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Types Of Life Insurance Policies in India

Types Of Life Insurance Policies in India
March 22, 2024

 

What is a Life Insurance Policy?

A life insurance policy is a contract with an insurance company. In this policy, a person has to make regular payments (known as premiums) to the insurance company in order to receive a sum of money that will be paid to them after a period of time, or to their family, in case of the policyholder's death, or if the policy matures. Typically, this type of policy is chosen based on your needs and goals.

Different Types of Life Insurance Policies in India:

The different types of life insurance policies in India include:

  • Term Insurance with Return of Premium

A novel twist on the classic term insurance policy, term insurance with return of premium combines financial security with the opportunity to build wealth. Among the different types of life insurance, this is one where the total premiums paid are reimbursed after the policy period if the insured survives the term, in contrast to standard term insurance, where premiums paid throughout the policy term are non-refundable. This policy's premium may be more than a regular term insurance plan. Still, the guarantee of premium return makes it appealing to those who want safety and a saving component simultaneously.

  • Universal Life Insurance Plan

An investment component is included in a Universal Life Insurance Plan, making it one of the most versatile and adaptable types of life insurance. Unlike conventional whole-life insurance plans, universal life policies give policyholders more leeway to adapt their premiums and death benefits to their evolving financial demands and situations. People looking to build wealth and economic stability over the long term goals, may benefit from purchasing a universal life insurance policy.

How to Buy a Life Insurance Policy in India?

You need to do a few things when purchasing different types of life insurance in India to ensure you have the right coverage. An all-inclusive guide is provided here:

  • Assess your current and prospective financial obligations and those of your dependents before you buy a life insurance policy. Then, it will be easier to determine how much insurance you need to safeguard your family's financial stability.

  • Learn more about different life insurance coverage types offered in India, including term, whole,retirement plans, endowment, ULIP, and money-back policies. Ensure you know what each kind can do and the restrictions on payment for critical illness.

  • Determine which insurance providers are the best by looking at their customer service reputation, financial stability, and claim settlement ratio. Choose a reputable insurance company that has been around for a while.

  • To calculate premium for term insurance, you may use an online term plan calculator. The policyholder's age, coverage amount, policy duration, and extra riders influence the premium rates displayed by the online term insurance calculator.

  • Decide on a life insurance plan that best suits your needs. Once you have finalized your life insurance plan, start filling out the application form. It will require you to share some personal information, such as your name, health habits, date of birth, etc. Any information you share must be true and complete.

  • Depending upon your age and the amount insured, the insurance company ask for some medical tests to be done. Please note that you must complete all tests on time and work with the insurance company's medical staff.

  • While applying, make sure that all required documents are attached. Some examples of those documents are birth certificates, utility bills, bank records, driver's licenses and, if needed, medical records.

  • Be careful to study the insurance policy papers properly before buying insurance. It also covers the plan's advantages, limitations, payment terms, premium due dates, and the rider (if available). 

  • Use your chosen payment method (cash, online payment or cheque) to pay the premium. Pay your premiums on time so the policy remains active, and you may continue to get coverage.

  • The insurance company will issue the policy paperwork after the papers and payment have been verified. Before putting the paper away, double-check it for accuracy.

  • In the event of a claim, share all of the information your life insurance company needs, including your policy number, insurer’s contact details, etc., to process your claim amount.

How to Choose the Right Type of Life Insurance Policy In India?

A right policy is a perspective that varies from person to person depending on individual needs, goals and affordability. It’s thus crucial to choose the plan that best suits these factors. Here are some things that can help you take your pick.

  • Life Goals: Determine the life goals you wish to fund with your life insurance benefits.
  • Sum Assured: The life cover or the sum assured should suffice to fund the needs and goals of your family when you are not around. Experts believe the ideal coverage should at least be 10 times your annual income.
  • Policy Term: Choose a long-term or short-term policy depending on what life goals you want to fund with it.
  • Riders: Enhance your coverage with additional riders like the accident cover and the critical or terminal illness cover to enjoy maximum benefit.
  • Credibility of the insurer: Ascertain whether the insurance company will settle the claims on time. Check for parameters like claim settlement ratio, solvency ratio and exclusions in coverage.

