Types of Insurance

All policies are not the same. Some give coverage for your lifetime and others cover you for a specific number of years. Here is a snapshot of the types of policies and what they offer.

  • Term Insurance
  • Term insurance covers you for a term of one or more years. It pays a death benefit only if the policy holder dies during the period the insurance is in force. Term insurance generally offers the cheapest form of life insurance. You can renew most term insurance policies for one or more terms even if your health condition has changed. However, each time you renew the policy for a new term, premiums may climb higher, just like a rent agreement every time you renew the lease. This policy is particularly useful to cover any outstanding debt in the form of a mortgage, home loan, etc. For example if you have taken a loan of Rs10 lakh, you will have an option of taking an insurance to protect the loan in case of passing away before the debt is repaid.
  • Whole Life Insurance
  • Whole life insurance covers you for as long as you live if your premiums are paid. You generally pay the same premium amount throughout your lifetime. Some whole life policies let you pay premiums for a shorter period such as 15, 20 or 25 years. Premiums for these policies are higher since the premium payments are made during a shorter period. There are options in the market to have a return of premium option in a whole life policy. That means after a certain age of paying premiums, the life insurance company will pay back the premium to the life assured but the coverage will continue.
  • Money Back Insurance
  • The money back plan not only covers your life, it also assures you the return of a certain per cent of the sum assured as cash payment at regular intervals. It is a savings plan with the added advantage of life cover and regular cash inflow. This plan is ideal for planning special moments like a wedding, your child's education or purchase of an asset, etc. Money back plan have "participating" and "non participating" versions in the market.
  • Endowment Assurance
  • Endowment insurance is a level premium plan with a savings feature. At maturity, a lump sum is paid out equal to the sum assured (plus dividends in a par policy). If death occurs during the term of the policy then the total amount of insurance and any dividends (par policy) are paid out. There are a number of products in the market that offer flexibility in choosing the term of the policy namely you can choose the term from five to 30 years. There are products in the market that offer non participating (no profits) version, the premiums for which are cheaper.
  • Universal Life
  • This is a flexible life insurance policy and is also market sensitive. You decide on the several investment options on how your net premium are to be invested. While the mony invested has the potential for significant growth, such funds are subject to market risks including the loss of the principal.
  • Unit Linked Insurance Product (ULIP)
  • Market-linked plans or unit-linked insurance plans (ULIP) are similar to traditional insurance policies with the exception that your premium amount is invested by the insurance company in the stock market. Market-linked insurance plans (MLP) mimic mutual funds and invest in a basket of securities, allowing you to choose between investment options predominantly in equity, debt or a mix of both (called balanced option). The major advantage market-linked plans offer is that they leave the asset allocation decision in
the hands of investors themselves. You are in control of how you want to distribute your money among the broad class of instruments and when you want to do it or pull out. Any of the products mentioned above except term products could be unit-linked.
  • Riders
  • Riders are additional add-on benefits that you could opt to include in your policy over and above what the policy may provide. However, these additions come at an extra premium charge depending of the rider you opt for. These riders cannot be bought separately and independently. The extra premium, nature and characteristics of the riders are based on the base policy that is offerred. Some riders available in the market are :
  • 1. Accident Death Benefit: Provides a additional amount in case death occurs as a result of an accident.
  • 2. Term Rider: It allows the payment of an additional amount should death of the insured happens.
  • 3. Waiver of Premium: In case of total and permanent disability of life insured due to accident or any other means this rider allows premiums on base policy or riders to be waived.
  • 4. Critical Illness: It provides payment of an additional amount on the diagnosis of some critical illness.

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