Types of Life Insurance Policies: Which One Is For You?
3 min read
・Jun 11, 2024
Financial planning is incomplete without a life insurance policy. While most individuals are only focused on steady and aggressive income generation avenues, they forget the need for a risk-managing financial tool like life insurance. Less than 4% penetration of life insurance in India indicates the same.[1]
Choosing the right life insurance plan is essential and not confusing if you research well. Multiple life insurance variants are available in the market, each with its own set of benefits. This can often confuse you about the correct plan to opt for.
But worry not. Read on as we explore the different life insurance options and help you select the right one.
What Is Life Insurance?
Life insurance is an agreement between you and the insurance company. In exchange for regular premium payments, the insurance company promises to pay a specified coverage amount to your family, if you pass away within the insured period.
Life insurance should be a necessary addition to your financial plans. It ensures your family does not struggle financially, in case of your sudden demise.
Types Of Life Insurance Policies
. Term Life Insurance
Term life insurance is a pure protection plan where the insurance company promises a high coverage amount to your beneficiaries if you pass away during the insurance tenure.
When to choose: You should opt for term life insurance if you are seeking financial protection for your family with a high coverage amount at an affordable premium price.
| Pros | Cons |
| Affordable premiums | Zero wealth creation |
| High coverage amount | No monetary benefits if the policyholder survives the insurance term |
Unit Linked Insurance Plans (ULIPs)
ULIPs offer a combination of life cover and investment opportunities, offering a high return potential through stock market exposure.
When to choose: You should choose this plan if you wish to get a life cover while also diversifying your investment portfolio.
| Pros | Cons |
| Higher return potential | Higher risk because of stock market exposure |
| Flexibility to switch between funds | More expensive premiums |
Whole Life Insurance
This policy covers you for life, typically up to 99 years. Hence, your beneficiary will receive a guaranteed sum after your demise.
When to choose: You should choose this policy if you’re looking for lifelong coverage.
| Pros | Cons |
| Guaranteed life cover | Costly premiums |
| Can be used as loan collateral | Lack of investment control |
Child Insurance Plans
This insurance plan offers guaranteed insurance for your child and provides funds for their education and other future goals.
When to choose: You should choose this plan to provide financial security for your children.
Pros | Cons |
| Guaranteed insurance for your children | Slower growth |
| Provides funds for education and other life goals | Coverage amount may not be adequate in the future due to inflation |
Money Back Policy
Besides life coverage, money-back insurance plans offer a percentage of the assured sum as a steady income source till the policy matures.
When to choose: You should choose this plan if you are seeking regular income during the policy tenure.
| Pros | Cons |
| Serves as life insurance cover | Limited coverage amount |
| Steady income source till maturity | Higher premiums |
Endowment Policy
This insurance policy provides you with the combined benefit of life cover and savings, offering assured returns if you survive the insurance term.
When to choose: You should opt for this plan if you want an added low-risk investment option along with a life cover.
| Pros | Cons |
| Assured returns | Lower returns |
| Low-risk investments | Limited investment options and liquidity |
Retirement Plans
Retirement plans are special life insurance policies that provide financial security to your beneficiaries but also offer a steady pension income if you survive till the maturity date.
When to choose: Choose this plan if you want a life cover along with a steady income source post your retirement.
| Pros | Cons |
| Steady income flow | Costly premiums |
| Guaranteed return rates | Not maintaining the cash value component can result in policy lapse |
Group Life Insurance
Group life insurance is a type of life insurance policy that provides life cover benefits to multiple individuals, under a single master contract. Employers mostly offer it as an added benefit for their employees.
| Pros | Cons |
Cost-free coverage | Coverage ends when employment terminates |
| No waiting period | Terms decided at the employer’s discretion |
Key Takeaways
There is no one-size-fits-all when it comes to choosing a life insurance plan. So, compare your options carefully and find the relevant one for you as per your current lifestyle and future goals for your family and dependents.
Frequently Asked Questions
Which is better for a senior citizen, term life insurance or whole life insurance ?
Which type of life insurance policy is the most popular ?
Which types of life insurance plans offer tax benefits ?
How are endowment policies different from unit linked insurance plans ?
Which of the mentioned types of life insurance plans can be purchased on the PhonePe app ?
