Know the Different Types of Life Insurance in India

Types of Life Insurance

1. Term Insurance Plans:

   
   

   As the name suggests, term insurance is purchased for a specific tenure. If the insured dies during the plan's tenure, the nominee of the insured receives a death benefit.

   
   

   Check out the various features of the plan:

   
   
   • A term plan is purchased for a fixed tenure
   • Term insurance is a life cover offering death benefits if the insured dies during tenure
   • There are various types of term insurance plans, such as level cover, increasing cover, decreasing cover and term plan with a return of premium.
   • The plan may gives you a choice to add riders on payment of additional nominal premium, such as:
     • Accidental Permanent Total and Partial Disability Rider
     • Waiver of Premium Rider
     • Accidental Death Benefit Rider
     • Critical Illness Benefit Rider, among others
     
     
   • A term insurance calculator helps you calculate the coverage you may need for your family in your absence
   • Pure term insurance plans do not offer any maturity benefit. TROP (Term Plan with Return of Premium) has a maturity benefit wherein the premium paid for the plan is returned to the policyholder if he survives the policy tenure subject to certain deductions.
   • Tax Benefit:
     • The premium paid towards a term insurance plan is deductible under Section 80C (under old tax regime) of the Income Tax Act, 1961 up to Rs 1.5 lakhs per annum, subject to the provisions stated therein
     • Maturity benefit, in the case of term plans with return of premium, is also tax-free under section 10(10D) subject to satisfaction of conditions mentioned therein.
     • As per section 10(10D) of the Income Tax Act, 1961, the death benefits received by your nominee under the plan are tax-free.
     
     
   
   

2. ULIPs – Unit Linked Insurance Plans:

   
   

   ULIP stands for Unit Linked Insurance Plans. If you are looking for a comprehensive insurance plan that offers both life cover and market linked investment component, ULIP can be a suitable choice. Through ULIPs, the premium you pay is invested in market-linked funds, post deduction of applicable charges. Along with market-linked returns, ULIPs also provide a life cover to the life assured . It is essential to note that ULIP is a type of life insurance suitable for those who want a long-term investment plan as it comes with a 5-year lock-in period.

   
   

   Let's have a look at some of the features of ULIPs:

   
   
   • ULIP provides both life cover component as well as a market linked investment component. The policyholder can choose from various market-linked funds as per requirements.
   • Money can be invested in different funds like equity funds, debt funds, hybrid funds or balanced funds as per your risk appetite. Over time, you may switch your funds under ULIP depending on terms and conditions of the plan.
   • You can use the ULIP calculator that uses data provided by you to give an idea of the estimated returns. The expected rate of return, premium amount and duration can be modified to get different results as required.
   • Tax Benefit:
   • ULIPs offer three types of tax benefits:
     • The premium is deductible under section 80C of the Income Tax Act, 1961(under old tax regime) up to Rs 1.5 lakhs a year
     • For ULIPs issued on or after February 1, 2021 the maturity amount remains tax free if the aggregate annual premium in any financial year during tenure of the policy/policies, does not exceed Rs2.5 lakh and subject to satisfaction of Section 10(10D) conditions
     • For ULIPs issued before February 01, 2021, the maturity benefits are exempt from tax subject to satisfaction of conditions mentioned in Section 10(10D) of the Income Tax Act, 1961
     • However, for ULIPs issued on or after February 01, 2021 with annual premium more than Rs. 2.50 lakhs, gain will be taxable as Capital Gain. The LTCG will be tax-free up to Rs.1.25 lakh for given financial year for all ULIPs.
     • Moreover, LTCG gains beyond the exempted limits will be taxable @ 12.5% for all types of ULIPs whether equity or debt oriented.
     • The death benefit is tax-exempt under section 10(10D) of the Income Tax Act 1961 irrespective of date of issuance of ULIP policy.
     • ULIPs give you the option to switch the funds you invest in during the policy term subject to policy terms & conditions. These switches are not taxable.
     
     
   
   

3. Endowment Insurance Plans:

   
   

   Some people want a life cover that can also offer a savings option. Under an endowment plan, you get both of these options. However, if the insured passes away during the tenure, the nominee receives the sum assured and the savings components & the periodic bonuses if any, depending on the Insurer and policy terms and conditions. This way, an endowment plan ensures both life cover and savings benefits. Take a quick look at the various features of an endowment plan:

   
   
   • The premium paid for the endowment plan is used to provide life insurance cover to the insured and also offer a savings component.
   • Tax Benefits:
     • The maturity benefit is tax-free under section 10(10D) of the Income Tax Act, 1961, subject to satisfaction of conditions mentioned therein.
     • The policyholder can claim deductions on the premiums paid under Section 80C of the Income Tax Act, 1961 up to Rs 1.5 lakhs a year, as per the provisions stated therein under old tax regime.
     
