India's insurance market has the potential to expand quickly. Even while almost, everyone has some knowledge about insurance, not everyone has sufficient information.
#DidYouKnow, as per IRDAI, there are a total of 24 life insurance companies recognized in India. Also, another fun fact being, up until 1823, we as Indians paid a higher premium for our insurance policy. Indians had to pay more than British people throughout the British Empire. The Bombay Life Insurance Company was the first company to not charge Indians an additional premium. Despite severe competition from other businesses at the time, the company then prospered.
Now that you know these facts about Life Insurance, here is a view of different types of life insurance policies offered in India.
What Are Different Types of Life Insurance?
Like it’s said, there is no one size that fits all! A life insurance policy has the primary objective of providing financial security and protection to your family in case of your absence. But some life insurance policies also double up as savings and investment plans. Everyone has different financial goals, and hence, there are several types of life insurance plans available in India. These include:
TERM LIFE INSURANCE PLANS:
A term insurance plan is the purest and most affordable form of life insurance plan as it offers a high sum assured for a low cost. It provides complete financial protection to your loved ones against any uncertainty of life. A Term Insurance Plan can be used for:
- Financial Security: From household expenses to children’s education, everything can take a hit if the earning member passes away and one must take precautions to avoid a financial crisis in such a situation.
- Tax Benefits³: The Premium amount paid for term insurance is covered under tax benefits³ (under Section 80C), which helps you in further saving money.
- Flexibility: Some term plans offer monthly payouts where the sum assured amount can be given as a family income benefit to provide the regular cash flow to your dependents.
- Riders and other Benefits: Some plans come with an option of getting add-ons. For example, you can opt to add critical illness cover, accidental death benefit, accidental total, and permanent disability cover, etc. to a basic term policy to make the plan even more robust and risk-free.
- Savings with Return on Premiums: A term plan with return of premiums ensures that you can have a savings fund at the end of your term insurance policy. If you outlive the policy term, you are entitled to a total of all the premiums of the term plan on maturity. With this benefit, you can save on the premiums of your term plan and plan your financial goals.
GUARANTEED INCOME PLANS
A guaranteed savings plan combines insurance cover with the ability to develop, save, and generate a guaranteed financial corpus for you. It helps you achieve your long-term goals, such as buying your dream house, planning a peaceful retirement, or, your child’s marriage, etc. It aims to give wings to your dreams and provide stability for your finances. Following are the benefits of a Guaranteed Savings Plan:
- Life Cover: Financial Protection for the entire policy term to protect your family financially even if you are not there.
- Guaranteed¹ Benefits: Assured Benefits in form of Regular Income or Lump Sum as per your needs.
- Income as and when You Want: This income will support you to achieve your goals whatever life stage you are in.
- Second Income: An additional income to fall back on for you and your family in case of emergencies. Even after retirement, it ensures that your standard of living remains the same.
- Tax Benefits³: Benefits on premium paid under Section 80C and maturity income under Section 10(10D).
- Family Security: Protection of your family with an option of waiving of premiums for the rest of the policy duration in case of your demise.
UNIT LINKED INSURANCE PLANS (ULIPs)
A unit linked insurance plan (ULIP) is a type of insurance-cumulative investment policy that offers you both insurance and market-linked returns in one plan. As a result, the premium money paid by you is used for two purposes. The first component is for life insurance, while the second is for market-linked returns based on your risk profile. You can also move your investments between different funds any time during the plan's duration. Below are the benefits of choosing a ULIP for your wealth-growth journey:
- Dual Benefits: Besides allocating your investment into market-linked returns, it also offers life cover to protect your loved ones against any unfortunate event.
- Systematic Savings: When it comes to fulfilling future goals, such as buying a new home, funding a child’s education, retirement planning etc., savings are a must. Without long-term savings plans, it is difficult to balance short-term needs and future goals. ULIPs, help you save systematically and help you plan for these future goals with regular systematic savings as low as ₹1,000 per month
- Family’s Protection: With a life cover, in case of an unfortunate death, your dependent family will still be financially secured.
- Provides Tax Benefit³: All premiums are eligible for tax benefits³ under section 80C. The maturity amount received is also exempt, subject to conditions under Section 10(10D) of the Income Tax Act, 1961.
- Flexibility to Switch Funds: Advantage of switching between funds depending upon their performance. This helps you to get a better maturity benefit on your invested amount by monitoring the growth.
