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Types of Life Insurance

Types of Life Insurance

Different Types of Life Insurance Policies | Buy the Best Life Insurance Plan Online

Choosing the right type of life insurance policy is one of the most important requirements for a comfortable, hassle-free life. Not only does a life insurance policy guarantee that one’s dependents will be well looked after even if they are no longer around, but it can also contribute to building a substantial corpus to fulfill their future financial goals.

There are different types of life insurance policies in India on offer to prospective policyholders. One can choose the most suitable life insurance plan based on their unique individual requirements. Read this article to learn about different types of life insurance and their benefits.

Different Types of Life Insurance Policies in India

Listed below are the various types of life insurance policies in India:

Term Life Insurance or Term Plan Long-term pure financial protection plan for family
Whole Life Insurance Provide life cover to your dependents during your employment years and a legacy after retirement
Unit Linked Insurance Plan (ULIP) Invest in a mix of diversified equity and debt funds with just 5-year lock-in for partial withdrawals
Endowment Plan Surety of receiving the intended sum at maturity
Money Back Plan Plan your cash flows for goals like child education and marriage
Retirement Plan Build a retirement corpus or build a pension for your golden years
Child Insurance Plan Invest in a child’s higher education and marriage goals under the safety of life cover
Group Insurance Plan Useful for corporates and other organisations to cover their employees and customers against unforeseen hazards
Savings & Investment Plans Channelise your savings towards a future goal

1. Term Life Insurance or Term Plan

Term life insurance is the most popular type of life insurance. Term insurance is widely considered to be the simplest and purest form of life insurance. Term insurance is a type of life insurance that offers death benefit to the beneficiary if the life insured dies during policy tenure.

Term insurance is the most affordable types of life insurance. The most distinctive feature of a term insurance plan is the high amount of coverage offered at extremely nominal premium rates. It is thus cheaper than other types of life insurance policies.

In general, term life insurance does not offer maturity benefits. But certain types of term plans also offer maturity benefits, i.e., term plan with return of premiums (TROP) if the policyholder outlives the policy term. One can also increase the amount of coverage offered by a term plan by opting for additional riders, such as Accidental Death Benefit or Child Support riders.

2. Whole Life Insurance Plan

Whole life insurance is a type of life insurance that offers coverage right until the death of the policyholder. In whole life policy, you can opt for either a participating or non-participating policy, as per your financial needs and risk appetite. Though the premiums for participating whole life insurance are higher in comparison, dividends are paid out at regular intervals to the policyholders. The premium rates for a non-participating policy are lower, but the policyholder generally cannot avail the benefits of regular dividends.

3. Unit Linked Insurance Plan (ULIP)

Unit Linked Insurance Plan or ULIP is a type of life insurance product that offers dual benefits of investment and life insurance. Among the different types of life insurance policies available, ULIPs enjoy a high amount of popularity owing to their versatile nature. A portion of the premiums paid towards ULIPs is directed towards ensuring insurance coverage, while the rest of the premium is invested into a bouquet of investment instruments, which can include market-backed equity funds, debt funds and other securities.

ULIPs are extremely flexible instruments since investors can easily switch or redirect their premiums between the different funds available. ULIPs are also touted as having an edge over other market instruments in terms of tax-saving benefits, since their proceeds are exempted from LTCG (Long Term Capital Gains).

4. Endowment Policy

Endowment Policy is a type of life insurance policy which acts as, both, an instrument for insurance and saving. Endowment plans aim to provide maturity benefits to the life insured, in the form of a lump sum payment at the end of the policy tenure, even if a claim hasn’t been made. Endowment plan is the most suitable types of life insurance for people looking to get maximum coverage alongside having a sizable savings component. They help the policyholder inculcate the habit of savings, even while providing financial security to their family. Endowment plans can broadly be classified into two types: with profit and without profit. Policyholders can choose from these two types based on their risk appetite.

5. Money Back Policy

Being one of the best types of life insurance policies, a money-back policy offers policyholders a percentage of the total sum assured at periodic intervals in the form of Survival Benefits. Once the policy reaches maturity, the remaining amount of the Sum Assured is handed over to the policyholder. However, if the policyholder dies while the term is ongoing, their dependents are given the entire Sum Assured without any deductions.

