Listed below are the various types of life insurance policies:

1. Term Life Insurance or Term Plan:   Long-term pure financial protection plan for families

A term insurance policy is a pure life cover, and its structure is very simple to understand. You pay a premium to an insurance company for a specific number of years, and in return, in case you were to meet with an untimely death, the insurer promises to pay the sum assured to your family. It does not come with any maturity benefit (apart from Term Plan with Return of Premium or TROP). It provides higher cover for a lesser premium as compared to other life insurance products. TROP comes with a maturity benefit, which is the sum total of all premiums paid. No interest amount is paid on that.

1. Whole Life Insurance: it Provides life cover for the entire life or till 99 years of age.

A whole life insurance plan is a life insurance policy that gives you life coverage for 99 years. Unlike other policies that have a relatively shorter term of 10-30 years, the long coverage period of such plans ensures protection for your family for an extended period of time. With coverage of up to 99 years, whole life insurance is ideal for those who have financial dependents even in their old age. The biggest advantage of this product is that not only does it provide lifelong protection to the insured but also provides a simple way to leave behind a legacy for their children. Whole insurance plans offer a lot of stability. After paying the premiums for 5 years, you get a guaranteed income on maturity. Moreover, the income received from a whole life insurance policy is tax-free* subject to Section 10(10D) of the Income Tax Act of 1961. Whole life insurance policies are beneficial for those who want to leave a financial legacy for their legal heirs. In the case of death of the policy holder during the term, the nominee receives the policy benefits, including a bonus for the total premiums paid. Let’s understand with an example. 35-year-old Badrinath invests ₹ 1,00,000 per year in the Whole Life Plan for a period of 10 years and chooses a policy term of 64 years. Badrinath pays ₹ 10 lakhs as premium and qualifies to get ₹ 1,50,000 lakhs at the age of 50. Post this, he will continue to receive income in the form of guaranteed income and cash bonus every year until the policy matures. On the day of maturity, he will receive the remaining income as a lump sum. However, an important thing to note is that the amounts received each year will depend on the rate of return and the future performance of the insurer.

1. Unit Linked Insurance Plan (ULIP):   Invest in a mix of diversified equity and debt funds with just 5-year lock-in for partial withdrawals.

A unit linked insurance plan (ULIP) is a combination of insurance and investment. A ULIP provides life cover that offers financial protection for your loved ones. In addition to this, it also gives you the potential to create wealth through market-linked returns from systematic investments. A ULIP offers you the opportunity to invest your money in different fund options, depending on your risk appetite. ULIPs come with a 5-year lock-in period, and the money can be invested in bonds, equities, hybrid funds, etc. If you are looking for safer options, bonds can be a good choice. On the other hand, if you are open to more risk, hybrid funds and equities have the potential to offer better returns. Since each individual is different, ULIPs allow great flexibility for investment. Your risk appetite and investment preferences are likely to change with age. ULIPs permit you to take these factors into consideration and alter your investment strategy accordingly. ULIPs also provide flexibility in terms of partial withdrawals and fund-switching. They offer interesting benefits like loyalty additions and wealth boosters to help you generate more wealth over time. Additionally, the maturity amount from ULIPs is tax-free* subject to Section 10(10D) of the Income Tax Act of 1961. Let’s understand with an example. Ritesh is a 30-year-old male who purchased an ULIP plan with a policy term of 20 years. He decided to pay ₹ 5000 per month as a premium for 20 years. The life cover for this plan was ₹ 3.6 lakhs. On maturity, Ritesh will get returns according to the performance of the funds he had invested in. This implies that the maturity benefit at a 4% return would be ₹ 9.05 lakhs and at an 8% return would be ₹ 13.9 lakhs. In the case of Ritesh’s unfortunate demise, his nominee will receive the death benefit as a lump sum payout.

