Life insurance industry in India has come of age. You can expect comprehensive solutions at very cost effective premium rates. There are different types of insurance plans available for different profiles of people. It is of critical importance to understand the various types of insurance plans first, and then do some research on the basis of your demographic and income profile, risk appetite, requirements and expectations.
Broadly, life insurance plans in India come into five types:
Term insurance plan
- Whole life plan
- Endowment plan
- Money back plan
- Unit linked insurance plan
Types of Life Insurance Plans
Term insurance plan: As the name suggests, this type of life insurance plan remains valid for a particular term. You have to pay premium amount in order to get yourself covered. The premium paid should be treated as an expenditure as this type of life insurance neither generates any returns nor you get it back in any form.
Whole life plan: Under this plan, you can get life insurance coverage for lifetime. The advantage is that you do not miss life insurance for any period. Accidents happen when you least expect them. If you are uninsured even for a negligible period, it may turn out to be a big blow for your family later.
Endowment plan: These plans can also act as great savings tools. You get life cover during the tenure of the policy and get all the premium paid back, along with added benefits like bonus, once the term is over.
Money back plan: Under this, you get your investment in premium back over a period of time. The amount is paid in regular intervals as determined in the policy.
Unit linked insurance plan: Under this plan, your premium is invested in both government securities as well as equity market. The returns generated by these plans are better than average, in the long term. These plans are popularly called ULIPs, an abbreviation for the same.
Annuities and Pension: These types of life insurance plans are aimed at retirement income. You get a combination of life coverage and pension income during retirement.
What if policy holder loses life?
There are plans which waive off premium payment in case a policy holder loses life during the policy tenure. Under some policies, insurance premium is paid by life insurance companies themselves for the rest of the period.
Waiver of premium is generally available with child plans, which helps in continuing the insurance policy even when the parent is unable to pay the premium due to the death or disability. Accidental death benefit is the benefit that provides the coverage in case of death due to an accident.
Dismemberment provides relief to the policyholder in case he loses his limbs or vision in an accident. Accelerated death benefits include benefits like terminal illness, dreaded disease and long term care. This kind of benefit provides protection to the policyholder when he has less time to live and/or needs money for getting medical treatments to live further.
Life insurance is no more a matter of choice but a necessity. Apart from protection, it is an investment tool as well. So go ahead, buy a life insurance policy and plan not just your finances but you life as well.
How about tax exemptions?
Section 80C of the Income Tax Act makes all the above-mentioned life insurance plans eligible for tax exemption. Until last fiscal year, the total limit of deduction was set at Rs 1 lakh. However, from the current fiscal, this limit is enhanced to Rs 1.5 lakh.
So, is it wrong if we say that there is no reason why you should not consider life insurance plan in your portfolio? In fact, it is advisable to get a combination of life insurance plans to generate better returns and balance your insurance portfolio.
By Leena Jethwani
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