Life insurance is available in multiple varieties depending on the purpose it needs to fulfill. There are certain life insurance plans that emphasize on financial protection while others have both savings/investments/retirement along with protection feature.
It is helpful to know about the life insurance plans available in India to help make the right choice depending on your income and financial responsibility level and other requirements.
Which are the most common types of life insurance plans?
There are various types of life insurance plans available in the market such as:
- Term Insurance
- Whole Life Insurance
- Endowment plans
- Money Back plans
- Unit Linked Insurance Plans (ULIP)
- Child plans
- Retirement/Pension plans etc.
All these plans serve different purposes such as while term insurance provides only protection, ULIPs provide protection along with market linked investments.
Retirement products serve the purpose of fulfilling post-retirement needs of an individual.
1. Term Insurance for Protection
Term insurance offers life cover for a certain period of time. In case the life insured dies within the policy period, the nominee will receive the relevant death cover as per the terms and conditions of the policy.
An ordinary term insurance policy will generally not offer a maturity benefit in case the life insured lives through the policy period. This makes it possible for the policy to concentrate more on offering financial protection than anything else.
Term insurance might come in handy if you have dependents, outstanding loans, or any other financial responsibilities. It is important to ensure that the amount of cover and policy period suit your family’s financial requirements.
2. Whole Life Insurance for Long-Term Cover
Whole life insurance policy offers cover for a significantly longer period than a regular term policy. Depending on the particular policy, it might offer coverage for the entire lifetime of the life insured, or up to a particular age.
There are cases where some whole life insurance policies contain savings or any other forms of benefits. Nevertheless, this varies from one policy to another; it is important to review the particular terms of the policy.
Whole
3. Savings and Life Insurance Endowment Plans
The endowment plan provides life cover along with savings. This type of plan will allow you to save money to achieve your financial objective in the future, along with providing you the protection of life cover.
In case the life assured outlives the tenure of the policy, the endowment plan provides a maturity benefit depending on the terms of the plan. In case the life assured passes away during the tenure of the policy, the death cover payable as per the terms of the policy is paid to the nominee.
Endowment plans may suit those individuals who want savings along with life cover.
4. Money-back plans for periodical payments
A money-back plan includes life insurance along with periodic payments that are made throughout the duration of the policy based on the terms of the plan.
The payments under the policy may help to fund certain costs that arise during the term of the plan. In some cases, there is also a maturity benefit that is paid out.
The amount and other features of the payments vary from plan to plan. It is, therefore, necessary to read the terms of the plan before purchasing a money-back plan.
5. ULIPs – Insurance and Market-Linked Investment
Unit Linked Insurance Plan (ULIP) is an insurance scheme linked to investments in the market-linked funds. Depending on the policy chosen, there will be various funds to choose from such as equity or debt funds.
Investment in ULIPs may either appreciate or depreciate depending on the performance of the markets and therefore are exposed to investment risks where no return is guaranteed.
6. Child Plans For Future Financial Goals
A child plan is created to assist the parents or the guardians in preparing financially for future requirements, like university education and other milestones.
Depending on the type of plan chosen, the child plan will either be an insurance plan with a savings option or even incorporate options to aid in achieving the financial goal in case of the death of the life assured within the duration of the plan.
Some of the factors that one should consider before selecting a child plan include the cost of the financial goal, time and the premiums.
Some people who can invest in market-linked schemes with long-term investment periods could benefit from ULIPs.
7. Retirement and pension plans for post-retirement needs
These retirement and pension plans assist individuals in preparing for life after their working period.
While some plans assist in creating a fund during the working period, there are annuity plans which generate income after retirement as per their terms. It is subject to the type of plan.
When choosing a retirement plan, the factors to be considered include the retirement age, current savings, the desired retirement income, and investment time horizon. The IRDAI framework of life insurance products covers the retirement plans and annuity plans among others.
How is term insurance different from other life insurance plans?
Term insurance is different from many other life insurance products because its main purpose is financial protection for a specified period. Other policies may combine life cover with savings, investments or retirement planning.
| Feature | Term insurance | Other life insurance plans |
| Main purpose | Financial protection | Protection, savings, investment or retirement planning |
| Policy period | Usually fixed | Depends on the policy |
| Maturity benefit | Usually not available in a standard term plan | May be available, depending on the policy |
| Investment element | Usually not included | May be included in some policies |
| Premium | Generally lower for similar life cover | Can be higher when additional features are included |
The exact benefits, premiums and conditions vary between policies. Therefore, you should compare the policy features rather than relying only on the product category or premium.
What factors determine the right life insurance coverage?
The right life insurance plans coverage will be determined by your financial considerations and what you would want to use it for.
The following factors will help in determining which type is suitable:
- Financial needs: Consider the level of financial support required.
- Financial goals: Consider whether it is for family protection, saving, children’s education or retirement.
- Investment risk: Consider whether it involves market-linked investment risks.
- Term of the coverage: Select an appropriate time frame depending on your financial obligations.
- Affordability of the premium: Ensure that the premium suits your budget over time.
- Coverage terms and conditions: Consider the benefits, exclusions, and payouts associated with the policy.
You should also consider your other insurance and investments before settling on the level of coverage.
Conclusion
Different kinds of insurance plans offer different financial benefits. The purpose of term insurance is only to protect one financially, while whole life insurance covers more than just protection in the short run. The endowment or money-back insurance covers both the life aspect and also includes the saving component, while ULIPs are both an insurance plan and a market investment linked product. Child plans and retirement plans have specific purposes based on financial considerations.
Bajaj Finance can also help individuals explore financial solutions that align with their protection and long-term financial planning needs.
There is no one-size-fits-all life insurance plan. Learning about the workings of each kind of insurance plan will help in comparing and choosing the right one.