1. Endowment Plan :     Surety of receiving the intended sum at maturity

Endowment Insurance Plans are ideal for people who want guaranteed returns along with the protection of life insurance. An endowment plan is a life insurance policy that provides life coverage along with an opportunity to save regularly. This enables you to receive a lump sum amount on the maturity of the policy. In case of death during the policy term, your nominee(s) also receives a death benefit. Just like ULIPs, endowment plans are quite flexible too. You can choose a suitable method and time frame to pay the premium. Endowment plans also give you a chance to benefit from bonuses, that are paid additionally over and above the sum assured of your policy. Lastly, the returns generated on maturity from an endowment plan are tax-free* subject to Section 10(10D) of the Income Tax Act of 1961. The premiums paid can also be claimed as a deduction under Section 80C* of the same Act. Let’s understand with an example. Mohit, aged 35, buys Endowment Plan for a policy term of 20 years and a premium paying term of 10 years. He pays an annual premium of ₹ 30,000 and has a sum assured of ₹ 3 lakh. At an 8% return, the maturity benefit would be ₹ 7.21 lakhs. At a 4% return, his estimated maturity benefit, including guaranteed additions, and terminal bonus, will be ₹ 4.47 lakhs.

1. Money Back Plan:    Plan your cash flows for goals like child education and marriage.

A money back plan is a life insurance policy where the insured person gets a percentage of sum assured at steady intervals. Since you save regularly, the money back plan rewards you regularly. In simple words, a money back plan is an endowment plan with the benefit of increased liquidity with systematic payouts. Money back plans are designed to help you meet your short-term financial goals. The money back feature can add to your monthly or yearly income. The regular pay-outs, which are tax-free subject to Section 10(10D)* of the Income Tax Act of 1961 makes the process of investing highly rewarding. This is because you can benefit from the policy with immediate effect. For instance, with the Money Back Plan, as soon as your premium payment term ends, you start receiving money at regular intervals. These payouts are called Guaranteed Cash Benefits (GCB). Money-back plans also have a maturity benefit. So, you get a lump sum payout at maturity that can be used to secure your future or help you fulfill your family’s dreams. In addition to the above features, the insurance component of a money-back plan allows you to lead a stress-free life. Such plans secure the financial future of your loved ones, even in your absence. Hence, with a money-back policy, you can get all-round protection for yourself and your family. In case of an unfortunate event during the policy term, your family will also receive a lump sum amount. Moreover, if you survive the term, you can get regular payouts along with lump sum benefits. Returns generated from money-back plans are also tax-free* subject to Section 10 (10D) of the Income Tax Act of 1961. Flexibility is another important component of money-back plans and you can choose how to pay the premium as per your suitability. Let’s understand with an example. Anshul is a 35-year-old corporate employee who was recently blessed with a baby boy. He understands his responsibilities towards his son’s education and wants to protect his child’s future against all possible adversities. Keeping in mind these requirements, he buys the Money back Plan with a premium paying term of 10 years and an annual premium of ₹ 50,000. His policy benefits include a guaranteed cash benefit of ₹ 30,447 per annum, a guaranteed maturity benefit of ₹ 2.64 lakhs, and additional bonuses of ₹ 1.08 lakhs (at 4% return) that can be used for his son’s education expenses. Anshul can also benefit from a life cover of ₹ 5 lakhs for himself for the next 20 years.

1. Retirement Plan:        Build a retirement corpus or build a pension for your golden years.

Retirement plans are designed to help you build a sizeable corpus for your post-retirement days. They help you gain financial independence in your non-working years. A retirement plan allows you to save and invest for the long-term, thereby offering the potential to accumulate a significant amount of wealth. Since retirement plans offer insurance benefits, you can also ensure financial security for your loved ones by investing in these plans. Retirement plans give you the opportunity to get potentially better returns. This is done by investing your money in a mix of equity and debt. Moreover, the money you get on maturity is tax-free* subject to Section 10(10D) of the Income Tax Act of 1961. Retirement plans also allow you to move your money between funds tax-free*. Lastly, retirement plans offer you multiple options to withdraw your money, such as regular income, lump sum payment, or a combination of both. Let’s understand with an example. Jatin, a 35-year-old IT engineer, buys ICICI Pru Easy Retirement with the regular premium option. The policy term is for 30 years with a premium payment term of 10 years. His assured benefit is ₹ 10.10 lakhs for an annual premium of ₹ 1 lakh per annum. Jatin chooses an easy retirement balanced fund. At a 4% return, Jatin’s retirement corpus can be ₹ 19.62 lakhs that can generate an annual income of ₹ 0.97 lakhs**.

