Types of Life Insurance: Definition & Benefits in India 2024

By Okbima 02 Mar 2024 178
types-of-life-insurance

 

There are eight types of life insurance policies available to individuals based on their financial goals and needs which includes term insurance, endowment insurance, child insurance, etc. Each type offers varying benefits, coverage options, and premium costs, providing policyholders with flexibility and customization options.

 

What is Life Insurance?

Life insurance is a financial product that provides a lump-sum payment to beneficiaries in the event of the policyholder's death. It is designed to offer financial protection and security for loved ones who depend on the policyholder's income. Premiums are paid regularly to maintain coverage and ensure the policy pays out when needed.

 

Types of Life Insurance Policies?

There are eight types of life insurance policies in India which we have mentioned in the below table along with minimum, and maximum investment

 

S.No.

Life Insurance Types

Minimum Investment

Maximum Investment

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1.

Term Insurance Plans

Rs. 1,000 - Rs. 50,000

Rs. 1 Crore+

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2.

ULIP (Unit Linked Insurance Plans)

Rs. 1,000 - Rs. 10,000

Rs. 5 Lakhs+

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3.

Endowment Insurance Plans

Rs. 5,000 - Rs. 25,000

Rs. 5 Lakhs+

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4.

Money Back Insurance Plans

Rs. 5,000 - Rs. 25,000

Rs. 5 Lakhs+

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5.

Whole Life Insurance Plans

Rs. 5,000 - Rs. 25,000

Rs. 5 Lakhs+

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6.

Child Insurance Plans

Rs. 500 - Rs. 5,000

Rs. 5 Lakhs+

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7.

Retirement Insurance Plans

Rs. 5,000 - Rs. 25,000

Rs. 5 Lakhs+

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8.

Group Life Insurance

Not applicable

Not applicable

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1. Term Insurance Plans

A term insurance plan is a type of life insurance that provides financial protection to your loved ones for a specific period. It offers a death benefit to your beneficiary (nominee) in case of your unfortunate demise during the policy term.

Benefits of Term Insurance Plans:

  • High coverage at low cost: Get significant financial protection for your family without breaking the bank.
  • Peace of mind: Ensures your family's financial stability to cover expenses, debts, or future goals.
  • Flexibility: Choose a policy term that aligns with your financial needs and commitments.
  • Tax benefits: Premiums paid often qualify for tax deductions, lowering your tax burden.

Example: Let's say you are a 30-year-old individual and want to secure your family's financial future for the next 20 years. You opt for a term insurance plan with a sum assured (death benefit) of Rs. 1 crore. Based on your age, health, and lifestyle factors, your premium could be around Rs. 700 per month.

 

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2. ULIP (Unit Linked Insurance Plans)

Unit Linked Insurance Plans (ULIPs) are insurance products that combine life insurance coverage with investment options. This means that a portion of your premium goes towards providing you with life cover, while the remaining portion is invested in funds of your choice. The investment options typically include equity, debt, and balanced funds

Benefits of ULIPs:

  • Dual benefit: Provides both life insurance coverage and investment potential.
  • Flexibility: Allows you to choose from a variety of investment options to suit your risk appetite and financial goals.
  • Tax benefits: Premiums paid towards ULIPs are partially tax-deductible under Section 80C of the Income Tax Act.

Example: Imagine you purchase a ULIP with a sum assured of Rs. 10 lakhs and a chosen premium of Rs. 10,000 per month. Out of this Rs. 10,000, a certain portion (say, Rs. 2,000) goes towards providing you with life cover. The remaining Rs. 8,000 is then invested in the funds you have chosen.

 

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3. Endowment Insurance Plans

Endowment plans offer a unique combination of life insurance protection and long-term savings. By paying regular premiums, you secure a guaranteed payout for yourself upon policy maturity or to your beneficiaries in case of your unfortunate demise. This financial safety, which comes with potential bonus additions, can empower you to achieve various life goals.

Benefits of Endowment Insurance Plans:

  • Life Cover: Provides financial security for your loved ones in case of your passing.
  • Maturity Benefit: Lump sum payout upon policy maturity to fulfill long-term goals.
  • Guaranteed Returns: Offers predictable growth on your savings.
  • Tax Benefits: Premiums paid may qualify for tax deductions (subject to applicable regulations).

