Money Blog

Various Types of Life Insurance Policies available in India
There are a number of insurance plans available in the market and the companies are coming out with more innovative and customized insurance plans. All these plans are combination of two basic plans, first - Term Assurance and second - Pure Endowment, representing the two basic objectives for which insurance is generally bought first - death and second - old age, respectively. Now we will discuss various types of insurance plans.

Term Assurance Plan
In this type of plan, a fixed premium is paid for a fixed term for a sum assured and if the assured life does not come to an end after the expiry of the term the policy comes to an end and the insured or his nominee do not get anything. On the other hand, in case of death of the person isnured, the total sum assured becomes payable to the nominee and the policy expires thereafter. Since there is no return in this type of plan, the amount of premium is very low which is utilized for the pure risk cover. This type of plan is ideal for a person who just wants to insure his life and does not want to make an investment. For example Mr. Y takes a term plan on his life for a term of 20 years for a sum assured of Rs. 1,00,000 and the premium is Rs. 1000 per annum. Mr. Y will have to pay the premium till the expiry of the term or his death, whichever is earlier and in case he dies in the third year, Rs. 1,00,000 become payable to the nominee of Mr. Y and thereafter no premium is to be paid.

Term Assurance Plan with return of premiums
In this type of insurance policy, the premium is higher than the pure term assurance policy as the interest earned on the premiums is utilized to keep the policy alive. Here the premiums paid by the insured are paid back at the end of the term if the insured survives the term.

Convertible Term Assurance Plan
In this type of insurance plan, a term assurance plan can be converted into an endowment or whole life plan at the end of selected term of 5, 6, 7 or 10 years. The insured has to exercise the choice of conversion before at least two years of the expiry of the term. In case the option is not exercised till the end of the plan then the plan ends as a pure term assurance plan.

Pure Endowment Plan
In a pure endowment plan, the premium is to be paid till death of the insured and the sum assured becomes payable at the death of the insured.

Whole Life Plan
In this type of plan, the premiums are to be paid during the whole life of the assured or till the age of 85 which ever is earlier. The sum assured is paid on death or on attaining the age of 85 whichever is earlier.

Limited Period Whole Life
Limited period whole life plans are devised in such a way that the premium is paid up to a selected term only and thereafter the cover remains alive till rest of the life. For example Mr. Y takes a limited period whole life plan, where he selects the premium payment term to be 15 years and he starts his policy at the age of 30. He pays premium till the age of 45 and the sum assured becomes payable together with the profits to his nominee at the end of his life or on attaining the age of 85.

ULIP
This is a combination of life insurance with mutual fund. In the traditional plans the returns are very less. Generally the returns are in the range of 4 to 8 percent. The insurers devised these kinds of plans for high-risk high return seeking individuals. Here a portion is invested towards insurance of life and rest of the money is invested in shares and securities as per the choice of portfolio indicated at the time of purchase of plan. The portfolio mix could be a combination of 20% equity and 80% debt, or 60% equity and 40% debt, or some other combination as may be devised by the fund manager. There is also an option of switching between two different portfolios, which may be exercised during the continuation of the policy and as per the terms stipulated in the plan.

Annuities
Annuities are reverse of life insurance as the payment in a life insurance policy starts at the time of death and in case of an annuity it ends at the time of death. Under this scheme a capital sum is paid either in one go or in installments to the insurance company and the insurance company in return promises to make a series of payments to the insured till the end of his life.

Retirement Plans
Under retirement plans the insured keeps on paying the premium till the pre specified age of retirement and on attaining the age of retirement the insurer starts paying him a fixed amount every month or every quarter till the death of the insured.

Critical Illness Plan
There are certain critical diseases, which reduce the earning potential of an individual to a major extent, and the expenses of recovering from such diseases are very high. Such critical diseases put the family in financial crises, which is not much less than the loss of an earning member, therefore critical illness insurance plans are covered under life insurance. Under this plan a fixed premium is paid for a fixed term and the insurance company gives a cover under pre defined critical diseases like cancer, heart diseases, etc. and upon confirmation of any of the pre defined diseases a lump sum payment is made to the insured. And if during the term the insured does not suffer from any such disease he does not get anything. This is a type of pure term insurance, the only difference being the event of payment of sum assured.