1. Child Insurance Plan:            Invest in a child’s higher education and marriage goals under the safety of life cover.

Children deserve the best, and a child insurance plan helps to build a corpus for your child’s future. A child plan is one of the most vital financial planning tools for parents. These plans can help you build a significant sum for your child’s education and marriage expenses. A child plan provides maturity benefits either in the form of annual instalments or as a one-time payout after the child turns 18. There is also in-built insurance coverage for the parent. Protection is an important part of a child plan because the premium is paid by the parent. In case of an unfortunate event where the insured parent passes away during the policy term, child plans can give immediate payment to cover a child’s expenses. One of the most important features of a child plan is that it allows you to choose how and where your money is invested. The premium you pay is invested in your choice of equity, debt, or balanced funds. ULIP child plans also ensure that, over time, your returns are adequate to counter inflation. As compared to fixed return avenues that often fail to beat inflation, child plans allow plenty of room for rising costs. You can also choose from a collection of fund options to invest and switch between them without worrying about their tax* implications. ULIP child plans offer dual tax savings. This includes benefits on premiums paid under Section 80C* and the maturity proceeds under Section 10(10D) of the Income Tax Act of 1961 subject to conditions provided therein. Child plans also offer loyalty additions and wealth boosters that add to your overall savings. Moreover, you can either pay regular premiums or a single premium, based on your capacity. You can also use these plans as an emergency fund and make withdrawals from your investment on the completion of 5 policy years. Lastly, child plans allow you to get wider coverage with critical illness and accidental death benefits. Let’s understand with an example.  A 30-year-old new parent, invests in the children savings Plan for her daughter. She selects a premium of ₹ 5,000 every month and chooses a policy term of 18 years. With an 8% expected return, she can get ₹ 24.16 lakhs after 18 years. Similarly, at a 4% expected return, she can get ₹ 15.83 lakhs after 18 years.

1. Group Insurance Plan:           Useful for corporates and other organizations to cover their employees and customers against unforeseen hazards.

Group life insurance, as the name suggests, provides life insurance coverage to a defined group of people such as employees of an organization, members of a professional association, or a housing society all under a single contract or insurance policy.

1. Savings & Investment Plans:            Channelize your savings towards a future goal.
2. Annuity and Pension: in these life insurance policies, the insurer agrees to pay the insured a stipulated sum of money periodically. The purpose of an annuity is to protect against financial risks and provide money in the form of a pension at regular intervals.

