Types of Life Insurance

by SMCIB on Tuesday, 09 January 2024

Life insurance is an important financial investment tool that can help you and your family meet future milestones, goals, and dreams - if purchased properly. The life insurance market is replete with a variety of plans that cater to different needs and requirements. Understanding the features, benefits, and nuances of each plan type is crucial so you can make the right decision and not end up with an investment that you have no use for!

In this article, we’ll take a closer look at the different types of life insurance and the benefits they offer. Let’s begin!

Types of Life Insurance Plans

Here are the different types of plans available in the insurance market –

Whole Life Insurance

Whole life insurance is a type of life insurance that provides coverage for the duration of your entire life, up to 99-100 years. It is quite rare for any human to reach this age, so, whole life insurance is a good option if you want to leave behind an inheritance, or a parting gift for your loved ones - which is both exempted from tax and can help provide them with financial stability in the future.

Benefit	How It Works
Maturity Benefit	You will receive the sum assured as a maturity benefit if you survive the policy term.
Death Benefit.	Your nominee will receive the sum assured as a death benefit if you pass away while the policy is still active.
Survival Benefit	At the end of the premium payment term, certain plans provide a survival benefit. Depending on your insurer, it can either be a predetermined amount, a percentage of the sum assured, or accrued bonuses.

Term Insurance

Term insurance is an affordable form of life insurance that pays out a lump sum of money to your nominees if you pass away during the policy term. It provides financial protection for your family and helps them cover expenses like children’s education/wedding, paying off loans, daily living costs, etc.

Benefit	How It Works
Death Benefit	Your nominee will receive a death benefit (the sum assured) if you pass away during the policy term.
Maturity Benefit	There is no benefit paid in case you survive the policy term. However, if you buy a Term Return of Premium plan, you will be eligible to receive the paid premiums (minus taxes) as your maturity benefit.

Child Insurance Plan

Investing in a child plan is a smart decision to ensure a stable and prosperous future for your child. These plans help you save up enough money to fulfil your child's dreams without putting a strain on your finances.

The best part is that a child plan remains active even if you pass away. The insurer waives all future premiums and the funds keep growing until the policy matures. Depending on the type of policy, your child may receive a lump sum or periodic payments to cover significant milestones like their higher education, marriage, and other life events.

Benefit	How It Works
Death Benefit	Your child will receive a death benefit if he/she is above 18 years of age if you pass away during the policy term. If in case your child is still a minor, an appointee nominated by you will receive the benefit on their behalf.
Maturity Benefit	You will receive the sum assured as a maturity benefit if you survive the policy term. This amount can be used to fund your child’s milestones.

Endowment Plan

Endowment plans combine the benefits of both insurance and savings. With an endowment plan, you get the protection of life insurance, ensuring that your loved ones are financially secure in case of your unexpected demise. At the same time, the plan also helps you save money regularly over a fixed period.

Benefit	How It Works
Death Benefit	Your nominee will receive a death benefit if you pass away during the policy term. This can be either the sum assured or a multiple of the annual premiums you pay.
Maturity Benefit	You will receive a maturity benefit as a lump sum amount if you survive the policy term. This might be the total premiums paid (minus taxes), a portion of the premiums paid, or an amount agreed upon while buying the policy

Money-Back Plan

Money-back plans are a type of investment plan that carries a low level of risk and provides you with guaranteed returns. You invest money and receive regular payouts after a specified period of time. It’s a good way to generate a secondary source of income.

Benefit	How It Works
Maturity Benefit	If you survive the duration of your insurance policy, you will be entitled to receive a maturity benefit. It may either be the sum assured, the survival benefit as regular payouts, or a total lump sum of the payouts.
Death Benefit	If you pass away during the policy period, your nominee will be entitled to a death benefit, which is the total sum assured of the policy.
Survival Benefit	Depending on your policy schedule, you will receive regular payments at specified intervals. They are calculated as either a percentage of the sum assured or a percentage of the annual premium you have paid.

Unit-Linked Insurance Plan

A Unit-Linked Insurance Plan (ULIP) is a type of life insurance policy that provides both investment and insurance benefits. It allows you to invest in a variety of market instruments to achieve your long-term financial goals, while also offering your dependents the protection of life insurance

When you purchase a ULIP, a portion of your premium payments goes toward life insurance coverage, while the remaining is invested in various instruments of the stock market. This includes equity funds, debt funds, and other securities, based on your risk tolerance and financial objectives

Note: It is important to keep in mind that the returns on ULIPs are subject to fluctuations in the stock market, which means that they may not provide guaranteed returns.

Sum Assured + Fund Value
The higher of either Sum Assured or Fund Value,

Benefit	How It Works
Maturity Benefit	If you survive the duration of your insurance policy, you will be entitled to receive a maturity benefit. It is equal to the fund value of your investment on the date of maturity
Death Benefit	If you pass away during the policy period, your nominee will be entitled to a death benefit, which can either be

Retirement Plans

Retirement plans help secure your future by catering to your retirement needs. They help you accrue money or create an income source for your later years to take care of your dreams and obligations.

There are three types of retirement plans available to help you prepare for your retirement.

Benefit	How It Works
Single Premium Annuity Plan	You make a single lump sum investment under this plan and receive a regular income after you get retired. This is a good choice if you’re close to retirement and want an income for your financial needs.
General Annuity Plan	You invest money in the plan regularly for a specific period. The accrued money is converted into a steady income for your retirement years and is paid to you periodically based on the customisation options selected.
Pension Accumulation Plan	You pay premiums for the plan during the policy period. The premiums get accumulated into a fund, which is paid to you as a lump sum when you retire.

Group Life Insurance

A group life insurance policy is a type of insurance plan that covers a group of people under a single policy. This type of policy is usually offered by organisations to their employees, banks to their customers, associations to their members, etc. Group life insurance often has lower premiums compared to individual policies. Here, you are not required to undergo medical tests or tedious documentation.

You or your family will receive the plan’s benefits, depending on the type of plan. This coverage will last only till you are a part of the group.

To Conclude,

Buying life insurance is a crucial part of financial planning, and choosing the right plan can make all the difference. It guarantees financial security for your family while ensuring your peace of mind. Whether you're looking to protect your loved ones, accumulate wealth, or plan for your retirement, there is a life insurance plan tailored to your needs.