Want to know about the various types of life insurance policies like term insurance, whole life insurance, endowment policy, money back plans, children plans, annuity plans, Unit linked insurance policies in India. Read on…..
Term Insurance:
You can choose to have protection for a set period of time with Term Insurance. In the event of death or Total and Permanent Disability if the benefit is offered), your dependants will be paid a benefit. In Term Insurance, no benefit is normally payable if the life assured survives the term.
Whole Life Insurance :
With whole life insurance, you are guaranteed lifelong protection. Whole life insurance pays out a death benefit so you can be assured that your family is protected against financial loss that can happen after your death. It is also an ideal way of creating an estate for your heirs as an inheritance.
Endowment Policy :
An Endowment Policy is a savings linked insurance policy with a specific maturity date. Should an unfortunate event by way of death or disability occur to you during the period, the Sum Assured will be paid to your beneficiaries. On your surviving the term, the maturity proceeds on the policy become payable.
Money back plans or cash back plans:
Under this plan, certain percent of the sum assured is returned to the insured person periodically as survival benefit. On the expiry of the term, the balance amount is paid as maturity value. The life risk may be covered for the full sum assured during the term of the policy irrespective of the survival benefits paid.
Children Policies:
These types of policies are taken on the life of the parent/children for the benefit of the child. By such policy the parent can plan to get funds when the child attains various stages in life. Some insurers offer waiver of premiums in case of unfortunate death of the parent/proposer during the term of the policy.
Annuity (Pension) Plans:
When an employee retires he no longer gets his salary while his need for a regular income continues.Retirement benefits like Provident Fund and gratuity are paid in lump sum which are often spent too quickly or not invested prudently with the result that the employee finds himself without regular income in his post – retirement days. Pension is therefore an ideal method of retirement provision because the benefit is in the form of regular income.It is wise to provide for old age, when we have regular income during our earning period to take care of rainy days. Financial independence during old age is a must for everybody.
There are two types of annuities (pension plans):
• Immediate Annuity
In case of immediate Annuity, the Annuity payment from the Insurance Company starts immediately.Purchase price (premium) for immediate Annuity is to be paid in Iumpsum in one installment only.
• Deferred Annuity
Under deferred Annuity policy, the person pays regular contributions to the Insurance Company, till the vesting age/vesting date. He has the option to pay as single premium also. The fund will accumulate with interest and fund will be available on the vesting date. The insurance company will take care of the investment of funds and the policyholder has the option to encash 1/3rd of this corpus fund on the vesting age / vesting date tax free. The balance amount of 2/3rd of the fund will be utilized for purchase of Annuity (pension) to the Annuitant.
Unit Linked Insurance Policy:
Unit Linked Insurance Policies (ULIPs) offer a combination of investment and protection and allow you the flexibility and choice on how your premiums are invested. IN UNIT LINKED PLANS,THE INVESTMENT RISK PORTFOLIO IS BORNE BY YOU AS YOU ARE THE INVESTOR Typically, the policy will provide you with a choice of funds in which you may invest. You also have the flexibility to switch between different funds during the life of the policy.
The value of a ULIP is linked to the prevailing value of units you have invested in the fund, which in turn depends on the fund’s performance. In the event of death or permanent disability, the policy will provide the Sum Assured (to the extent you are covered) so that you can take comfort in knowing that your family is protected from sudden financial loss. A ULIP has varying degrees of risk and rewards.
There are various charges applicable for Unit Linked Policies and the balance amount out of the premium is only invested in the fund/funds chosen by you. It is important to ask your insurer or agent or broker questions to understand the sum total of charges that you have to incur. It is important to assess your risk appetite and investment horizon before deciding to buy a ULIP policy. You must also read the terms and conditions of the policy carefully to understand the features of the policy including the lock-in period, surrender value, surrender charges etc.
All the types of plans mentioned above can be offered under ULIP plans.
Courtesy: Handbook on Life Insurance by IRDA. http://policyholder.gov.in