Both annuity and pension benefits have tax implications that you should be aware of. Annuity payments are generally taxable as ordinary income, although some types of annuities may offer tax advantages. Pension benefits may also be taxable, depending on how they are structured and funded. It’s important to consult with a financial advisor or tax professional to understand the tax implications of annuity and pension benefits and how they will affect your overall retirement income plan. Now that you have learned about the different types of life insurance policies, you can make a more informed decision on which plan would be the most suitable for you and your family. Traditional Life insurance Products Term insurance is valid only during a certain time period that has been specified in the contract. The term can range from as short as it takes to complete an airplane trip to as long as forty years. Protection may extend up to age 65 or 70. One-year term policies are quite similar to property and casualty insurance contracts. All premiums received under such a policy may be treated as earned towards the cost of mortality risk by the company. There is no savings or cash value element accruing to the insured. Variants of Term Assurance: Decreasing Term Assurance Increasing Term Assurance Term Assurance with Return of Premium Decreasing term assurance These plans provide a death benefit that decreases in amount with term of coverage. A ten year decreasing term policy may thus offer a benefit of ₹.1,00,000 for death in the first year, with the amount decreasing by ₹.10,000 on each policy anniversary, to finally come to zero at the end of the tenth year. The premium payable each year however remains level. Decreasing Term Assurance plans have been marketed as mortgage redemption and credit life insurance. Mortgage redemption: is a plan of decreasing term insurance designed to provide a death amount that corresponds to the decreasing amount owed on a mortgage loan. Typically in such loans, each equated monthly instalment (EMI) payment leads to a reduction of the outstanding principal amount. The insurance may be arranged such that the amount of death benefit at any given time equals the balance of principal owed. The term of the policy would correspond to the length of the mortgage. The renewal premiums are generally level throughout the term. Purchase of mortgage redemption is often a condition of the mortgage loan. Credit life insurance is a type of term insurance plan designed to pay the balance due on a loan, if the borrower dies before the loan is repaid. Like mortgage redemption it is usually decreasing term assurance. It is more popularly sold to lending institutions as group insurance to cover the lives of the borrowers of these institutions. It may be also available for automobile and other personal loans. The benefit under these policies is often paid directly to the lender or creditor if the insured borrower dies during the policy term. Increasing term assurance As the name suggests, the plan provides a death benefit, which increases along with the term of the policy. The sum may increase by a specified amount or by a percentage at stated intervals over the policy term. Alternatively the face amount may increase according to a rise in the cost of living index. Premium generally increases as the amount of coverage increases. Term insurance with return of premiums Yet another type of policy (quite popular in India) has been that of term assurance with return of premiums. The plan leaves the policyholder with the satisfaction that he / she has not lost anything in case he/she survives the term. Obviously the premium paid would be much higher than that applicable for an equivalent term assurance without return of premiums. Whole life insurance plays an important role in household saving and creating wealth to be passed on to the next generation. An important motive which drives its purchase is that of bequest – the desire to leave behind a legacy to one’s future generations. A higher ownership of life insurance policies among households with children and a high regard for the family, further confirms this motive. Endowment Assurance plans can serve as a worthwhile proposition when one is looking for an avenue to set aside a surplus from income every month/quarter/year and commit it to the future. Money back plan A popular variant of endowment plans in India has been the Money Back policy. It is typically an endowment plan with the provision for return of a part of the sum assured in periodic installments during the term and balance of sum assured at the end of the term. Example A Money Back policy for 20 years may provide for 20% of the sum assured to be paid as a survival benefit at the end of 5, 10 and 15 years and the balance 40% to be paid at the end of the full term of 20 years. If the life assured dies at the end of say 18 years, the full sum assured and bonuses accrued are paid, regardless of the fact that the insurer has already paid a benefit of 60% of the face value. These plans have been very popular because of their liquidity (cash back) element, which renders them good vehicles for meeting short and medium term needs. Full death protection is meanwhile available when the individual dies at any point during the term of the policy. Par and non-par schemes The term “Par” implies policies which are participating in the profits of the Life insurer. “Non – Par” on the other hand represent policies which do not participate in the profits. Both kinds are present in traditional Life insurance. Non-traditional life insurance products Variable life insurance Variable life insurance is a kind of “Whole Life” policy where the death benefit and cash value of the policy fluctuates according to the investment performance of a special investment account into which premiums are credited. The policy thus provides no guarantees with respect to either the interest rate or minimum cash value. Theoretically the cash value can go down to zero, in which case the policy would terminate. The difference with traditional cash value policies is obvious. A traditional cash value policy has a face amount that remains level throughout the policy term. The cash value grows with premiums and interest earnings at a specified rate. Assets backing the policy reserves form part of a general investment account in which the insurer maintains the funds of its guaranteed products. These assets are placed in a portfolio of secured investments. The insurer can thus expect to earn a sturdy rate of return on the assets in this account. In