     
   
   

4. Whole Life Insurance Plans:

   
   

   A whole life insurance plan, as the name says, is an insurance plan that provides cover for your whole life i.e up to the age of 99 or 100 years, depending upon the insurer. This is a type of life insurance plan that has both survival benefits and death benefits. A whole life insurance plan provides a death benefit to your nominees after you are no longer around for them. Here is a quick look at some of the features of the whole life insurance plan:

   
   
   • A whole life insurance plan provides coverage to the life assured  until he/she turns 99 or 100 years old.
   • Upon the insured's death during the plan's tenure, the nominee  receives a death benefit
   • The plan may also pay out a survival benefit paid if the life assured  survives the policy term depending on the terms and conditions of the policy.
   • Tax Benefits:
     • The premiums paid under the policy are deductible up to Rs 1.5 lakh under Section 80C of the Income Tax Act, 1961 subject to provisions stated therein under old tax regime.
     • The death benefit as well as the maturity benefit of a whole life insurance plan are exempted from tax under Section 10 (10D) of the Income Tax Act, 1961, subject to satisfaction of provisions stated therein.
     
     
   
   

5. Child Insurance Plans:

   
   

   Once a child is born, parents experience a lot of responsibilities. To fulfil a number of these, parents may require adequate finances. Some new parents may start investing for their children as soon as they are born. Child insurance plans are one such investment. These plans provide a combination of protection and wealth creation to ensure a secure financial future for your child. A child insurance plan helps builds a steady corpus that can be used to finance your child’s life goals. The life cover that comes along with it offers a death benefit to your nominee(s) if something happens to you.

   
   

   A child insurance plan provides payouts at different milestones of your child’s life. It may be for their higher education, wedding, etc.

   
   

   Some of the features of the plan are:

   
   
   • A child insurance plan provides a maturity benefit to the child and a life insurance cover to the insured parent
   • Some child insurance plans have a waiver of premium , wherein if the insured parent dies within the policy tenure, the future premiums are waived and the plan continues as per the original schedule.
   • The child/nominee receives a death benefit if the insured passes away during the tenure. However, the plan continues to pay the survival/maturity benefit of the plan as per the plan’s terms & conditions.
   
   

6. Group Insurance Plans:

   
   

   As the name suggests, a group insurance plan is meant for a group of people. Under a single life insurance policy, a group of people are covered. Under employer-employee group life insurance scheme, an organization purchases a group life insurance plan to provide its employees’ life insurance coverage. In the case of a company, a group life insurance is taken by the employer to offer life insurance coverage to its employees and the premium for the same is paid by the employer. However, in some cases, a part of the premium is shared between the employee and the employer as well. An employee is covered under a group life is only till they are in employment with the company.

   
   

   Some of the features of Group Insurance Plans under Employer-Employee Scheme:

   
   
   • A group life insurance covers a whole group under a single life insurance plan.
   • The employer is the master policyholder and typically pays the premium on behalf of its employees
   • Providing group life insurance can give a sense of financial security to the employees
   • Tax Benefits:
     • If an employee contributes towards the premium for the plan, they can claim the premiums paid as deductions under Section 80C of the Income Tax Act, 1961 (under old tax regime)
     • The death benefit payout is also completely exempt from taxation under section 10(10D) of the Income Tax Act, 1961. subject to the provisions mentioned therein.
     
     
   
   

7. Money Back Insurance Plans

   
   

   Money Back Insurance Plans provide life insurance with savings. You can get life coverage while getting periodic payments during the policy period. It is a suitable  product for someone wanting insurance protection and a guaranteed* income. Here's a detailed breakdown of their features and benefits:

   
   
   • These plans offer regular payouts throughout the policy term. These payments are a fixed percentage of the sum assured and help meet big expenses (like children's education, the cost of maintaining a home, and medical expenses etc).
   • If the life assured dies during the policy term, the nominee (or beneficiaries) receives the death benefit.
   • If the life assured survives the policy term, they receive the sum assured plus any bonuses accrued during the policy duration. This creates savings for the policyholder upon the policy's maturity.
   • Money-back insurance Plans are available for different tenures, such as 10 years, 15 years, or 20 years, so you can find the plan that is right for you and your needs. There is flexibility with respect to policy duration and the option for a joint policy or rider.
   • Tax Benefits:
     • Premiums paid for Money Back Insurance Plans are eligible for tax deductions under Section 80C of the Income Tax Act (under old tax regime). You can claim a deduction of up to ₹1.5 lakh annually on premiums if you opt for the old tax regime.¹
     • The sum assured received at maturity, including bonuses, is tax-free under Section 10(10D), provided the premiums do not exceed 10% of the sum assured.¹
     
     
   
   

How to Choose the Right Type of Life Insurance Policy in India?

Choosing the right life insurance policy is essential for securing your financial future. The policy you choose should align with your personal goals, financial objectives, and the level of coverage you need. Consider your family’s financial needs, your health, and whether you need life cover, savings, or both. A little research can go a long way in ensuring you make the right decision.

