Most people are aware of the importance of life insurance policy and having it for an individual is very common nowadays in India.

However, after taking a life insurance policy 70% to 80% of people regrets that.

This is happening just because there are various types of life insurance plans available so it is confusing for an individual to choose the right policy.

While you are reading this article I am sure most of you don’t know the difference and purpose of various life insurance plans like a term insurance plan, ULIP plan, money back plan, whole life plan, an endowment plan.

In addition to that, you are not sure about your goal and purpose to take that insurance plan.

So, most of the time rely on the insurance agent to choose the policy plan and follow the instruction of your agent as what he/she said and every agent is not our well-wisher who try to understand your requirement, goal, and purpose.

Because at the time of policy agreement most of the policy agents just counting their commission in mind. (It is like, Hasss chipka diya!!!!). Yes, it’s the bitter truth of the insurance industry.

To avoid this situation, it is very essential for you to understand the goal and purpose to take life insurance plan and which life insurance plan is suitable as per your requirement.

We can do this by understanding different types of life insurance plans and what purpose it serves.

So In this post, we are going to look at different types of life insurance plans and its feature.

But before that, we just try to understand,

What is Life Insurance??

In simple term Insurance means cover so, life insurance, covers our life.

Life insurance is the agreement between you and the insurance company, in which, you pay a certain amount as premium on regular intervals to an insurance company.

In return total of that money and additional bonus as interest will be paid by an insurance company to you at the end of the policy term or to your family if you die during the policy term.

Different Types of Life Insurance Plans in India

(1) Term Insurance Plan

What is Term Insurance Plan?

The term life insurance plan is the pure vanilla life cover plan because it provides financial security to your family in the absence of you.

Just think that you are the only individual or key bread-winner of your family, eventually certain unexpected happens with you and your family lost you forever.

In that case, the family faces a major financial trouble.

To overcome this situation term insurance provides financial stability to your family.

In this plan the contract between you and the insurance company where you have to pay a premium for certain terms.

During this period if the policyholder dies then contract amount or sum assured amount paid to the nominee.

This lump sum amount helps the family to deal with financial trouble.

How Term Insurance Works?

1^St customer decides how much sum assured amount want to take as courage amount if he/she meets an unexpected death.

Based on that premium amount is decided which you have to pay up to premium payment term.

Note: As per insurance industry rules, individuals should buy term insurance cover up to 8 times the yearly income of individuals.

Example: suppose your yearly income is 3 lakh you are eligible to take insurance cover up to (3*8=24) 24 lakh.

Age, term, health, smoker, non-smoker all that factors also effect on premium amount while choosing the term insurance plan.

After purchasing policy, the policyholder meets unexpected death during the term; the insurance company pays the sum assured amount to a nominee of the holder.

However, at the end of the policy term if insured alive, in that situation he/she is not liable to get any financial benefit.

But the policy purchased with a survival benefit, policyholder get lump sum amount at the end of the policy term.

Key Feature of Term Insurance Plan

Please go through this entire feature so you get more awareness about the term insurance plan.

• The term life insurance plan is a very basic life insurance plan so easy to understand.

• This is a pure protection plan and covers only the risk of death so it is very affordable in terms of premium as compared to other types of life insurance plans.

• Most of the term insurance company provides coverage until 75 years. However, the certain insurance provider has plans that are known as a whole life term insurance plan which provides coverage to 100 years.

• Premium is less as compared to other insurance plans like money back plan, endowment plan. So, the term insurance plans provide maximum gain with a small investment.

• Surrendering policy feature is not provided in a term insurance plan. So, if you stop the paying premium the policy would lapse and you would not get any policy benefit.

• The term insurance plan does not provide any bonus or additional bonus facility the same as the endowment plan. So, in terms of the death of policyholders no additional amount payable.

• This insurance plan provides the benefit of tax under section 80C and section 10(10D).

• For yearly premium payment, you can take benefit for tax deduction under section 80C up to 1.5lakh for every financial year and whatever maturity amount gets that exempted under section 10(10D).

Also Read: 6 Risk-Free Investment Option In India

(2) Endowment Plan

What is an Endowment Plan?

An endowment plan is the traditional life insurance plan because it servers the purpose of saving plus insurance cover.

In these types of life insurance plans insured eligible to get maturity benefit with the bonus after the term.

If in case the policyholder demise before the completion of the term, the nominee is eligible to get sum assured amount and bonus earn till that time duration.

So, an endowment plan is suitable for those who want to save regularly with no risk for long term objectives like child’s education, purchasing a home, retirement purpose.

However, the interest earned on this saving is very low as compared to other investment options like a mutual fund, fixed deposit, PPF, and many others.

How Endowment Plan Works?

The customer decides the sum assured amount and policy term for the endowment plan. Mostly term for these insurance plans is 10, 15, and 20 years.

Policy premium decides based on different factors like age, term, different rider, and sum assured amount.

The endowment plan has the facility to pay a premium on a monthly, quarterly, half-yearly, and yearly base.