contrast, assets representing the policy reserves of a variable life insurance policy are placed in a separate fund that do not form part of its general investment account. Most variable policies permitted policyholders to select from among several separate  accounts and to change their selection at least once a year. In sum, here is a policy in which the cash values are funded by separate accounts of the life insurance company, and death benefits and cash values vary to reflect investment experience. The policy also provides a minimum death benefit guarantee for which the mortality and expense risks are borne by the insurance company. The premiums are fixed as under traditional whole life. The principal difference with traditional whole life policies is thus in the investment factor. Variable life policies have become the preferred option for those who wanted to keep their assets invested in an assortment of funds of their choice and also wanted to directly benefit from favourable investment performance of their portfolio. A prime condition for their purchase is that the purchaser must be able and willing to bear the investment risk on the policy. This implies that variable life policies should be typically bought by people who are knowledgeable and quite comfortable with equity/debt investments and market volatility. Obviously, its popularity would depend on investment market conditions – thriving in market booms and declining when stock and bond prices plummet. This volatility has to be kept in mind while marketing variable life. Unit linked insurance Unit linked plans, also known as ULIP‟s emerged as one of the most popular and significant products, displacing traditional plans in many markets. These plans were introduced in UK, in a situation of substantial investments that life insurance companies made in ordinary equity shares and the large capital gains and profits they made as a result. A need was felt for having both greater investment in equities and also passing the benefits to policyholders in a more efficient and equitable manner. Conventional with profit (participating) policies offer some linkage to the life office‟s investment performance. The linkage however is not direct. The policyholder‟s bonus depends on periodic (usually annual) valuation of assets and liabilities and resultant surplus declared, which in turn depends on assumptions and factors considered by the valuation actuary. Critical to the valuation process is the allowance for guarantees provided under the contract. As a result the bonus does not directly reflect the value of the underlying assets of the insurer. Even after the surplus is declared, the life insurer may still not allocate it to bonus but may decide to build free assets which can be used for growth and expansion. Because of all this, bonus additions to policies follow investment performance in a very cushioned and distant manner. The basic logic that governs conventional policies is to smooth investment returns over time. While terminal bonuses and compound bonuses have enabled policyholders to enjoy a larger slice of benefits of equity and other high yield investments, they are still dependent on the discretion of the life office who declares these bonuses. Again, bonuses are generally only declared once a year since the valuation is done only on annual basis.Returns would thus not reflect the daily fluctuations in the value of assets. Unit linked policies help to overcome both the above limitations. The benefits under these contracts are wholly or partially determined by the value of units credited to the policyholder‘s account at the date when payment is due. Unit linked policies thus provide the means for directly and immediately cashing on the benefits of a life insurer‟s investment performance. The units are usually those of a specified authorised unit trust or a segregated (internal) fund managed by the company. Units may be purchased by payment of a single premium or via regular premium payments. An endearing feature of unit-linked policies is its facility of choosing between different kinds of funds, which the unit holder can exercise. Each fund has a different portfolio mix of assets. The investor thus gets to choose between a broad option of debt, balanced and equity funds. A debt fund implies investment of most of one‟s premiums in debt securities like gilts and bonds. An equity fund would imply that units are predominantly in equity form. Even within these broad categories there may be other types of options. Equity Fund This fund invests major portion of the money in equity and equity related instruments. Debt Fund This fund invests major portion of the money in Government Bonds, Corporate Bonds, Fixed Deposits etc. Balanced Fund This fund invests in a mix of equity and debt instruments. Money Market Fund This fund invests money mainly in instruments such as Treasury Bills, Certificates of Deposit, Commercial Paper etc. One may choose between a growth fund, predominantly invested in growth stocks, or a balanced fund, which balances need for income with capital gain. One may also choose sectoral funds, which invest only in certain sectors and industries. Each option that is selected must reflect one‟s risk profile and investment need. There is also a provision to switch from one kind of fund to another if performance of one or more funds is not perceived to be up to the mark.All these choices also carry a qualification. The life insurer, while being expected to manage an efficient portfolio, does not give any guarantee about unit values. It is thus relieved here of the greater part of the investment risk. The latter is borne by the unit holder. The life insurer may however bear the mortality and expense risk. Again, unlike conventional plans, unit linked policies work on a minimum premium basis and not on sum assured. The insured decides on the amount of premium he or she wishes to contribute at regular intervals. Insurance cover is a multiple of the premiums paid. The insured has a choice between higher and lower cover. The premium may consist of two components – the term component may be placed in a guaranteed fund (termed as the sterling fund in UK) that would yield a minimum amount of cover on death. The balance of premium is used to purchase units that are invested in the capital market, particularly the stock market, by the insurer. In case of death the death benefit would be the higher of the sum assured or the fund value standing to one‟s account. The fund value is simply the unit price multiplied by the number of units in the individual‟s account.