Life Goals

When selecting a life insurance policy, it’s crucial to consider your life goals. If you're looking for long-term financial protection, choose a policy that offers both savings and coverage. If your goal is to secure your family’s financial future, a term or whole life insurance plan may be more appropriate. Tailor your insurance policy to meet your needs.

Sum Assured

The sum assured is the amount your nominee will be paid in the event of your death. Verify that the sum assured is enough to satisfy the everyday needs of your family, like living expenses, schooling, and paying off debts. You should evaluate your own financial obligations to determine an appropriate sum assured for your policy.

Policy Term

The policy term refers to the time period that the life insurance policy will remain in force. Choosing the appropriate policy term is important. A shorter term might save you on premiums, but possibly not save your family from a loss of coverage later on. A longer term provides a method for your family to be covered over a longer period, in addition to securing peace of mind.

Riders

Riders are optional extensions to your life insurance available at additional nominal premium. They offer expanded coverage for accidental death, critical illness, or disability. Riders may enhance your policy and ultimately offer further protection, depending on your needs. They can also be the most cost-efficient means to expand your coverage without needing to buy a different policy.

Credibility of the Insurer

Prior to acquiring life insurance, you should check the credibility of the life insurer. Make sure to select a provider you can strongly endorse, which means selecting a life insurer who has a strong reputation, solid customer reviews, and a high claim settlement ratio. You also want to ensure the life insurer has a pattern of paying on time and that their policy terms and conditions are clear and transparent.

Tax Benefits on Types of Life Insurance

Life insurance policies offer tax benefits under various sections of the Income Tax Act,1961. Premiums paid are eligible for tax deductions, and in some cases, the maturity proceeds are tax-free.

Section 80D²

Under Section 80D, you can claim tax deductions for premiums paid on life insurance policies with health-related riders. The tax benefit is available for premiums paid for self, spouse, children, and parents. The maximum deduction allowed is ₹25,000 (₹50,000 for senior citizens) if you opt for the old tax regime. This section helps reduce your taxable income, making it easier to save on taxes while securing your family’s future. It’s important to keep your receipts and documents for tax filing purposes.

Section 80C¹

Under Section 80C, life insurance premiums are eligible for tax deductions up to ₹1.5 lakh per year. This section also covers other tax-saving instruments like Public Provident Fund (PPF) and National Savings Certificates (NSC). It’s one of the most common ways to save on taxes while ensuring your family’s financial protection. Deductions under 80C only apply to the old tax regime.

Section 10(10D)¹

According to Section 10(10D) of the Income Tax Act, the maturity proceeds from life insurance policies are generally tax-free subject to the satisfaction of conditions. This includes the death benefit and the maturity amount paid to the nominee. However, there are certain conditions where this benefit does not apply, such as if the premiums paid exceed 10% of the sum assured. It's essential to read the policy terms to understand the tax benefits and conditions.

Conclusion

Making an informed decision is important when purchasing a life insurance plan. The sections above explain different types of life insurance and some of the benefits of each one of them. Before you choose a plan, you need to analyze your preferences and your family's requirements. Figure out the financial coverage you want for your family, your premium budget, and the benefits offered by a specific life insurance plan. This way, you can land on a plan that suits your requirements the most.

FAQs

1. Can I purchase two different types of life policies at the same time?

   
   

   Yes, you can have multiple insurance policies for life insurance. Many people prefer buying term insurance with endowment or ULIP policies together.

   
   

2. What is the ideal age to get life insurance?

   
   

   It’s never too late to get life insurance. It is ideal to get term insurance earlier in life when there are lower premiums. This ensures a good premium rate as well as financial security in later years.

   
   

3. What is the ideal life insurance for a married couple?

   
   

   The best type of life insurance for a married couple could be joint life insurance. Joint life insurance policies insure both policyholders under one policy, which financially covers the family. It also depends upon the financial goals of the couple .

   
   

4. What is the ideal life insurance for single individuals?

   
   

   Term insurance may be considered one of the best option. With term insurance, you can afford the coverage required to protect family members or dependents financially in case of any unforeseen event like death.

   
   

5. Are riders a type of life insurance policy?

   
   

   No, riders are not a type of life insurance policy. They are additional coverage options that the insured can add to a life insurance policy on the payment of additional nominal premium for extra protection. Examples could include critical illness benefit riders or accidental death benefit riders.

   
   

6. Which type of life insurance policy never expires?

   
   

   Whole life insurance is often known as permanent life insurance. While term insurance expires after a certain time, whole life insurance lasts a lifetime.

   
   

7. What are some examples of  of life insurance plans?

   
   

   Some types of life insurance plans are term insurance, whole life insurance, endowment insurance, and unit-linked insurance plans (ULIPs).

   
   

8. Is whole life insurance more expensive than a term plan?

   
   

   Yes, whole life insurance typically has higher premiums due to the lifelong coverage it provides .

   
   

9. Is it complicated to calculate the premium for term insurance online?

   
   

   No, calculating the premium for term insurance online is simple. Many insurers offer easy-to-use premium calculators on their websites.