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Life Insurance Policy - Types and Features

November 07, 2016 148206
 

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:

There are two basic types of life insurance policies:

1.) Traditional Whole Life

A Whole Life Policy is a policy in which you pay till death of the policy holder

2.) Term Life Insurance

A Term Life Insurance is a policy for a fixed amount of time.

 

Sr No.

Type of Insurance Policy

Features

 1

Term Life Insurance

Term insurance is a life insurance product offered by an insurance company which offers financial coverage to the policy holder for a specific time period.
 2

Whole Life Policy

The policyholder pays regular premiums until his death, upon which the corpus is paid out to the family.
 3

Endowment Plans

Endowment plans pay out the sum assured under both scenarios - death and survival
 4

Unit Linked Insurance Plans

ULIP is a life insurance product, which provides risk cover for the policy holder along with investment options to invest in any number of qualified investments.
 5

Money Back Policy

Money back plan is a life insurance product as well as an investment plan which provides life insurance cover against death of the policy holder along with periodic returns as a percentage of sum assured.

 

Term insurance

Term plans are the most basic type of life insurance. They provide life cover with no savings / profits component. They are the most affordable form of life insurance as premiums are cheaper compared to other life insurance plans.

Online term insurance plans provide pure risk cover, which explains the lower premiums. A fixed sum of money - the sum assured - is paid to the beneficiaries if the policyholder expires over the policy term. If the policyholder survives, there is no pay out.

Endowment plans

Endowment plans differ from term plans in one critical aspect i.e. maturity benefit. Unlike term plans which pay out the sum assured, along with profits, only in case of an eventuality over the policy term, endowment plans pay out the sum assured under both scenarios - death and survival. However, endowment plans charge higher fees / expenses - reflected in premiums - for paying out sum assured, along with profits, in either scenario - death or maturity. The profits are an outcome of premiums being invested in asset markets - equities and debt.

Unit linked insurance plans (ULIP)

ULIPs are a variant of the traditional endowment plan.They pay out the sum assured (or the investment portfolio if its higher) on death/maturity.

ULIPs differ from traditional endowment plans in certain areas. As the name suggests, performance of ULIP is linked to markets. Individuals can choose the allocation for investments in stock/debt markets. The value of the investment portfolio is captured by the NAV (net asset value). To that end, there are many similarities between ULIPs and mutual funds. ULIPs differ in one area, they are a combination of investment and insurance, while mutual funds are a pure investment avenue

Whole life policy

whole life insurance policy covers a policyholder over his life. The main feature of a whole life policy is that the validity of the policy is not defined so the individual enjoys the life cover throughout his life. The policyholder pays regular premiums until his death, upon which the corpus is paid out to the family. The policy expiresonly in case of an eventuality as there is no pre-defined policy tenure.

Money back policy

money back policy is a variant of the endowment plan. It gives periodic payments over the policy term. To that end, a portion of the sum assured is paid out at regular intervals. If the policy holder survives the term, he gets the balance sum assured. In case of death over the policy term, the beneficiary gets the full sum assured.

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