Tax Benefits on Different Types of Life Insurance in India

In addition to safeguarding one's financial future, whole life insurance in India gives tax advantages under specific provisions of the Income Tax Act. Various types of life insurance have varied tax implications, and we've outlined them below:

  • Term Insurance

Tax deductions are allowed for premiums paid for term insurance policies, up to a maximum of ₹1.5 lakh each financial year, under Section 80C of the Income Tax Act. Ensuring that the total amount insured is paid out without any tax deductions, the nominee may receive the death benefit tax-free under Section 10(10D) of the Income Tax Act.

  • Life Coverage

Tax deductions may be claimed under Section 80C for premiums paid for entire life insurance plans, up to a maximum of ₹1.5 lakh per year. Under Section 10(10D) of the Income Tax Act, the nominee is exempt from paying taxes on the maturity amount or death benefit as long as the premium paid does not exceed 10% of the sum insured in any given year throughout the policy term.

  • Funding Strategies

Under Section 80C, taxpayers are permitted to claim premiums paid into endowment plans up to a maximum of ₹1.5 lakh each fiscal year. The sum paid at the end of the insurance period is free from taxes under Section 10(10D) of the Income Tax Act, provided that certain conditions are met.

  • Unit-Linked Policies

Up to ₹1.5 lakh per year, you can deduct ULIP premiums from your taxes using Section 80C. It is possible to claim ULIP returns, including maturity and death benefits, as tax-free according to the conditions outlined in Section 10(10D) of the Income Tax Act.

  • Money-back Plans

Premiums paid for money-back plans may be deducted from taxable income under Section 80C up to the maximum specified. Section 10(10D) of the Income Tax Act exempts the maturity amount and the survival benefits received at regular intervals from taxation so long as the premium paid does not surpass 10% of the sum insured in any one year throughout the policy term.

Conclusion

Life insurance plans in India provide substantial tax advantages and financial security. Taking advantage of these tax benefits helps you grow your money without any tax implications and improves the financial stability of your family.

FAQs on types of life insurance

Q. What are the 4 main types of life insurance?

A. There are four primary types of life insurance: term, whole, endowment, and Unit-Linked Insurance Plans (ULIPs).

Q. What are the benefits that different types of life insurance policies offer?

A. Depending on the policy selected, life insurance may provide a variety of advantages, including security, tax advantages, investment possibilities, premium payment flexibility, and wealth growth.

Q. Is it possible to purchase two different types of life insurance policies at the same time?

A. It is possible to get two separate life insurance policy types simultaneously to satisfy different financial commitments and goals. However, remember that insurance companies have requirements that must be fulfilled to be covered.

Q. What type of life insurance is the most popular in India?

A. The majority of Indians choose term life insurance due to its affordable, straightforward coverage for a set duration.

Q. Are riders a type of life insurance policy?

A. Types of life insurance policy that are considered whole life do not have an end date or specified term, but rather are designed to cover the insured for their whole lifetime.

Q. What is the right age to buy life insurance?

A. Although individual circumstances may dictate otherwise, it is generally recommended that policyholders acquire whichever life insurance types in India suits them when they are young and in excellent health in order to take advantage of the most affordable rates.

Q. Which type of life insurance policy is best for married couples?

When it comes to life insurance, married couples have a few options. One is a joint policy that covers both partners. Another is term insurance with riders that protect spouses.

Q. Which type of life insurance policy is best for single individuals?

A. For individuals living independently, term or Unit-Linked Insurance Plans (ULIPs) provide affordable coverage, flexible monthly payments, and the chance to build their investments.

Q. Which type of life insurance policy never expires?

A. Permanent life insurance is a type of insurance that never expires. It features a savings component along with a death benefit. Whole life insurance and universal life insurance are two names for permanent life insurance.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Author Profile Written By:
Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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