Basic types of Life Insurance

1.Term insurance policy

It is most basic plain vanilla from of life insurance. It only provides life cover with no money back during policy term or lump sum amount on maturity. Basically insured amount is paid to the nominee in the case

 

Term insurance provides maximum insurance coverage at minimum cost. Main objective of term insurance is to protect the insured person’s dependents from financial loss in case of unfortunate death of the insured person.

 

2.Endowment insurance policy.

In this form of insurance, the insured amount plus applicable bonus is paid either on death of insured person or on maturity of policy.

Premiums are comparatively higher in endowment plans on account dual benefit of insurance and savings.

 

3.Money back insurance policy

In money back insurance policy, certain percentage of sum assured is paid on periodic intervals as survival benefit. Balance sum assured plus applicable bonus is paid on maturity. In case of death the entire sum assured plus bonus is paid without deducting any of the survival benefit amount, which have been already paid.

 

Premium of money back policy is more than endowment policy and preferred by individuals who want regular income.

 

4.Whole life insurance policy

This type of policy covers the insured for his entire life time or 100 years whichever is earlier. The insured amount plus bonus is paid on death of insured person.

 

The main objective of whole life insurance is wealth creation

 

5.Unit linked plans(ULIP's)

In unit linked insurance plan the part of premium is used to pay for the life cover and rest is invested in equity or debt. After deductions of various charges the balance amount is invested into the ULIP fund.Returns from UILP’s may not be guaranteed as the risk of investment is borne by the investor. Investor has to select the amount of premium to be invested in debt and equity. On maturity the amount equal to fund value is paid. In case of death the greater sum assured and total fund value is paid.

 

ULIP’s is a costly product on account of various charges but offer better returns in longer run. Investor has choice on where his premium is invested and can track his retuns through NAV of the fund.

 

6.Pension plans

In this type of plans the individual has to pay a single premium or regular premiums in the policy period and on maturity a regular income (annuity) is paid till insured person is alive. Policy is available with and without insurance cover. On unfortunate death of insured person before start of annuity payment the sum assured with applicable bonus is paid to the nominee for plans with insurance cover. For plans without cover, only total of premiums paid till date with interest is payed to nominee.

 

There are various options available for pension plans and annuity amount (regular income) depends on plan selected

 

  • till insured is alive

  • till insured and his spouse alive

  • till insured is alive with return of purchase price to nominee

  • till insured and his spouse alive with return of purchase price to nominee

  • to be paid for certain years (5, 10, 15 years) irrespective of whether the insured is alive and thereafter till the insured is alive.

  • annuity amount increase by certain percentage every year.

  •  Immediate Annuity plans where annuity is paid immediately on payment of premium or deferred annuity where payment is deferred upto the time selected by the insured person.