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Type of Life Insurance Policies – You must know

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LifeInsurance

Objective of this article

  • To briefly explain the Life Insurance in India and Insurance companies available
  • To briefly  explain the type of insurance policies available and their key features

Should you take a Life Insurance Policy? Have you secured your family in case something happens to you? If not, you should consider taking a Life Insurance Policy.

What is Life Insurance?

Life insurance is a policy which helps beneficiaries financially after the policyholder dies. It is a contract between the policy holder (you) and the life insurance company, which assures the paying out of a certain amount in the event of the policy holder’s death / terminal / critical illness.

The premium of life insurance is dependent on your age, type of coverage, amount of coverage you need.

Life Insurance can be for

  • financial protection of your family
  • Savings / Investment
  • Retirement savings / Pensions
  • protecting home mortgage

But, the primary objective of buying a Life insurance policy should be protection of family finances in unfortunate event of your death.

Life Insurance in India

All Life Insurance companies are regulated Insurance Regulatory and Development Authority of India (IRDA) rules & guidelines, whether it is government (LIC) or private (e.g. ICICI, HDFC Life etc)

Many people think that LIC is safer as compared to private Life Insurance companies, but technically all life insurance companies (LIC or private) are regulated by same rules. I think it is more of trust & confidence in LIC because it is operating since long time ( since 1956) and the private insurance companies were allowed only since 1999.

List of Insurers in India

Life Insurance Corporation (LIC)

Private Insurance Companies

You can see my other post on – Which Life Insurance Company to Select?

Type of Life Insurance Policies

Term Insurance

  • Ideal for Risk Protection / Insurance Cover
  • Low Premiums & High Sum Assured
  • Fixed term (max 35 years). Some policy gives an age coverage upto 75
  • Dependents will receive the benefit amount in case of death
  • No benefit in case of Survival for term insured
  • 25 year old male can get the insurance cover of Rs 50 lacs for 30 years – Premium just from Rs. 5000 p.a.

TIP: You must buy an adequate term insurance plan.  It can give you maximum sum assured at lowest cost among other insurance types.

Endowment Insurance

  • Savings + Insurance product
  • Sum Assured will be paid to beneficiary in case of death
  • Sum Assured will be paid to policy holder  in case of survival
  • Type – Endowment plan with Profit or Unit Linked Endowment plan with Profit.
  • Sum assured plus the bonus/participating profit/guaranteed additions, if any will be paid in case of death or Survival

Whole Life Insurance

  • Policy is for Whole Life and has no fixed term
  • Savings + Insurance product
  • Sum Assured will be paid to beneficiary only in case of death. However, some policies allow payment on reaching a certain age say 90 years
  • This plan is mainly devised to create an estate for the heirs of the policyholder

Money Back Plans Insurance

  • Savings + Insurance product
  • You regularly receive a percentage of the sum assured during the lifetime of the policy
  • Sum Assured will be paid to beneficiary in case of death

Child Plans / Children Policies

  • Savings + Insurance product
  • Taken on the life of the parent/children for the benefit of the child
  • Parent can plan to get funds when the child attains various stages in life.
  • Some insurers offer waiver of premiums in case of unfortunate death of the parent/ proposer during the term of the policy.

Pension Plan

  • Savings + Insurance product
  • Also called Retirement plans or annuity plans
  • To plan effectively for their retirement & build a retirement corpus
  • Person has to initially invest either a lump sum amount or regular annual installments/ premiums over a period of time in return for regular income either for life or for fixed number of years depending, upon the plan
  • Options available – Deferred Annuity, Immediate Annuity, Life Annuity etc

ULIP – Unit Linked Insurance Plans

  • Introduced by Private Insurance companies
  • Savings + Insurance cover
  • Combine the benefits of life insurance policies with mutual funds
  • Investment risk is borne by Policyholder
  • Multiple charges deducted from premium before investment in funds.

Summary

Apart from “Term Insurance”, all other products are Savings+Insurance product and thats why their premium will be higher.

