DIFFERENT TYPES OF LIFE INSURANCE POLICIES AVAILABLE IN INDIA…..
In India, Insurance is regulated by the Insurance Regulatory and Development Authority of India. As on March 2018, the India had 54 insurers, with 24 of these offering life insurance products. These insurers offer a different range of products, which can be differentiated into six (6) broad types namely:
Term Insurance Plans:
These are plans that provide life protection for a specific fixed period of time. They can be either for the long-term or the short-term plan, with the term ranging from a minimum 5 years to a maximum 60 years or more in specific cases. The insured individual is being secured during this term, with the insurance company paying his/her nominee the amount assured on his/her death during the policy term. No coverage is provided if the insured dies after the term.
This can be considered as the most simpler insurance plans available. As they are affordable by every person, they might not be the ideal option, for there is no security after the said period of time. These plans do not provide a maturity advantage in almost all cases. So one should consider these plans if he/she forecast their demise within a specific period. This could not be seen as ‘permanent insurance’, and is also known as the pure life plans by certain individual insurers.
2. Unit Linked Insurance Policies (ULIPs):
Individuals looking for the coverage plus returns can consider unit linked insurance plans. These policies are ‘connected’ to the market products like bonds, stocks, and mutual funds etc. There is a certain amount of risk linked with ULIPs, with this risk falling on the policyholder.
Most insurer individuals are investing in a certain portion of the premium into the market units, keeping the remaining portion aside for the base amount assured. It is essential to keep an eye on the working of the funds, for the returns could be insignificant if there is a market crash. That’s why, the choice for deciding the insurance company becomes critical. ULIPs can be a good decision for the savvy investor who aspires to invest in a life insurance policy. Insurance companies have dedicated fund managers who manages the investment.
3. Endowment Policies:
An Endowment policy plan is serving a double purpose, offering not only life cover, but also doubling a savings instrument to grab to any future needs. Under this plan, the holder of the policy is rest assured of the sum, even on maturity of the policy.
Individuals who are looking to secure themselves financially during the near future can choose for such plans. This policy is ideal for people who might encounter expenses after a certain period of time. These plans fascinate the higher premium when comparison is made to regular term plans. The premium is differentiated into two major portions, with one of it going towards the basic amount assured and the other portion is utilised as an investment tool to offer return on maturity time period.
While it is viable to have unit linked endowment policies, most insurers in India offer non-linked Endowment policy plans.
4. Whole Life Policies:
A whole life policy, as the name signifies, offers security for the whole lifetime of an individual. Almost insurers can have an upper age limit for maturity of policy. This can be in the form of insurance plus investment plans, wherein a death advantage is provided to the nominee on death of the policyholder. If there is a maturity advantage associated with the plan, a maturity sum will be paid when the policyholder attains the upper age limit linked with the scheme.
While one must consider a whole life plan to be similar to a term plan, there are a few precise differences. The premium for the entire life plan is typically higher, but these plans also offer a maturity advantage, which is unassured in the case of a term plan.
5. Pension Policy Plans:
Retiring from work can often be hard, given the fact that money might become a restriction. Retirement plans, also known as pension or annuity plans can be used by individuals looking to financially protecting their retired life. This is classified as the most single premium policies, in which a lump sum money is paid to the insurer.One can select the frequency of payouts that they attire to grab, with the insurer paying them the sum after they retire. This sum is paid throughout their lifetime, assuring financial protection even when one doesn’t work. Certain annuity plans are unit connected, offering market based returns to the policyholders.
6. Money Back Plans:
Money Back Plan policies are the subset of endowment plans which delivers the survival benefit to the policyholder. This takes various contingencies into account. While a death benefit is payable on the death of the policyholder, the survival advantage will be paid if he/she survives for the certain time period. Insurers pay a certain probability of the amount assured at the daily intervals, with this plan offering an additional source of earning to the policyholders. These plans are perfect for the individuals who want a systematic source of income, but are not ready to take risks associated with market instruments. The survival advantage is paid until policy maturity. These plans are recognized for the liquidity they provide, making them a popular option in the country.
CONTRAST BETWEEN VARIOUS TYPES OF LIFE INSURANCE POLCIES:
A life insurance policy is not same for all. These policies should meet individual needs, and given the various options available it is possible to get confused. The table below shows the certain differences between the 6 different insurance policy types.
|Type of Insurance||Premium||Time duration||Benefit at the time of maturity||Benefit on death||Important for|
|1.Term Insurance||Economical||Entire term selected||Not relevant||Paid if death takes place during policy term||People looking for security for specified period of time.|
|2.ULIPs||Amount differs based on amount assured – More costly than Term Insurance||Equivalent to the policy term||Paid (depends on policy chosen)||Payable if death occurs during policy term||People looking to get a return on their certain investment. Serves as investment plus insurance.|
|3.Endowment||Higher premium||Equals to the term policy||Payable on the completion of policy term||Payable if death takes place during policy term||People looking to get a huge amount in the future date. Serves as insurance plus savings.|
|4.Whole Life||The premium is higher than other plans||Entire lifetime of individuals or specified period||Paid||Payable when death takes place||Individuals looking to secure the well-being of their loved ones|
|5.Pension||Isolated premium||Till the death of the policyholder||Not mentioned||Payable at the time of death||People looking for a daily source of income after retirement.|
|6.Money Back||Differs based on the sum assured||Policy period||Daily amount is paid until maturity||Payable at the time of death||People looking for liquidity|