Example: A 30-year-old individual takes a 20-year endowment plan with a sum assured of Rs. 50 lakhs. They pay an annual premium of Rs. 20,000. Upon policy maturity, they receive Rs. 50 lakhs + accrued bonuses. If the policyholder passes away during the term, their beneficiaries receive Rs. 50 lakhs, providing financial support.

 

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4. Money Back Insurance Plans

Money-back insurance plans offer a unique combination of life insurance protection and regular payouts throughout the policy term. These plans cater to individuals seeking financial security for their loved ones while also building a corpus for future expenses.

Benefits of Money Back Insurance Plans:

  • Guaranteed payouts: Receive a portion of the sum assured at predetermined intervals, ensuring financial stability.
  • Life cover: Provides a lump sum payout to your beneficiaries in case of your unfortunate demise.
  • Maturity benefit: Receive the remaining sum assured along with accrued bonuses upon policy maturity.
  • Tax benefits: Enjoy tax exemptions on premiums paid, maturity benefits, and death benefits under relevant sections.

Example: A 30-year-old individual opts for a 20-year money-back plan with a sum assured of Rs.10 lakhs. They receive 20% of the sum assured every 5 years, totaling Rs.4 lakhs over the policy term. Upon maturity, they receive the remaining Rs.6 lakhs along with accrued bonuses. In case of their unfortunate demise, their beneficiaries receive the full Rs.10 lakh sum assured.

 

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5. Whole Life Insurance Plans

Whole life insurance offers guaranteed lifetime coverage and builds cash value alongside your death benefit. Unlike term life insurance, which expires after a set period, your whole life remains active until your passing. This plan provides lasting financial security for your beneficiaries while also acting as a potential savings option.

Benefits of Whole Life Insurance Plans:

  • Guaranteed Lifetime Coverage: Provides peace of mind knowing your loved ones are protected no matter when you pass away.
  • Cash Value Accumulation: A portion of your premiums grows over time, accessible through loans or withdrawals.
  • Dividend Potential: Some plans share company profits, further increasing your cash value.
  • Flexible Premiums: Choose a payment schedule that fits your budget.

Example: A 30-year-old male purchases a Rs 1,83,25,000 whole-life policy. He pays Rs 71,500 annually and after 20 years, accumulates Rs 14,30,000 in cash value. Upon his passing, his beneficiaries receive the full Rs 1,83,25,000 death benefit, plus any accumulated cash value.

 

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6. Child Insurance Plans

Child insurance plans offer a comprehensive solution for protecting your child's financial well-being. These plans combine life insurance with investment benefits, ensuring your child's future needs are met even in unforeseen circumstances.

Benefits of Child Insurance Plans:

  • Financial security: Guarantees a lump sum payout for your child's education, marriage, or other milestones.
  • Life cover: Provides financial support in case of the policyholder's demise.
  • Disciplined savings: Encourages regular premium payments, making a habit of saving.
  • Investment potential: Grows your savings through market-linked options in some plans.
  • Tax benefits: Premiums paid may qualify for tax deductions.

Example: A parent starts a child plan when their child is 5 years old, with a maturity of 18 years. They pay an annual premium of Rs.50,000. In case of the parent's unfortunate passing, the plan waives future premiums and ensures the maturity benefit is paid. Upon reaching 18, the child receives a lump sum to support their education.

 

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7. Retirement Insurance Plans

Retirement insurance plans offer safety for your post-retirement life. By contributing regularly during your working years, you accumulate a corpus that will convert into a steady income stream after you stop working. 

Benefits of Retirement Insurance Plans

  • Guaranteed income: Receive regular payouts throughout your retirement, ensuring financial stability.

  • Tax benefits: Enjoy tax deductions on your invested premiums and potentially tax-free payouts.

  • Flexibility: Choose from various plans with different investment options and payout structures.

  • Death benefit: Provides financial security for your loved ones in case of your demise.

Example: Consider a 30-year-old investing Rs.5,000 monthly in a retirement plan offering a 6% annual return. By retirement at 60, they could accumulate a corpus of Rs.1.07 crore, translating into a monthly pension of approximately Rs.40,000.