Many people also use Insurance as Savings Product, because in early days only LIC was providing the long term financial products for saving.  However, now there are other long term investment options available to create wealth for your retirement. If one does a disciplined investment regularly over long-term, they will get higher returns for e.g Investment through Mutual funds via SIP mode.  Even the safer investments like Bank FD & PPF are offering returns 8-9.5%

You should definitely take a “Term Insurance” policy as it provide insurance to cover the risk of death or critical illness at low cost & High Sum Assured.

If you have any queries related to this article or any other personal finance query ( Investment, Taxation etc), please comment below

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The author is a Chartered Accountant and loves to write about Personal Finance, Wealth Management, Taxation etc. Disclaimer - The articles on this website is for informational and knowledge purposes and should not be treated as financial advice, Please consult your financial advisor before taking any investment decision.

6 comments

  1. Dear Sir,
    I have a SBI Life- Lifelong Pension-Plan 2 policy which was opened in December 2008. The policy matures in 2035. The policy has a life cover for Rs. 3 lakh and Targeted Personal Pension sum at Maturity is Rs. 16,04,648/-. The instalment contribution payable for Targeted Pension is Rs. 24,177/- and premium payable for Life cover Rs. 824/-. As per the policy guidelines, on maturity the life assured shall have the option to withdraw up to a maximum of 33% of the balance outstanding in the Personal Pension Account in cash and with the balance amount shall have the option of purchasing any one of the annuities as available on the vesting date from SBI life or annuity from any other life insurer.

    In the event of death of the life assured at any time before the vesting date while the policy is in force the benefit is the sum assures less all premiums due but not paid along with the balance in the PPA.

    Now my query is that should I continue this policy till 2035 for I should surrender the policy and put in the money in some other investments. My present age is 35 years. The Guaranteed surrender value for the policy is 85% of the balance in PPA.

    Regards.

    Dibya Dutta

    • Hi Dibya, First of all you need to analyze the reason you have taken this policy – whether for insurance, for pension, just for investment etc?

      1) It gives a very less life insurance of Rs 3 lakh, which is not adequate. For Life Insurance, you should take separate Life Insurance
      2) What is the balance in your PPA Now ?
      3) whether 24177 is monthly payment or yearly ?

  2. Hi Sir,

    I have taken a ULIP as life insurance, it is Aegon Religare imaximizer accelarator fund. Now i am paying 2000 monthly from july 2013. My sum assured is 720000 and it is 25 years. Here i will get the amount= fund value upon maturity. Please suggest if i can continue in this product or switch to LIC jeevan anand which i see is more useful.

  3. Hi Vivek,

    I have aegon religare imax plan(ULIP). Sum assured is 720000(upon death) and fund value upon survival. I pay monthly premium of 2000 from july 2013 and it is for 25 years. In my view, the amount i get after maturity is one which i am confused. Please advise me if iam good to continue in this plan or should i surrender and take any other plan

    Regards,
    Dev

    • Aegon religare imaximise plan is an online ULIP plan. In terms of insurance benefit, you can choose from two options.

      Death Benefit – The policy holder has 2 options (in case regular premium mode has been selected) to decide on the death benefit payable to the nominee at the time of buying the iMaximize Plan.
      Option 1: Higher of Sum Assured or 105% of all the premiums paid
      Option 2: Higher of Sum Assured or 105% of all the premiums paid + All regular premiums due for remainder of the policy term are waived and paid by the company (Premium Continuance Benefit) +The annualised premium is paid to the nominee at the start of each policy year (Income Benefit).

      Maturity Benefit – The policy holder would get the fund value of the iMaximize Plan.

      If You stop paying the premium before 5 years – then the accumulated policy fund amount shall be paid to the policy holder after the fifth policy year. A discontinuance charge would be applicable though. After 5 years the discontinued fund value along with an interest would be paid. So you will get your money only in 6th year.

      If you surrender, you cannot get amount before July 2018.

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