There are several life insurance policies available in India. One can choose the best life insurance policy ranging from a term plan to a retirement plan. However, even after the presence of scores of insurance companies and the availability of hundreds of products, life insurance penetration remains low. As per the annual report of the Insurance Regulatory and Development Authority of India, life insurance penetration was a paltry 2.76% in 2018 in the country. A lack of understanding of the different types of life insurance policies could be one of the factors for the low acceptability of life insurance.
Life insurance policies can broadly be divided into two types: pure-risk plans and investment-cum-insurance plans. The different types of life insurance policies can be categorised into either of the two types.
- Term Life insurance: It is the purest form of life insurance and provides a death benefit to the nominee if the insured dies during the tenure of the policy. Term plans cease to exist and do not pay anything if the insured survives the policy term. Term life insurance comes with several riders and options. You can opt for a term plan with a decreasing cover, a level cover or an increasing cover. Term plans are the most affordable life insurance products and provide a substantial cover at affordable premiums. Term plans are simple products and can be conveniently bought online.
- Whole life insurance: As the name suggests, these policies provide life insurance coverage to the insured for his/her entire life, which is considered to be 100 years. Whole life insurance policies have a cash component and the amount is paid to the insured if he/she survives the policy period. You are allowed to partially withdraw the accumulated amount after the completion of the premium payment term. Since whole life insurance has a maturity component, you can avail a loan against the policy.
- Money-back policy: These policies are low-risk products that pay a part of the sum assured at periodic intervals during the policy tenure. If the policyholder survives the policy term, a money-back policy pays him/her the remaining corpus along with the bonus, if any. In case the insured dies during the policy term, the nominee is paid the entire sum assured, irrespective of the periodic payments received by the policyholder. These policies are ideal for people who need cash at regular intervals to meet short-term financial goals.
- Endowment plan: An endowment plan is a protection-cum-savings policy that pays the insured maturity benefit at the end of the policy term. These policies pay the policyholder a part of the profit earned by the insurer from the investment or a bonus amount along with the sum assured. If the insured dies during the policy tenure, the nominee is paid the sum assured along with the bonus or participating profit for the number of years that the insured survived. Endowment plans can be used as long-term savings options for people with low-risk tolerance.
- Unit-linked investment plans: ULIPs are one of the most flexible products available in the market. A part of the premium is used to provide insurance, while the balance is invested in the capital markets by the insurer. Policyholders have the freedom to choose from a variety of funds that invest in different proportions in equity, debt or other instruments. ULIPs provide the protection of insurance coverage along with the potential to get market-linked returns
- Child insurance policy: These policies are targeted at children and are designed to accumulate a corpus for a child’s future needs like education or marriage. One should ideally invest in a child insurance policy when the child is born so that the policy pays meaningfully when the child attains adulthood. Child plans generally allow the withdrawal of the fund after the child turns 18. In case the child’s parents die during the policy tenure, some insurers waive remaining premiums and allow the policy to continue till maturity.
- Retirement plan: A retirement policy is designed to generate a regular income for the insured after retirement. Some policies pay out the entire corpus as lump-sum after retirement, but a majority of plans invest the corpus to provide a pension or annuity to the policyholder.
Life insurance policies come in different shapes and sizes. You should choose a policy according to your financial goals, investment horizon and risk appetite. The best life insurance policies offer the benefits of different plans in a single policy. With the Invest 4G ULIP from Canara HSBC Oriental Bank of Commerce, you get ample flexibility to modify the policy according to your needs. You can opt for the whole life option or the premium funding benefit option. You also get the option to choose from seven different investment funds as per your risk profile.