Different types of Life Insurance products

Buying life insurance can be a daunting task. In the good old days, there was just LIC. Today with 23 private insurance companies in the fray alongwith LIC, one is spoilt for choice. The choices are umpteen. However, the vast choice coupled with the complex nature of some products makes it difficult for a potential customer to choose a product. Though different insurers may offer different features, the products sold will broadly fall in one of the following categories.

Read on to know more:

Term plan – This is the simplest and purest form of life insurance. You pay premium and in exchange your life is covered for the sum assured amount. In case of death of the life insured during the policy tenure, the sum assured is paid to the nominee. If the life insured survives the policy tenure, the policy ceases and no amount is payable. It is a no-frills product, easy to understand and offers only insurance cover. There is no investment or savings option linked to this. Predictably, the premium for a term product is lowest in comparison to other products.

Endowment plan – Unlike a term plan, in an endowment plan the sum assured is payable in both scenarios i.e. death or survival. It is a savings cum insurance plan. These are mostly traditional plans. As there is a guaranteed payout in either scenario the premiums are much higher as compared to a term plan. In some plans a bonus is also payable depending on the profits earned. This is best suited for people who want an inclusive product which takes care of insurance and savings and are ready to settle for very reasonable returns.

Money back plan – This is a type of endowment plan wherein at periodic intervals a certain percentage of the sum assured is paid out. At maturity, the balance sum assured is paid out. In case of death of the life insured during the policy tenure the full sum assured is payable irrespective of the percentage of the sum assured already paid. This works best for people who have monetary needs at different life stages. Accordingly, the payment intervals can be chosen. For eg: Money back plans are often offered as child plans where the periodic payments can be used to meet various milestones in the child’s life.

Whole life plan – As the name indicates, the insurance coverage is permanent. Regular premium payment has to be made and on the death of the life insured, the sum assured is payable to the nominee. It is best for people who wish to leave behind an inheritance for their loved ones.

Unit Linked Insurance plan (ULIP) – These are market linked products (equity/debt) providing dual benefits of insurance and investments. The customer has to choose an investment fund option (debt, equity or a mix of both) as per his risk appetite. The ULIP premium is split into charges and investible amount. The investible amount is used to buy units of the chosen fund. The value of the units is known as the policy fund value. The policy fund value changes on a regular basis as per the NAV (net asset value).

These plans are best for people looking to maximize returns by participating in the capital markets and also understand the inherent risks therein. ULIPs are similar to mutual funds, the main difference being that mutual funds do not provide life cover.

Annuity/Pension plan – Just as a term plan aims at covering risk of loss of income due to premature death, an annuity plan aims at covering loss of income that occurs after retirement. These plans help you create a corpus during your working years which can then be used for retirement benefits granting you financial independence during your golden years. They are available in both traditional and ULIP variants and can be opted ‘with life cover’ or ‘without life cover’.

Trust the information provided above is useful.