Types of Life Insurance

Types of Life Insurance

What is Life Insurance?

A life insurance policy is a long-term contract with an insurance company that allows you to provide an adequate level of security for your family in case something untoward was to happen to you. Although no amount of money can ever compensate for the loss of an individual, life insurance provides you with the peace of mind, knowing that your family will be taken care of financially. Having a life insurance policy in place thereby ensures that your family will be able to pay off any mortgage, liabilities, medical expenses or outstanding loans and continue living in case of your absence. Besides this, the policyholder also is provided with the option to add on several riders on the holder’s requirement.

Different Types of Life Insurance Policies in India

Let’s explore how to choose the right type of life insurance policy in India.

Types of Insurance	Features
Term Insurance	1. Term insurance  is the simplest and cheapest type of life insurance policy that offers financial coverage to the policyholder’s family for a set period of time.        2. In case of an unfortunate event during the policy term, beneficiary of the policy holder gets a lump sum amount i.e. sum assured to lead a financially stable life.        3. Term insurance plans are designed purely to protect financial future of family of policy holder .
Endowment Plans	1. Endowment plans differ from term plans and come with a specified maturity benefit, as decided by the insurer.        2. In case of an untoward incident which leads to the demise or in the event of a permanent disability, during the tenure of the policy; the sum assured will be payable to the said beneficiaries to the policy.        3. However, if the policyholder survives the term of the policy, the agreed maturity benefits become payable.
Whole Life Policy	1. Whole life policies tend to offer the policyholder lifelong protection.        2. The policyholder pays regular premiums unless he meets an untimely demise, upon which the corpus is paid out to his family or beneficiary.        3. As there is no pre-defined policy tenure, the policy expires in case of an eventuality.        4. It combines permanent protection with a savings component and is ideal for individuals looking to create an inheritance or estate for their children.
Unit Linked Insurance Plans	1. ULIP or Unit Linked Insurance Plans is a combination of insurance and investment as they provide risk cover for the policyholder along with investment options.        2. ULIPs offer the insured, the opportunity for wealth creation while providing the security of a Life Cover. In ULIPs, a portion of the premium goes towards providing the life cover, while the remaining portion is invested in equities or debts (or a combination of both) which is also subject to market volatility.        3. ULIPs pay out the sum assured (or the investment portfolio) whichever is higher, on death/maturity.
Money Back Policy	1. Money Back plans pay the sum assured to the insured party on maturity while also providing certain amounts called survival benefits. These survival benefits are made on a periodical basis.        2. When the term expires, the policyholder gets the balance sum assured.        3. Additionally, in case of the policyholder meets with an untimely demise during the policy term, the beneficiary gets the full sum assured.        4. The policyholder might also be eligible to receive a bonus from the insurance company based on its performance.
Child Insurance Plans	1. Child insurance plans help build a financial corpus to support major expenses like education and marriage, ensuring the child’s future needs are met.       2. Some plans offer flexible payouts, either as lump-sum amounts on maturity or periodic payouts after the child turns 18.       3. In case of the parent's unfortunate demise, the child receives immediate payment. However, if the insured child dies, the policyholder (parent or guardian) usually receives the death benefit.
Retirement Insurance Plans	1. A retirement insurance plan helps the policyholder save systematically for life after retirement, building a financial cushion over time.       2. It provides either guaranteed or market-linked returns, ensuring the policyholder receives a steady income during retirement years.       3. At maturity, the policyholder gets a lump sum or regular payouts to cover post-retirement expenses comfortably. The maturity benefits are tax-free* subject to Section 10(10D) of the Income Tax Act of 1961.       4. Some plans may even have the option of partial withdrawals, offering you flexibility to withdraw and maintain the remaining fund for your regular income.
Group life insurance	1. Group life insurance plans provide life cover to a group of individuals under a single master policy, commonly offered by employers to their employees.       2. The policyholder is usually the organization, while members (like employees) are the insured individuals.       3. Premiums are often lower than individual plans and may be fully or partially paid by the employer. In case of a member’s death, the beneficiary receives a lump sum benefit, offering financial support.       4. Group life insurance policies are more cost-effective compared to individual policies.

Key Features of Popular Life Insurance Types

To help you select the best life insurance type for your needs, here is a quick comparison:

Feature	Term Life Insurance	Endowment Plan	ULIP	Whole Life Policy
Primary Goal	Protection (Pure Cover)	Protection + Savings	Protection + Investment	Protection + Lifelong Cover + Savings
Maturity Benefit	None (unless Return of Premium Plan)	Yes (Sum Assured + Bonus)	Yes (Fund Value)	Yes (at policy end/age 100)
Flexibility	High (in premium payment modes)	Moderate	High (Fund Switching/Partial Withdrawal)	Low to Moderate
Risk	Low	Low to Moderate (based on bonus type)	High (Market Linked)	Low to Moderate
Best Suited For	Young earners, high coverage at low cost	Individuals seeking disciplined savings with life cover	Individuals seeking market-linked returns and life cover	Wealth creation, inheritance planning

Tax Benefits on Types of Life Insurance Plan

Life insurance policies in India offer multiple tax benefits under the Income Tax Act, depending on the type of policy and premium amount.

Section 80C Deduction:

• Premiums paid for different types of life insurance including term, endowment plans, ULIPs, and whole life policies are eligible for deductions under Section 80C.
• The maximum deduction allowed is ₹1.5 lakh per financial year.

