Life Insurance: Understanding The Products And Their Benefits

Life insurance is an important financial tool that offers protection and helps individuals grow their money over time. There are several types of life insurance products, each with its own unique features and benefits. While some provide protection for the family of the chief earning member, others can be seen as an investment or retirement tool. Here is a list of the different types of life insurance products:

- Term Insurance Plans

- Unit Linked Insurance Plans (ULIPs)

- Endowment Insurance Plans

- Money Back Insurance Plans

- Whole Life Insurance Plans

- Child Insurance Plans

- Retirement Insurance Plans

- Group Insurance Plans

Term Insurance Plans

Term insurance is a type of life insurance that provides financial protection for a set period. If the policyholder passes away during this time, the insurance company pays a death benefit to the beneficiary. Term insurance is a pure life insurance product, which provides financial protection to the policyholder. The main goal of life insurance is to offer financial security to the policyholder's family.

Term insurance is crucial for protecting against the financial burdens of unpredictable accidents. It helps secure your family’s future and minimize lifestyle risks. It is also a good way to be prepared for uncertainties, especially in the face of the current global Coronavirus pandemic.

Who Should Buy Term Insurance?

All individuals who have financial dependents should buy a term insurance policy. This includes parents with dependent children, young professionals, self-employed individuals, senior citizens, housewives, women, and even gig workers.

A term insurance policy can be defined as an agreement between a policyholder and an insurance company. As part of this agreement, the insurance company agrees to provide financial protection to the dependent(s)/nominee(s) of the life insured in the form of death and/or income benefits in return for premium payments, if certain specified events occur.

Features of a Term Insurance Policy

• Save Tax U/S 80C & 80D (Income Tax Act 1961)
• You can opt for a longer term for your term plan to stay protected.
• Most term insurance plans have a minimum entry age of 18 years.
• Premiums Returned on Survival
• Disability Benefit with Term Insurance Plan
• Cover Against Life-Threatening Diseases
• Term plans offer the ease of adjusting the life cover, also called the sum assured, as per the changing needs.
• Flexible Premium Payment Options

Types of Term Insurance Plans

• Level Term Insurance
• Increasing Term Insurance
• Decreasing Term Insurance
• Term Insurance with Return of Premium (TROP)
• Convertible Term Insurance

Benefits of Buying Term Insurance

• High Life Cover at Affordable Premiums
• Protection from Illnesses
• Accidents can happen unexpectedly and may lead to temporary or permanent disability.
• Income Options in case of Unfortunate Events
• Protection Against Liabilities
• Riders for Additional Benefits
• Multiple Premium Payment Options
• Tax Savings

• Estimate Your Sum Assured
• Choose Your Benefits & Get a Quote
• Fill the Details & Pay the Premium

Term insurance is a type of life insurance that provides coverage for a specific period of time. Beneficiaries receive a death benefit if the insured person dies during the policy term. This type of insurance typically offers the choice between level premiums, where the premium remains the same for the entire term, or increasing premiums, where the premium gradually rises over time.

Whole Life Insurance

• Lifetime coverage: Whole life insurance provides coverage for the insured person's entire life, unlike term life insurance, which only covers a specific number of years.
• Cash value: Whole life insurance has a cash savings component, which the policy owner can draw on or borrow from. This cash value grows over time and can be used for various purposes, such as supplementing retirement income or making large purchases.
• Guaranteed death benefit: The death benefit in a whole life insurance policy is guaranteed and remains the same while the policy is active.
• Predictable premium payments: Premium payments for whole life insurance are typically fixed and do not change over the life of the policy.
• Tax advantages: Whole life insurance offers tax advantages, such as tax-free death benefits and tax-deferred cash value growth. Policyholders can also take out tax-free loans against the cash value of their policy.

There are different types of whole life insurance policies, categorised based on how premiums are paid. The most common type is level payment, where premiums remain unchanged throughout the policy. Other types include single premium, limited payment, and modified whole life insurance.

Endowment Insurance Plans

With an endowment plan, you make regular premium payments, and a portion of this money is invested by the insurance company, allowing your savings to grow over time. At the end of the policy term, you receive a guaranteed maturity benefit or sum assured, which can include bonuses. If you pass away during the policy term, your beneficiaries will receive a death benefit, which typically includes the sum assured and any accumulated bonuses.

Endowment plans offer flexibility in terms of premium payments and coverage. You can usually choose to pay your premiums at regular intervals (monthly, quarterly, or yearly) or as a lump sum. You can also enhance your coverage by adding riders, such as critical illness or accidental death benefits, for additional protection.

The maturity and death benefits of endowment plans are generally tax-exempt, providing further financial advantages. However, it's important to note that endowment plans may have higher premiums than other types of insurance, and the returns may be lower compared to pure investment plans.

Money Back Insurance Plans

Money back plans allow the insured to receive a portion of the sum assured at regular intervals (e.g., monthly or yearly) rather than a lump sum at the end of the policy period. These payouts are known as 'survival benefits' and are compensated over the policy term. The remaining sum assured, along with any vested incentives, is paid at maturity. In the event of the insured's death, a standard insurance payout (lump sum) is made to the nominee, known as the 'death benefit'.

Money back plans offer a combination of benefits that make them an excellent choice for those seeking both security and income. They include a guaranteed return on investment, as well as annual payouts and insurance coverage. Policyholders can, therefore, receive a stable and guaranteed return, as well as increase their wealth through investment opportunities.

Benefits of money back plans

• Guaranteed returns: Money back plans provide assured returns throughout the policy term.
• Additional bonus benefits: Many policies offer enhanced returns through bonuses when premiums are paid over several years.
• Financial security: Money back plans secure the financial future of loved ones when the policyholder can no longer provide for them.
• Savings for a specific goal: Money back plans allow individuals to plan their finances in advance and help achieve specific objectives, such as a child's education.
• Provides life insurance cover: Apart from investment benefits, money back plans also provide life insurance cover to the policyholders.
• Liquidity with regular payouts: The sum assured chosen by the policyholder is paid out in regular intervals throughout the policy tenure, providing liquidity.
• Low-profile risk: Money back policies are not market-linked and, therefore, carry a lower degree of risk compared to stocks, bonds, or mutual funds.

Features of money back plans

• Guaranteed returns: Money is returned to the life insured as a survival benefit after a set period.
• Income during the policy term: Money back policies provide a second source of income, with returns or the promised amount paid out every few years.
• Riders to increase cover: Most insurance providers sell optional add-on riders that can be purchased in addition to the base policy. These may include critical illness cover, accidental death cover, or term riders.
• Tax benefits: Under sections 80C and 10(10D) of the Income Tax Act 1961, you will receive a tax benefit on the premiums charged and the maturity proceeds from a money back policy.

Child Insurance Plans

Additionally, child insurance plans provide coverage for unexpected costs in the unfortunate event of losing a child. While it is relatively uncommon for a child to pass away, the payout from the policy can help cover expenses like burial costs or grief counselling.

When considering child insurance, it's essential to assess your budget and your own life insurance needs. In general, your life insurance takes priority as it can help cover your family's living costs and other expenses if something happens to you. However, there are situations where taking out a policy on your child might be beneficial. For example, if your child is an actor, model, or social media star bringing in a substantial income, or if they contribute to household expenses by working part-time.

Overall, child insurance plans can provide peace of mind and financial protection for your child's future. It's a gift that can last a lifetime and help them build a solid financial foundation as they transition into adulthood.

Frequently asked questions