A life insurance policy is a contract with an insurance company. In exchange for premium payments, the insurance company provides a lump-sum payment, known as a death benefit, to beneficiaries upon the insured's death.
Typically, life insurance is chosen based on the needs and goals of the owner. Term life insurance generally provides protection for a set period of time, while permanent insurance, such as whole and universal life, provides lifetime coverage. It's important to note that death benefits from all types of life insurance are generally income tax-free
Type of Life Insurance:-
Term Plan – Pure risk cover
A term inurance 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.
Benefit of Term Plan: In case of an untimely death of the breadwinner, family is supported with an enormous amount of money – sum assured, which helps them to replace the loss of the income caused due to the breadwinner’s death. Moreover, the money could be utilized to pay off loan, monthly household expenses, child’s education, child’s marriage, etc.
Unit linked insurance plan (ULIP) – Insurance + Investment opportunity
A unit linked plan is a comprehensive combination of insurance and investment. The premium paid towards ULIP is partly used as a risk cover (insurance) and partly 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 funds.
Benefit of ULIP: Invest money as per your risk appetite. You have the option to invest either in equity, debt or in hybrid funds through the life insurance company with complete transparency.
Endowment Plan – Insurance + Savings
Endowment plan is another type of life insurance plan, which is a combination of insurance and saving.
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 but the risk is lower than the other investment products and so are the returns.
Benefit of Endowment Plan:
Long-term financial planning and an opportunity to earn returns on maturity.
Money Back – Periodic returns with insurance cover
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, policyholder can meet short-term financial goals.
Benefit of Money Back Plan:
Short-term financial planning and an opportunity to earn returns on maturity.
Whole Life Insurance – Life coverage to the life assured for whole life
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 premium payment term.
Benefit of Whole Life Plan:
Lifelong protection to the insured and an opportunity to leave behind a legacy for heirs.
Child’s Plan – For fulfilling your child’s life goals like education, marriage, etc.
Child plan helps to build corpus for child’s future growth. Child plans help to build funds for child’s education and marriage. Most of the Child Plan provides annual installments or 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 death of the life insured and the policy continues till maturity.
Benefit of Child Plan:
Helps in fulfilling your child’s dream.
Retirement Plan - Plan your retirement and retire gracefully
Retirement plan helps to build corpus for your retirement. Helping you to live independently financially and without worries. Most of the child plans provide annual installments or one time payout after the age of 60 years.
In case of an unfortunate event, life assured passes away during the policy term - immediate payment is payable to the nominee by the insurance company. 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 which case, payout will be fund value which has to be utilized for buying an annuity.
Benefit of Retirement Plan:
Helps in building corpus for retirement.
General Insurance or Non-life Insurance
General Insurance or Non-life Insurance helps you to safeguard yourself and the things around, which you value a lot. These may include your home, car and other valuables like money lending, professional casualties other than death, etc. These valuables carry a lot of financial risks. Therefore, General Insurance Plans provide financial protection from the impact of fire, storm, flood, earthquake, car accidents, theft and other travel accidents. It also covers us from the expenses spent on the legal actions. In short, you have the option to choose the right type of cover and the right type of insurance policy as per your requirements.
The tenure for a general insurance is not like the tenure we have in life insurance. Mostly these types of insurance are yearly contracts.
Do not get confused between Life Insurance and General Insurance. They both cater to different aspects in life. Life Insurance looks after risks of death and its consequences, whereas, General Insurance helps in protecting risks due to other aspects of life and its diverse assets.