Types of Life Insurance Policies in India

5 min read

Do you want to know about varied types of term insurance covers? Here’s a brief guide.

Term insurance can be broadly categorized into 2 types:

  • Pure risk plan (offer insurance coverage only), and
  • Combination plan (offer insurance coverage and investment option)

However, it is difficult to choose from among the plans unless you know about the different plans.

7 Different Life Insurance Plans available in India

Below are the names of different types of life insurance policies available in India:

Let’s get detailed knowledge on the types of life insurance in India.

1. Term Insurance

This is the most common and reasonable life insurance cover that can be afforded by most people easily. Term insurances are used as protection against death, and they are offered for a particular period. In the event of the death of the insured during the period of the term policy, the insurance company compensates the beneficiary of the insured with death benefit. Term plan is a risk cover that offers life coverage at a minimum premium rate.

This plan also has the option of adding riders to enhance coverage. Moreover, here the nominee can receive the compensation in three different ways:

  • lump sum amount
  • monthly income payment
  • or mixture of both payment

In term plans if the insured outlives throughout the period of the policy, then no money is paid and hence it is called a pure risk plan.

But, with TROPS, that is, Term Insurance Plans with Return of Premiums, many insurance companies are now-a-days providing reimbursement of the premium option paid if the insured outlives the plan. However, these are high-end plans with bulky insurance premium rates.

Here is an example:

Age of insured Term period Amount Assured Range of Annual Premium
25 yrs 40 yrs 1Crore rupees Rs.6,800 – Rs.10,500

In the above case, for Rs.1Crore term plan cover, a non-smoker might have to pay between Rs.6, 800 to Rs.10, 500 annual premium approx.

Benefits:

  • Financial protection for family in the event of sudden demise of the insured
  • Cover for income loss
  • Help family to make payment of loan, daily house expenses, education and marriage of children etc.

 

2. ULIPs

Unit Linked Insurance Plan is an inclusive combination plan offering the opportunity of investment along with insurance. This is a long-term plan that presents the flexibility of investment because partial payment of premiums of such plans are used for investment and the rest is used as insurance. The insurance providers offer opportunities to the insured to invest in different funds like bonds, equities etc.

Example:

Term peroid  Assured Sum Premium Annual Value of Fund
20 yrs Rs.2 lakh 20,000 rupees Mostly depends on the worth of the fund at maturity.

Benefits:

  • Allow insured to invest as per risk
  • Allow the choice to invest in debt, equity etc
  • Allow complete transparency

3. Endowment plans

This plan is a good combination of savings and insurance. Here, a particular amount is used for life insurance, and the remaining is used by the insurance company for investment purposes. Also, in this plan the insured receives benefits of maturity as offered by the company. This plan also provides periodic bonuses and other benefits.

Example:

Term period Assured Sum Premium Annual Value of Fund
30 yrs Rs.10 lakh 20,000 to 25,000 Rupees Mostly depends on the additional benefit as a bonus at maturity.

Benefits:

  • Gain maturity returns
  • Long term plan

4. Money Back Insurance Plan

This is an exclusive life insurance plan. Here the insured receives a fraction of the assured sum as survival benefit on sporadic intervals. These plans qualify to earn bonuses in between as affirmed by the insurance company to help meet the short period financial goals of the policy owner.

Example:

Term Period Assured Sum Premium Annual Returns ( Periodic) Benefit of Maturity
20 yrs 5 lakh Rupees 20,000 to 25,000 rupees Fraction of assured sum received in intervals Insurance cover plus accrued bonuses plus confirm money back

Benefits:

  • Short-term monetary plan
  • Chance to earn return on maturity.

5. Whole Life Insurance

As the name suggests, this plan covers the insured person for their entire life (up to 100 years in some cases). The assured sum in this case is awarded to the applicant while claiming for the death together with the bonuses (if there is any). And if the insured outlives the policy beyond 100 years, he/she receives coverage of matured endowment paid by the insurance provider. The rate of premium in this type of life insurance is high and the plan offers the option of partial withdrawals once the premium payment time is over.

Example:

Premium Term Assured Sum  Premium Annual  Benefit of Maturity
20 yrs 3 lakh rupees 10,000 to 15,000 rupees Confirmed Sum Assured plus bonus (if there is any) plus bonus terminal (if there is any)

Benefits:

  • Lifelong protection
  • Can leave behind enough for nominee

6. Child Plan

This plan is used by parents to ensure a bright future for the child. The fund invested in this policy helps in education and other costs of the children. These plans mostly offer payout once the child turns 18 years.

Here, if the insured (here parent) dies during the term of the policy, the insurance provider makes the immediate payment.  In some cases, future premium gets waived (if insured dies), while the policy lasts till it matures.

Term period Assured Sum Premium Annual Returns (Periodic) Benefit of Maturity
20 yrs 18 lakh rupees 1 lakh rupees Lump sum pay at normal interval benefit of maturity plus confirmed returns plus confirmed  accrued bonus (if there is any)

Benefits: 

  • Fulfills dreams of your children

7. Retirement Plan

This plan creates an amount to help you after retirement and give you financial security.  Even in this case, one-time payment is received after you turn 60 years. If the insured dies during the policy period, the nominee receives the immediate payment given by the policy provider. Here, the death benefit is higher than the coverage or the sum insured.

Benefits:

  • Help create an amount for retirement.

To Conclude

The Term plan offers cover against pure risk, while the ULIP provides insurance coverage as well as offer investment prospects. Endowment Plan is again an insurance plus savings plan, while the Money Back  plan presents periodic returns together with offering insurance coverage. Whole Life Insurance is a life coverage plan for your entire life, while a Child Plan is used to fulfill the requirements of your child. On the other hand, Retirement Plan offers security against your retired life.

Now that you know about the types of life insurance policies in India, you can use this knowledge to buy the best plan to cover your family.

Also Read: Term Policy Lapse – Should You Revive It Or Seek A New One?

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Gayatri Prabhu, Head-Digital Business at Mahindra Insurance Brokers Limited (MIBL) is one those few digital leaders who has the width and depth that is required to execute an ROI driven holistic digital strategy. She cuts through the noise, identifies the critical levers and leads her team to successful execution of the defined strategy. Her core mantra to win new and retain existing customers is: understand the consumer behavior and craft experiences around it.

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