The Buyt Desk
Life insurance is a financial tool that ensures financial security for your dependents in case of an unforeseen incident. It is one of the foremost things that you should consider when you start financial planning at the start of your career. There are many types of life insurance products in the Indian market. Not many know about these and just go for what their family member or friend has opted for. Each one serves a different purpose so you need to look for the one which serves your needs. Some can be investment tools and some can be retirement tools along with providing security to the family. Let us look into the features and benefits of a few types of life insurance plans.
What are the Types of Life Insurance and their features and benefits?
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Term Insurance Plans – This policy secures your family’s financial future in case of your demise. The primary breadwinner of the family should have this policy so that the family has a financial cover over them. This is not market linked and is purely a protection plan. This type of insurance has cheaper premiums as compared to other types and costs very less when bought at a very young age. Financial experts advise buying a term insurance plan as soon as one starts earning. This type of insurance also offers riders an extra layer of protection at a nominal price. The family can use the payout to run day-to-day life or for children’s education or wedding or to clear the outstanding debts.
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Unit Linked Insurance Plans (ULIP) – This is a combination of investment and insurance which means it provides life cover and also provides you ways to create wealth from systematic investments through market-linked returns. Based on your risk appetite you can invest in various fund options including bonds, hybrid funds, equities etc. It has a 5-year lock-in period and provides flexibility in investment including fund switching and partial withdrawals. The attractive benefits are loyalty additions and wealth boosters, which will help you create more wealth in the long run. Under Section 10(10D) of the Income Tax Act of 1961, the maturity amount from these policies is tax exempted.
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Endowment Insurance Plans – This policy provides life insurance protection along with guaranteed returns. If you want to save regularly while having life cover, this is the policy you should buy. On maturity, a lump sum is paid to the insured which includes the sum assured and bonuses. On the death of an insured, the nominee will get the money along with the death benefit. These plans are very flexible. Premium payment frequency and method can be chosen by the buyer. Under Section 10(10D) of the Income Tax Act of 1961, the maturity amount from these policies is tax exempted and under Section 80C even premiums paid can be claimed for deduction.
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Money Back Insurance Plans – This is a life insurance policy where the sum assured is not paid on maturity but the insured is paid a percentage of the sum assured at regular intervals. Thus this provides liquidity to the insured. These are designed for short-term investments and to achieve quick financial goals. The money received can be considered as your income as the payout is systematic. Under Section 10(10D) of the Income Tax Act of 1961, the maturity amount and regular payouts from these policies are tax exempted. These policies also offer flexibility to choose premium frequency as per your plan.
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Whole Life Insurance Plans – This is a life insurance policy with a term of 99 years. This provides lifelong cover. This is designed for individuals who have dependents in their old age and who want to leave behind a legacy for their children or legal heir. A lot of stability is offered to the insured. Insured gets a guaranteed income on maturity after paying the premium for the first 5 years. Under Section 10(10D) of the Income Tax Act of 1961, the maturity amount and income received from these policies are tax exempted. The nominee receives the policy benefits along with a bonus on the death of the insured.
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Child Insurance Plans – This plan is for parents or grandparents who want to build a corpus for the child’s future including education and wedding. The maturity benefits can be either annual instalments or one-time payouts once the child is 18 years old. Along with the child, even the parent gets in-built insurance coverage. The parent pays the premium. In case of the death of the insured parent, to cover a child’s expenses this policy will give immediate payment. This is a flexible plan and the premium can be a regular or a one-time lump sum. The premium is invested in equity, debt or balanced funds as per the parent’s choice. The benefits of this child plan are loyalty additions and wealth boosters. Partial withdrawals can be done after 5 policy years. This policy also offers riders.
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Retirement Insurance Plans – This plan helps you create a large corpus for your retired life. This gives you financial independence even when you are not working. This is a long-term investment as it accumulates good amounts until you retire. This plan offers very good returns. The premiums are invested in a combination of equity and debt. Under Section 10(10D) of the Income Tax Act of 1961, the maturity amount received from these policies is tax exempted. This plan enables you to move between funds tax-free. The payout can be one on maturity as a lump sum payment or as regular income or a combination of both.
