The 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 based on your demographics and income profile, risk appetite, requirements, and expectations.
Broadly, there are six types of life insurance plans in India:
- 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 a premium amount 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. The benefit amount is given out to the nominee in case of demise of the person insured.
Whole Life Plan: Under this plan, you can get life insurance coverage for a 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 a life insurance 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 plan, you get your investment in premium back over some time. The amount is paid at regular intervals as determined in the policy. It is the percentage of the sum assured and is paid during the tenure of the plan. These are also called Survival Benefits. These benefits are paid during the plan tenure and on maturity, the remaining Sum Assured is paid along with vested bonuses. However, if the insured dies during the plan tenure, the full Sum Assured is paid irrespective of the Survival Benefits already paid. This is what makes the plan unique.
Unit Linked Insurance Plan: Under this plan, your premium is invested in both government securities as well as the 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 the Policyholder Passes Away?
There are plans which waive off premium payment in case a policyholder passes away during the policy tenure. Under some policies, an 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. The accidental death benefit is a benefit that provides 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 protects 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 your 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 the 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? 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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