beyond their defined terms.  

A person age 30 who purchases a whole life insurance plan can ensure an assured payout for their children decades later, providing them with a realistic financial legacy.

Money-back policies combine life insurance coverage with periodic survival benefits, making them ideal for those who want liquidity during the policy term. Policyholders receive a percentage of their sum assured on a regular basis under this plan. For example, if you have a 20-year policy, you might get 20% every five years and the remaining 40% at maturity.   

A death benefit is also included in the plan. Regardless of the payouts already made, in case the insured passes away during the term of the policy, the nominee will receive the full sum assured. If the policyholder survives until the end, they receive a maturity benefit, which may include bonuses (if the plan participates).

It is because of this structure that money-back policies are particularly beneficial for short- to mid-term goals. The benefits of money back plans are paid at maturity and also throughout the policy period, which makes them more attractive compared to endowment plans.

The purpose of retirement plans is to assist you in building a retirement corpus and to ensure a steady income flow in your golden years. It consists of two phases: the accumulation phase, where your premiums are regularly invested to grow your savings, and the annuity or payout phase, where you receive a regular income from the accumulated corpus.    

When you reach retirement age, you can withdraw a portion of the corpus and use the remaining amount to purchase an annuity. You can choose between a deferred annuity (in which income starts after a set period) and an immediate annuity (in which income starts immediately). A variety of payout options are available to you, including lifetime income, joint life annuities, or a return of the purchase price.

The purpose of pension plans is to provide an assured stream of income after retirement by converting lump sums into regular pension payments. While retirement plans focus on saving over time, pension plans focus on income once you reach retirement.    

A single premium annuity plan allows you to invest a lump sum at once, while systematic contribution plans allow you to accumulate funds before vesting. Upon vesting, the accumulated corpus is used to purchase an annuity, which pays you monthly, quarterly, or annually.

There are various annuity options, such as life annuities, joint annuities for spouses, or annuities with a return of purchase price.  

There are various annuity options, such as life annuities, joint annuities for spouses, or annuities with a return of purchase price.

A group insurance plan covers multiple members under one contract. It is usually offered by employers or associations. Employers or group administrators serve as master policyholders, while employees and members are automatically insured in these plans.    

The level of coverage may be uniform for all members (for example, five lakhs each), or it may vary based on salary or position. Most group plans have low premiums, minimal paperwork, and no medical underwriting. A life insurance policy usually ends once an employee leaves the company or leaves the group.