 

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8. Group Life Insurance Plans

Group life insurance, often offered by employers or organizations, provides financial protection to your beneficiaries in case of your unfortunate demise. This affordable coverage ensures your family's financial stability during a difficult time.

Benefits of Group Life Insurance Plans:

  • No Medical Exams: Group life insurance doesn't usually need medical exams, making it faster and simpler to get coverage, even for those with pre-existing conditions.
  • Tax Advantages: Group life insurance plans provide tax advantages for both employers and employees under Section 80C. Employees can benefit from having a portion of the premium excluded from taxable income, while employers can deduct premiums as a business expense.
  • Cost-Effective: Group life insurance plans are generally more affordable than individual life insurance policies. This is due to several factors.
  • Gratuity Funding: Group life insurance can fund employee gratuity payments, ensuring financial security and reducing the burden on the company.

Example: Sarah, a young employee, benefits from her employer's group life insurance plan. This plan provides a death benefit of ?35,00,000, which would help her husband and children manage their finances if she were to pass away unexpectedly.

 

Protect Your Employee with Group Life Insurance Plans: Start Planning Today!

 

Why Buy a Life Insurance Plan from Okbima?

There are so many reasons to buy a life insurance plan from Okbima such as we offer convenience, transparent information, and an easy documentation process.

  • Comparative Analysis: Okbima allows you to compare various life insurance plans from different insurance providers. This makes it easier for you to understand the features, benefits, and costs associated with each plan, helping you to make an informed decision.
  • Convenience: Buying life insurance online through Okbima is convenient as it eliminates the need for physical visits to insurance offices. You can browse, compare, and purchase policies from the comfort of your homes.
  • Transparent Information: Okbima provides detailed information about each insurance plan, including coverage details, premiums, and terms. This transparency helps you to understand what you are buying and ensures there are no hidden surprises.
  • Easy Documentation Process: Okbima usually streamlines the documentation and application process, making it easier for you to apply for life insurance. 

 

Read More:

ULIP vs Mutual Fund: Which Is Better In 2024?

Difference Between Term Insurance and Life Insurance

Term Plan With Return of Premium| Features & Benefits

Best Term Insurance Companies in India 2024

Best Life Insurance Companies in India - [Updated 2024]

 

Conclusion 

In conclusion, there are various types of life insurance policies available to suit the diverse needs and preferences of individuals. Term life insurance offers affordable coverage for a specified period, while whole life insurance provides lifelong protection with a cash value component. It is important to carefully consider your financial goals and your family's needs, you can contact Okbima experts to buy the best plan.

FAQs

In India, life insurance policies include Term insurance for temporary coverage, Whole life insurance for lifelong protection, ULIPs for investment opportunities, Endowment plans for savings, and Annuity plans for retirement income.

You can buy two types of life insurance to match your financial goals. Consider your Human Life Value (HLV) estimate, based on your earnings and can be up to 20 times your yearly net income. Make sure total coverage from all policies doesn't exceed your HLV.

Term life insurance is widely favored in India as it provides substantial coverage for a set time, all at a reasonable cost.

Typically, a whole life insurance policy remains in effect indefinitely, with coverage continuing as long as you keep up with premium payments. It is important to be aware that some whole-life policies have a maximum age limit, commonly set at 99 years.

A joint life insurance policy is ideal for married couples as it covers both spouses under one plan, providing convenience and cost-effective premiums compared to individual policies.

Term life insurance is best for singles for wide coverage and low premiums. Provides financial protection in case of tragedy. Consider endowment plans or ULIPs for long-term savings and investment.

Riders are extra features that can boost your life insurance coverage, like accidental death or critical illness protection. They can't be purchased alone and may increase your premium cost, but provide added security against various risks.

Whole life insurance policies are commonly known as the most extended life insurance policies, lasting until the age of 100. Upon reaching this milestone, the policy typically repays the promised sum and comes to an end.

Whole life insurance premiums are typically more expensive than term insurance premiums. However, unlike term insurance where premiums can increase upon renewal, the premiums for whole life insurance do not change and remain constant for the duration of your life.

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