6. Retirement Plan

A retirement plan is a type of life insurance that focuses on providing you financial stability and security post your retirement. After you retire, you lose your regular income from employment. Investing in retirement plans can help you create a stable regular income stream. If you continue to invest until retirement, the plan will help you take care of your expenses after retirement. A retirement plan requires you to invest a certain part of your income regularly during your working life. At the time you retire, the amount that you create over the years will be converted into a regular income stream. Retirement plans also involve death benefits. Thus, if the policyholder passes away during the course of the policy, their beneficiaries will be provided with an assured sum.

7. Child Insurance

A child insurance plan is a savings cum investment plan that provides financial protection for the child’s future upon the unfortunate demise of the policyholder. It is ideal for ensuring the future needs of the child are well taken care of, even in the absence of the life insured. Parents can invest in the best child insurance plans, in order to meet the financial requirements for their child’s education, marriage or to fulfil a multitude of other financial goals their child might have.

8. Group Insurance Plan

A group life insurance policy is a type of life insurance that covers a group of people inside a single insurance policy. Unlike individual life insurance policies, which cover one person for a period, group insurance covers a minimum of 10 members.

Employers, banks, corporates, and other homogeneous groups of persons can buy group Life Insurance policies for their employees and customers. While employers would want to offer financial protection to their employees' families banks and lending institutions aim to keep the debt off the borrowers’ family after their death.

  1. The plan under which the group is covered is called the Master Plan.
  2. The policy is issued to the manager of the group (master) but will remain in the name of the group only.

For example, Ram is the manager of a firm, to protect his employees, he has taken a group insurance policy. Now the policy will be issued to Ram in the name of the firm.

One of the distinct features of these life insurance policies is that you get insurance till the time you are part of the group. If you leave the group, your cover ceases to exist.

9. Savings and Investment Plan

Savings and investment plans from life insurance are the plans which channel your regular savings into long-term investment goals. Guaranteed Savings Plans and iSelect Guaranteed Future are two of the many such plans with Canara HSBC Life Insurance. With these plans, you can start investing your surplus money every month or year and benefit from:

  1. Guaranteed sum assured at maturity
  2. Guaranteed bonuses and boosters depending on your investment tenure
  3. Additional life cover for the family
  4. Guaranteed Savings Plan offers maturity value as a tax-free lump sum amount

You can also protect your financial goal with a premium protection option. This option allows the planned investments to continue even after your demise.

How to Choose the Right Type of Life Insurance Policy?

The idea of the right policy differs from person to person. What will be a good option for someone else, may not be as attractive for you. Thus, it becomes important to choose the policy that suits you the best.

Here is how you can choose the right type of life insurance policy:

a) Choose According to the Goal

Different life insurance policies can help fulfil different goals. You should be clear about the goal that you want to achieve with your life insurance policy.

b) Consider the Sum Assured

Ascertain the needs and wants of your family members as well as the daily expenses and choose a cover that can fulfil all these. The general rule that goes is that you should select a sum assured which is at least 10 times your annual income.

c) Policy Term

While some policies are made to achieve long-term goals and have a longer time frame, some policies have shorter terms as well. Select a policy that has multiple time frames.

d) Riders

Riders can enhance your sum assured and can cover those occurrences which the basic policy doesn’t. Choose a policy with maximum riders.

e) Check Information of the Company

Apart from the policy, research about the company that provided the policy as well. Check out for the following:

  • Claim settlement ratio
  • Solvency Ratio
  • Exclusions

FAQs on Different Types of Life Insurance Policies

The most common types of life insurance in India are given below:

  1. Term Life Insurance or Term Plan
  2. Whole Life Insurance
  3. Unit Linked Insurance Plan (ULIP)
  4. Endowment Plan
  5. Money Back Plan
  6. Retirement Plan
  7. Child Insurance Plan
  8. Group Insurance Plan
  9. Savings & Investment Plans

Term life insurance is the most popular type of life insurance plan in India for offering adequate long-term financial protection to the family. ULIPs are the most popular when it comes to long-term investment plans. ULIPs are diversified investment options with flexible withdrawal conditions making them a preferred investment for long-term goals.

Whole life insurance plansdo not have a particular expiry date. However, they will continue until you reach 100 years of age. If you happen to survive till 100 years of age, most whole life plans will return the sum assured to you and expire.

Whole life insurance and term life insurance have two major differences:

  1. Whole life insurance continues until your natural demise or 100 years of age
  2. Term life insurance has a definite term which must end before you reach 100 years of age
  3. Whole life insurance also has an investment component. Thus, the policy acquires a cash value over time
  4. Term life insurance does not acquire a cash value as there is no investment component in the policy

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