Now, during the policy term insured pay premium regularly, based on that at the time of maturity policyholders get sum assured amount with additional bonus and policy closed.

On the other hand, if policyholders demised before completing the term in that case nominee of this policy is eligible to get the benefit of sum assured amount with bonus earned till that time and policy closed.

Suppose, policyholders, do not pay a premium at regular intervals, in this scenario insurance companies give a grace period to policyholders.

If he/she fails to pay the premium during that grace period, the policy should be laps and policyholders not able to get all maturity benefits.

Also Read: Insurance Plans Provided by LIC

Important Points to Take Care for Endowment Plan

• The endowment plan is best saving plus life risk cover plan for those who want to make a lump sum amount in the long run without any risk.

• The endowment plan provides death as well as survival benefit to the insured. In both scenarios, the endowment plan provides a bonus to policyholders as per the insurance company’s terms and conditions.

• Different riders (critical illness, accidental death, total disability) allowed in endowment plans.

• This insurance plan provides the benefit of tax under section 80C and section 10(10D).

• For yearly premium payment, you can take benefit for tax deduction under section 80C up to 1.5lakh for every financial year and whatever maturity amount gets that exempted under section 10(10D).

• You can surrender the endowment plan within the first 3 years, but you will not receive any surrender value.

• On the other hand, if you surrender after the first 3 years, you will get a certain amount but, that amount is less as compared to the total premium you have paid.

• Loan facility also provides to insured based on endowment plan.

(3) Money Back Life Insurance Plan

What is Money Back Plan?

This life insurance plan is a combination of survival, maturity, and death benefit.

In this plan, policyholders receive a certain amount on different intervals as a survival amount during the policy term.

Previously we have seen that the term plan is useful for a death benefit for the insured family and the endowment plan is useful if the insured wants to make saving regularly and wants to generate a lump sum corpus in long run with a death benefit.

So, during the policy period if the insured required a certain amount for any emergency issue both endowment and term plan is not useful because there is no option for the liquidity of money.

To overcome this issue, the insurance company have introduced new types of life insurance plans which provides liquidity option to the holder in the form of survival benefit.

How Money Back Plan Works?

The policyholder takes a money-back plan with a certain sum assured amount to the insurance company with a certain number of years term.

Now that money back plan has fixed some time interval (let say ever 4 years during the policy term) at that time insurance company pay some percent of the sum assured amount (it’s known as survival benefit) to the policyholder.

At the end of the policy term insurance, Company gives maturity amount with an additional bonus to insured.

Here, the Maturity Amount = Sum assured amount – total survival amount received during the policy term.

Now suppose policyholder died during the policy term then, nominee of that policy is eligible to take total sum assured amount as death benefit with additional bonus on the sum assured amount.

Important Points to Take Care for Money-back Plan

• The money-back plan is the best combination of term insurance plan and endowment plan with additional features of survival benefit during the regular intervals of the policy term.

• This policy provides security on invested amount and also provide a guarantee of that money back in the form of survival amount and maturity amount.

• Money back plan also provide bonus on your sum assured amount.

• Different riders (critical illness, accidental death, total disability) allowed in a money-back plan.

• Best suitable for those who planning like tackle different life events where the importance of money automatically improves like, school & tuition fees of a child for 10th or 12th standard, for the higher education of a child, for abroad study planning of child, a marriage of a child, etc.

• You can surrender money back plan within the first 3 years, but you will not receive any surrender value.

• On the other hand, if you surrender after the first 3 years, you will get a certain amount but, that amount is less as compared to the total premium you have paid.

• This insurance plan provides the benefit of tax under section 80C and section 10(10D).

• For yearly premium payment, you can take benefit for tax deduction under section 80C up to 1.5lakh for every financial year and whatever maturity amount gets that exempted under section 10(10D).

(4) Unit Link Insurance Plan (ULIP)

What is Unit Link Insurance Plan?

ULIP is the combination of the equity market and insurance as this plan fulfills the purpose of “Two Marks with One Stone”.

So, ULIP provides life cover of insured with wealth creation by investing some portion of money in equity instruments like mutual funds, bonds, stocks, etc.

Due to that in long run, ULIP has a better chance to give good return on investment as compared to other insurance plans. Similarly, it covers the life risk of policyholders.

How ULIP Works?

At the beginning of the policy, you decide your sum assured amount based on that your policy premium decides.

From, your premium amount a certain portion of the money goes to investment plan as per your choice during policy contract. It could be equity funds, balance funds, debt funds, and bonds.

Policyholders choose investment plans based on their long term or short term wealth creation goal. As per the plan and portion of the investment amount, the policyholder receives the number of units.

The remaining premium amount goes to the insurance portion for the life cover of the insured.

Now, at the time of maturity policyholders get fund value based on market value of units allocated. May be your investment amount increase or decrease because the equity market risk is associated with it.

While in case of demise of the policyholder during the term the beneficial nominee eligible to get sum assured amount or available fund value whichever is higher from both.