GROUP LIFE INSURANCE PLANS
A group life insurance plan is a type of life insurance that provides affordable coverage to a group of people, such as employees or members of an organization. Employers typically offer their employees life insurance under a single Master Life Insurance policy. A group life plan is an effective technique for a company's employees to be safe. Following are the benefits of group life insurance plans:
- Affordable: Group insurance is much more affordable than an individual life insurance policy since the premiums are quite low, or the employer takes the responsibility of paying the premiums.
- Equal coverage: All members avail the same amount of coverage and benefits, no matter the difference in their age, income, position, or gender.
- Convert to individual plan: It is possible to convert a group insurance plan into an individual plan for a group member exiting the group. Though many insurance providers offer this facility, there is a conversion fee involved to convert the plan.
- Covers family members: Most plans allow for the plan to include the families of the group members. That way, one can ensure protection for their family members even under a group insurance scheme.
- No pre-requisites for entry: Group insurance plans do not need the members covered under the plan to fulfil any pre-policy conditions such as completing a medical check-up before becoming a part of the group insurance policy.
CHILD INSURANCE PLANS
A child insurance plan combines insurance and investing into one single plan, designed primarily to provide financial coverage for your child. The life insurance component ensures that your child will be financially secure, even when you are no longer around. The investment part helps you to expand your finances to ensure the secure future of your child. You can use the money you save to help your child achieve his or her educational and career goals. Investment is a better option than saving since it helps you to grow your money while also mitigating the effects of inflation. Here are few reasons why you must buy a child insurance plan:
- Covers Immediate Needs: Aim to support the regular needs of your child by offering money to help the family cover regular expenses like school fees, tuition costs, etc.
- Reliable Asset for the future: Financial security of your child by offering a lump sum benefit in case of your demise during the plan tenure. Further, the policy continues to exist while all future premiums are waived off. The premiums are paid by the insurance company and the money remains invested till the end of the policy term. At maturity, the money is paid to the child, which can be used to cover the education costs.
- Disciplined investment for a child’s higher education: In a Guaranteed Returns Plan or ULIP, you invest regularly throughout the term of the plan as per your preferred premium frequency. If you choose a ULIP plan, you get a high return, owing to equity-linked market investments. As you approach maturity, you can change your investment into more secure ones like bonds.
- Tax benefits: Besides offering the above-mentioned benefits, these plans also provide significant tax benefits. The premiums are exempt from taxes up to Rs 1.5 lakhs under Section 80C of the Income Tax Act, 1961. The maturity sum and the death benefit are tax-exempt at the hands of the nominee as per Section 10(10D).
Retirement Plans, also known as Pension Plans, are life insurance plans that allow you to save money until you retire, so you can enjoy the results of your labor. You contribute a set amount to a retirement plan on a regular basis from the day you acquire it. When your income quits in retirement, you begin receiving a consistent income from your retirement plan at regular times. These plans frequently include life insurance coverage. As a result, you get life insurance coverage in addition to wealth building for the golden years of your life. Below are a few benefits of considering a retirement plan for your financial goals.
- Build Corpus for your Future: Retirement plans such as deferred annuity plans, Employee’s Provident Fund (EPF), Public Provident Fund (PPF), National Pension Scheme (NPS) that also give attractive returns, allowing you to accumulate a strong corpus for your future.
- Flexibility to Retire: If you start investing at an early age, you will benefit from the power of compounding. This will allow you to build a strong corpus within a considerable time.
- Flexible payments: You can either pay premiums as a lump sum throughout the policy tenure or a fixed period. You can also choose if you wish to make the payments yearly, half-yearly, quarterly or monthly.
- Choose How You Want to Receive Your Income: With retirement plans, you can choose how to receive income. You can get a lump sum amount or get income on a yearly, half-yearly, quarterly or monthly basis throughout the retirement tenure.
As a policyholder in India, you have access to a variety of life insurance policies. Based on your specific individual needs, you can select the best life insurance plan. Now that you know about various life insurance plans, you can decide which plan would be the most fit for you and your family.
Neha Panchal - Financial Content Writer
Neha used to be an Engineer by Profession and Writer by passion, which is until she started pursuing full-time writing. She's presently working as a Financial Content Writer, with a keen interest in all things related to the Insurance Sector.