Last Updated on May 25, 2022 by Neera Bhardwaj
Life insurance plans are contracts that provide financial coverage in the face of untimely death. When it comes to life insurance, most people associate the policy with an untimely death. However, that’s not all that there is to life insurance. There are different types of insurance plans available in India. Each of these plans caters to different needs and can help you avail of 360-degree financial protection.
Do you know about the different types of insurance plans that are available? Here’s a quick look at the type of policies issued by life insurance companies and their respective uses.
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A term insurance policy is a pure protection policy that embodies the basic essence of life insurance. The plan covers the risk of death during the policy tenure. In the case of death, the sum assured is paid.
Modern-day term insurance plans come inbuilt with various coverage features. You can find term plans that cover terminal or critical illnesses as well as accidental deaths and disabilities. Moreover, there is a whole life option under many plans that allow coverage till 99 or 100 yrs of age. Under term plans, the premiums are low, allowing you to opt for a high sum assured for complete financial security for your family.
Use of term insurance
A term insurance plan is designed to provide financial security to your family if you are not around. Term plans, thus, fulfil the income replacement need if the breadwinner suffers premature demise.
Endowment plans are savings-oriented plans. They help you create a secured corpus for your financial goals while letting you enjoy life insurance coverage at the same time. Under endowment plans, a guaranteed death benefit is paid in the case of death during the policy tenure. Alternatively, if you survive the tenure, a guaranteed maturity benefit is paid.
Endowment plans may offer bonuses, guaranteed additions, loyalty additions, etc., to provide additional returns. Moreover, they are immune to market volatility and offer guaranteed savings.
Use of endowment plans
You can invest in endowment plans to create a guaranteed corpus for your medium to long-term financial goals.
Money-back plans are like endowment plans which create savings and also provide life insurance coverage. However, unlike endowment plans, money-back plans pay regular incomes during the policy tenure.
Under money-back plans, you get a part of the sum assured in instalments during the policy tenure. Thereafter, on maturity, the remaining sum assured is paid. However, in the case of death during the tenure, the full sum assured is paid irrespective of the money-back pay-outs you might have received earlier. Most money-back plans offer bonus additions that help in enhancing the corpus.
Use of money back plans
Money-back plans allow liquidity during the policy tenure, create a guaranteed corpus, and also provide life insurance coverage. You can, thus, use the plan to create a source of regular income and also for coverage.
Unit linked insurance plans
Unit linked insurance plans (ULIPs) offer a combination of insurance and investment. They work like mutual funds and offer insurance protection as well. The premium that you pay is invested in a fund that you choose – equity, debt or balanced. Each of these funds invests in a portfolio of market-linked securities. As such, as the market performs, so does your investment.
ULIPs allow flexibility through partial withdrawals, premium redirection, switching, settlement option, top-up option, etc. There is a lock-in period of 5 yrs, after which you can make withdrawals if needed. If during the tenure, the insured dies, higher of the sum assured (calculated as a multiple of the premium) or the fund value (invested value of your premiums) is paid. On maturity, the fund value is paid.
ULIPs do not guarantee returns as the returns depend on market performance. However, with ULIPs, you can participate in the capital market and earn inflation-adjusted returns.
Use of ULIPs
You can invest in ULIPs to create a market-linked corpus for your financial goals. Moreover, the flexibility of partial withdrawals provides liquidity for your immediate financial needs.
As the name suggests, child plans are designed with one aim – to create a secured corpus for your child’s future. These plans can be offered as an endowment, money back, or ULIPs.
Under child plans, either the child or the parent is the life insured. Moreover, there is an inbuilt premium waiver benefit that waives off the premiums if the parent dies during the policy tenure. Then, the insurance company pays the premium on behalf of the parent, and the plan continues. On maturity, the maturity benefit is paid.
Use of child plans
Child plans ensure a corpus for the child’s future whether the parent is around or not. With the premium waiver benefit, parents can ensure that their death would not hamper their savings. The savings would continue so that the fund envisaged by the parent is created, and the child can use the money for higher education or marriage.
Pension plans are also solution-oriented plans like child plans. These plans help in retirement planning. There are two types of pension plans available in the market:
a) Deferred annuity plans
Under these plans, you accumulate a corpus over the policy tenure. Thereafter, the corpus can be used to receive guaranteed pensions on maturity.
b) Immediate annuity plans
You pay a single premium to buy the policy under these plans. Thereafter, you start receiving pensions from the next month, quarter, half-year, or year. Pensions are guaranteed and paid lifelong. You can also add your spouse so that in case of your premature death, your spouse can continue receiving pensions till he/she is alive.
Use of pension plans
Pension plans help you save for your golden years. While deferred pension plans allow you to create a retirement corpus, immediate pension plans provide lifelong incomes so that you can live out your retired life comfortably.
Health insurance plans
Life insurance companies also offer health plans which cover specific illnesses or medical contingencies. If you suffer the covered illness, a lump sum benefit is paid. You can use the benefit to meet your medical expenses or other financial obligations.
Use of health insurance
Health plans provide financial assistance in a medical contingency and help you meet the expensive medical costs.
You can choose one or more of these plans depending on your coverage needs. A term plan is a must as it provides basic coverage and helps secure your family in your absence. Other plans can also be used for the different financial goals you have. So, understand your coverage needs and then pick the right life insurance policies to enjoy complete financial protection in any emergency that life throws your way.