Important Points to take care for ULIP Plan

• ULIP provides the opportunity to earn higher returns along with life cover for self as well as for family in the long run.

• Wide range of investment options available in ULIP so investor has the opportunity to choose fund as per his requirement also eligible to switch fund from one to another if not satisfied with one.

• There is also liquidity option available in ULIP after completion of 5 years

• ULIP is costly as compared to other investment instruments because there are various charges applicable on it like

1. Premium allocation charge
2. Fund Management Charge
3. Policy Administration Charge
4. Partial Withdrawal Charge
5. Mortality Charge

• This insurance plan provides the benefit of tax under section 80C and section 10(10D).

• For yearly premium payment, you can take benefit for tax deduction under section 80C up to 1.5lakh for every financial year and whatever maturity amount gets that exempted under section 10(10D).

• The surrender charge is applicable if you want to discontinue the policy during 1^st five years.

(5) Whole Life Insurance Plan

What is Whole Life Insurance Plan?

As per the name of the plan, this covers risk throughout whole life means until death.

We can say this is the combination of term plan, and endowment plan.

The reason is that these types of life insurance policy provide death benefits (as term plan) and maturity benefit (as an endowment plan).

Normally, the whole life insurance plan is somewhat similar to the term plan but the main difference between two is, whole life plan provides maturity benefit to the policyholder if alive until 99 or 100 years, while term plan not.

How Term Plan Works?

At the time of policy purchase the sum assured amount decided by policy holder based on that the premium amount and premium payment term also decide.

As this is the whole life policy so the actual maturity time is 99 or 100 years of policy holder but it’s not necessary to pay premium till that time.

The premium payment term for these types of life insurance plans is 20, 25, or 30 years.

Now, during the premium payment term if policy holder demies then nominated beneficiary eligible to receive sum assured amount while death happens after the premium payment term but before the maturity, nominee beneficiary receive sum assured benefit with bonus.

Now, if the situation is that when policy holder lives till the maturity in this case beneficiary get sum assured amount with additional wasted bonus and policy terminate.

Important Points to Take Care for ULIP Plan

• This type of life insurance plan covers entire life risk of policy holder and after demise of policy holder provide financial security to nominated family member.

• Policy holder demise before the maturity, nominated beneficiary received sum assured amount (this is the feature of term insurance plan) and if policy holder lives till maturity he/she eligible to get maturity amount (this is the feature of endowment plan).

• The key feature of whole life insurance plan is that your premium amount remains constant for whole policy tenure so, taking policy at low age is most advisable.

• This insurance plan provides the benefit of tax under section 80C and section 10(10D).

• For yearly premium payment you can take benefit for tax deduction under section 80C up to 1.5lakh for every financial year and whatever maturity amount get that exempted under section 10(10D).

• Different riders (critical illness, accidental death, total disability) allowed in money back plan.

• You can convert your existing term insurance plan to the whole life insurance plan as the premium payment amount would increase also other terms and conditions differ from the various insurance companies.

(6) Child Insurance Plan

What is Child Insurance Plan?

From the time of baby born every parent want to provide financial security to their child and started financial planning for their better future.

Child insurance plan is the option for every parent to deal with that matter.

As child insurance plan provide most guaranteed financial security for the betterment of child’s future.

The structure of child insurance plan is very effective so every parent can easily cop up various financial burden like education fees for graduation, for higher study in abroad, and marriage functions.

How Child Insurance Plan Works?

In child insurance comes with three different flavors ULIP, Endowment, and money back.

If policy holder required whole money at the time of maturity then endowment facility is suitable while policy holder wants to get money on different interval during the policy term then money back facility is suitable.

Apart from that if policy holder wants to park certain portion of premium in equity or debt instrument then ULIP plan is suitable.

At the time of policy agreement based on sum assured amount premium amount decided.

Here, the policy is taken by the parents of child so, they solely responsible to pay policy premium till maturity. The maturity benefit received by the child of that parent.

Now during the policy term if any uncertain happens and he/she died then policy not stop.

The insurance company pays a death benefit immediately.

In addition to that remaining premium would be abandon and policy run till the maturity term.

At the time of maturity, policyholders receive maturity benefits.

So, this is the simple working pattern of these types of life insurance plan.

Important Points to Take Care for Child Insurance Plan

• Child insurance plan provide endowment plan, money back plan and ULIP plan benefit.

• This type of insurance plan is most suitable to generate huge corpus for better future of child.

• Premium waiver benefit provided in child insurance plan if premium paying party died.

• Immediate money provided to nominee in case of demise of premium paying person as death benefit.

• At the time of maturity of policy again nominee eligible to get maturity benefit.

• Policy holder has option to get money back on different interval as survival benefit.

• Market linked child plan provides higher return (around 9% to 10%) which is higher than other government child saving or investment scheme.

• Whatever the premium paid under the child insurance plan is totally tax free. Moreover, the survival and maturity benefit is also totally tax free.

• Different riders (critical illness, accidental death, total disability) allowed in money back plan.