Different Types of Life Insurance Policies & How to Choose the Best One
The different types of Life Insurance Policies and how to choose the best one for you?
There presently exist several different types of Life Insurance policies in India that individuals can avail through a number of channels, including the internet. Navigating this market can be tedious as there exist a number of differences in these Life Insurance policies and they each have varied offerings, requirements and price tags attached to them. Individuals must do adequate research prior to investing in a given policy such that they can select a Life Insurance policy most suited to their needs and requirements.
What is a Life Insurance?
A legally binding contract, a life insurance is issued by an insurer to a policyholder. This contract guarantees the former pays a predetermined amount of money to the beneficiaries, specified by the latter, when they die. This payment is made as a result of the policyholder paying premiums to the insurer during their lifetime.
Quick facts to know about Life Insurance Policies -
- Life Insurance applications must accurately state the insured individual’s previous and current health conditions, along with their high-risk activities such that the policy be considered valid and enforceable
- Life Insurance policies require the insured to make payments in the form of periodic premiums or a single premium, up front such that the policy remains active
- When the insured individual dies, the beneficiaries mentioned in their policy avail the policy’s face value or death benefit
- Term life insurance policies are valid for only a select number of years, whereas Permanent Life Insurance policies expire only when the insured individual dies, stops paying premiums or surrenders their policy
- How does one choose a Life Insurance Company? - When selecting a Life Insurance policy, it is important to bear in mind the financial strength of the insurance company issuing it and its capacity to fulfil its payments. Considering the claim-settlement ratio of the insurance company is therefore of utmost importance.
Types of and the differences in Life Insurance Policies in India
The following points highlight what to look for and how to choose a life insurance policy that works best for you:
- How does one choose a Term Insurance? – This form of Life Insurance is applicable for a fixed period of time, only. In the event that the insured individual dies within the fixed period, the insurance company pays the death benefit to the nominee of the insured. Since this policy doesn’t come with additional maturity benefits, its premiums are comparatively lower than other policies
- Whole Life Insurance – This policy ensures an individual for their entire life. Upon death, the Sum Assured is provided to the individual nominated by the insured
- Endowment Plans – This policy serves as both, a form of Life Insurance, as well as a savings plan. Premiums paid by the insured go towards their life coverage, in addition to covering investments on their behalf. Individuals insured under this policy can take advantage of maturity benefits
- Money-Back Life Insurance – This policy is another variation of the above. However, here, insured individuals are entitled to a percentage of the premium they previously paid as money back, which is provided at regular intervals
- Unit Linked Insurance Plan (ULIP) - The insured individual is provided with Life Insurance as well as investment opportunities. Premiums paid, are used to cover investments in equities in addition to purchasing power risk. The insured individual can select which funds to invest in, based on their risk profile
- Child Plans – This form of Life Insurance policy is most often availed by parents for their children, to secure funds for their future and help cover big expenses, like higher education and marriage. The Sum Assured can be received as a one-time payout or can be provided in annual instalments, until the child turns 18 years of age. In the event that the parent of the insured child dies during the outlined term plan, the child receives their Sum Assured, immediately
- Retirement Plans – This form of Life Insurance is ideal for those seeking a plan of funding their future. Akin to Child Plans, Retirement Plans offer the insured with payouts on an annual or one time basis, once the insured turns 60 years old. In the event that the insured dies during the term, their nominee is entitled to the Sum Assured.
How does one select the appropriate policy?
Prior to selecting a Life Insurance plan, it is recommended that individuals do due diligence and examine all the policies currently available in the Indian market. They must consider what their priorities are and what their most pressing needs are. Individuals should select Life Insurance plans that best align with these needs and must always read the fine print.
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