Life Insurance

The Life Insurance is agreement in a form of the policy, between an insurance company & the policyholder whereby the company agrees to pay certain amount i.e. the sum assured upon the death of the guaranteed party, to the nominees or the beneficiaries. The sum assured & the beneficiaries are stated in policy. Under the policy, premiums are paid by policyholder to the insurer which are determined by the insurer . Sum assured is the amount one is covered for as per the policy terms. This is the amount that can be claimed from an insurance company, in an unfortunate event of death of an the insured party.

Premiums are the amount paid by policyholder to the insurance company in order to hold the policy in force. In simple words, it is a cost of the policy. Premium is determined on the basis of the selected sum assured. Higher the sum assured, higher the premium. There are number of policies available in India. Selecting the best policy entails obtaining an appropriate level of cover. This depends on the individual’s financial requirements. To this effect, the cover chosen should sufficiently provide for all expenses, in the present & in the future, with the provision made for contingencies.

Types of The Life Insurance Policies in India:

The Term Insurance Plan

Term insurance policies are traditional & basic life insurance policies available, known as pure protection or pure insurance plans.

Under these plan, the insured is covered for the specific period of time or term. If he or she dies during this period, the death benefit i.e. the selected sum assured is paid out to beneficiary i.e. the policyholder’s nominee or legal heir. However, there are no maturity benefits means if a policyholder survives until the end of the chosen term, he/she will not receive the any pay out.

The term insurance plans are TROPs or Term Return of Premium plans. These are same as regular term plans except the beneficiary stands to receive death & maturity benefits. Besides the pay-out being made in an event of death of a life insured, a portion of or all of premiums paid is paid out to policyholder on survival until the end of the selected term.

Term plans are considered the best life insurance plans in terms of financial protection given that these plans are offer a highest coverage at lowest premiums/costs vis-a-vis other types of life insurance policy.

The Endowment Policy

These Endowment plans are life insurance plans that are protection & investment plans.

These plans offer death & maturity benefits. Premiums paid under this plan are not only located towards the sum assured but are invested for returns. Death & maturity benefits are not limited to the sum assured. Profits made on an invested amount are paid out to beneficiary or to policyholder. Profits under endowment policies are shared in a form of bonuses. The most bonuses are the reversionary bonuses & paid out at the regular intervals during policy tenure & terminal bonuses paid out on maturity of a policy.

Unit Linked Insurance Plans

ULIPs or Unit Linked Insurance Plans are unit linked, participating and investment cum life insurance policy.

The part of the premiums paid, under these plans, are invested in an unitized fund for returns. Returns are dependent on performance of an investments. Funds are debt, equity or debt cum equity funds. The Policyholder switch between these funds.

If during period of valid contract the life assured dies and the death benefits are paid out. These plans are normally more expensive than term or endowment plans since a portion of a premiums are located towards life coverage. The amount located for investments are used to meet investment expenses like fund manager fees, switching charges etc. Although, ULIPs offer tax advantages to policyholders & work on principle that insurance policies are both protection and investment instrument. If investments made provide good returns, the policyholder en cash the same. Unlike term plans, policyholders get the pay out on maturity.

Money Back Policy

These policies are participating and protection cum savings plans.

Money back policy differ from the endowment plans in that latter offers survival benefits at maturity. Other noteworthy feature of these plans is that death benefits payable during a period of valid contract aren’t affected by amounts are paid out. This means that if pay out was made before life assured dies, a amount won’t be reduced from a sum assured when making pay outs beneficiary. These plans offer the policyholder financial protection and returns on an amount paid to hold their policy active.

The Whole Life Policy

These policies are participating and protection cum savings plans.

These are insurance contracts that offer a life coverage for an entire life of life assured. Whole life insurance policies are normally used to build corpus of funds that may be left to the policyholder’s heirs. These plans offer the death benefits equal to sum assured & bonuses are applicable. They are provide maturity benefit that allow policyholders to gain returns on their insurance plans. Given a longevity of life spans these days, tenures of these plans are generally capped at 100 yrs. i.e. maturity benefits will be paid out when a policyholder reaches age of 100.

Annuity or Pension Plans

Annuity or the Pension Life Insurance Plans are non participating policies.

The policyholder makes lump sum payment to buy annuity. These plans are normally used for the retirement planning. It is suitable for retired or those approaching the retirement age.

Annuity or Pension Plans offer a dual benefit of life cover & liquidity in a form of regular income stream. Immediate annuity plans provide the pay outs during term of policy.

Deferred annuity plans provide pay outs at end of a policy term. Pay-outs are made at regular intervals i.e. monthly, quarterly, half-yearly or yearly. Annuity is constant through the term of a plan or increase at the predetermined rate.