Section 80D Deduction: 

• If you have opted for an add-on or a health rider such as critical illness rider, you may also be eligible for benefits under Section 80D deduction. The deduction can be claimed for self, spouse, dependent children or even parents.

Section 10(10D) Exemption:

• Payouts received on maturity or death are tax-exempt under Section 10(10D).
• The exemption applies if the annual premium is not more than 10% of the sum assured (for policies issued after April 1, 2012).

ULIPs (Unit Linked Insurance Plans):

• Maturity proceeds are tax-free if annual premiums are ₹2.5 lakh or less. If premiums exceed, capital gains tax may apply on maturity benefits.

High-Value Policies (Post April 2023): 

• For non-ULIP policies with annual premiums over ₹5 lakh (issued after April 1, 2023), maturity proceeds may be taxable.

Note: Tax laws are subject to change. Consider reviewing the latest guidelines or consult a tax advisor to understand the tax implications in detail. When you have two or more policies, you’ll have to be more careful of the premiums and benefits. Besides, go through the policy term and guidelines carefully.

How to Purchase Life Insurance in India?

Buying a life insurance is a simple yet straightforward process. Here are the steps you must follow to buy an ideal life insurance plan in India.

• Identify your needs: Start by identifying your needs and comparing different types of life insurance plans. Take your time to assess whether you require a term plan for maximum coverage, an endowment plan for savings, or a ULIP for investment growth.
• Compare plans and insurers: Before purchasing, you should compare plans from different life insurance companies. Evaluate the insurer’s claim settlement ratio, customer service record, insurance features and specifications. Read the policy terms carefully, including inclusions, exclusions, and premium payment terms. You may consider getting quotes from three to four insurers to make an informed decision ahead.
• Identify the coverage: After that, determine the ideal coverage amount based on your age, income, dependents, and financial goals. Fill out the application form honestly, and be prepared for a medical check-up in many cases.
• Choose the right medium: You can buy life insurance through insurance agents, brokers, banks, or directly from company websites and aggregator platforms. Choose the medium that fits your needs.

After the insurer reviews your application and medical reports, the policy will be issued if approved. Always keep a copy of the policy document and your beneficiary informed of the policy details. Regular premium payment and policy review ensure continued benefits and peace of mind.

Life Insurance Riders and Add-Ons Explained

Riders are additional benefits that can be added to your base life insurance policy for an extra premium, enhancing the coverage against specific risks.

• Accidental Death Benefit Rider: Pays an additional sum assured to the nominee if death occurs due solely to an accident.
• Critical Illness Rider: Pays a lump sum amount upon the diagnosis of a specified critical illness (like cancer, heart attack, or stroke).
• Waiver of Premium Rider: Waives all future premiums if the insured suffers a critical illness or permanent disability, while the policy benefits continue.
• Accelerated Death Benefit Rider: Allows the insured to receive a portion of the death benefit in advance if they are diagnosed with a terminal illness. Adding the right riders can significantly boost the overall financial security provided by your life insurance.

The Bottom Line

You have always been there for your loved ones, are it financially or emotionally, but have you ever taken into consideration, how they would cope if you’re no longer around to support them? Understanding life insurance types is essential, as life insurance is one of the pillars of personal finance and should be considered by every household. Opt for the right life insurance product for your family today and stay protected at all times!

Related Blog- What is Life Insurance? Meaning, Definition & Complete Guide

FAQ: Types of Life Insurance

1. What type of life insurance policy is the most popular in India?

Term insurance is the most popular life insurance in India. It offers high coverage at low premiums and focuses solely on providing financial assistance to the family in case of the policyholder’s death. Its affordability and simplicity make it a widely preferred option.

2. Can I purchase two different types of life policies at once?

Yes, there is no legal restriction against holding multiple policies. You can buy two or more policies, as per your goals. But make sure to assess the policy terms and conduct a detailed analysis before opting for a new one.

3. What are the tax benefits on life insurance?

Premiums paid for life insurance qualify for tax deductions under Section 80C of the Income Tax Act, up to ₹1.5 lakh per year. Additionally, payouts received on maturity or death are tax-free under Section 10(10D), subject to specific conditions being met. If you have two or more policies, check that the premiums or maturity benefits fall under the exemption criteria to enjoy the tax benefits.

4. What is the cost of life insurance?

The cost of life insurance depends on multiple factors including your age, health, coverage you’re opting, and the policy term. The cost will increase if you opt for any additional riders or benefits. Generally, term life insurance is the most affordable option compared to other whole, ULIP and annuity plans.

5. What is the ideal age to buy life insurance?

You should consider buying life insurance plan early in your 20s or 30s because the premium is likely to increase as you age.

Important YMYL Content Disclaimer (As per IRDAI Guidelines) 
Life insurance is subject matter of solicitation. The information provided in this guide is for general educational and informational purposes only and does not constitute professional financial or legal advice. You are advised to consult a qualified insurance advisor and carefully read the sales brochure, product literature, and policy document for specific terms, conditions, benefits, and exclusions before concluding a sale. Unit Linked Insurance Plans (ULIPs) are market-linked insurance products. The premium paid in ULIPs is subject to investment risks associated with the capital markets. The value of the units may go up or down based on the performance of the fund and factors influencing the money market. Past performance of the funds is not indicative of future performance. Tax benefits are subject to changes in the tax laws.

AN Jan 58/17