The 3 Types of Life Insurance Plans You Should Know About

What is Life Insurance?

It is a contract between an insurance policyholder and an insurance company in which the insurer agrees to pay a fixed sum assured in case of the policyholder’s death within the policy term. In return for this assured coverage, the policyholder needs to pay the insurance premium as per the policy schedule, be it monthly or annually, or via limited pay and lump sum payment options.  

Prospective policyholders in India have access to various benefits from life insurance policies which they can select based on their specific needs and pre-defined financial goals. 

The Three Types of Life Insurance on offer are:

• Term Life Insurance 

Term insurance is a pure life insurance policy offering wherein the nominee will get death benefits in the unfortunate event of the policyholder’s demise. The distinguishing characteristic of term policies is the amount of sum assured on offer vis-à-vis the affordable premium. A term plan’s coverage can also be expanded by adding supplementary riders, such as that for Critical Illness and Accidental Death Benefits.

• Whole Life Insurance Plan

A whole life insurance policy protects until the policyholder’s death which in most cases is up to 99 or 100 years of age. Certain traditional whole life plans offer death benefits to the nominee along with a survival benefit to the policyholder upon surviving the policy term, subject to the timely payment of the premium throughout the policy term.  

• Unit Linked Insurance Plan (ULIP) 

This is a life insurance product that offers the dual benefit of life cover and investment. A versatile life insurance product, the premiums paid for ULIP are bifurcated into two parts: one part is used to ensure insurance coverage, while the other part is an investment component, split into debt and equity funds, among others. A ULIP thereby helps with the flexible benefits of life insurance. 

What Is the Price of Life Insurance? 

Prices of different life insurance vary greatly depending on a variety of factors. One of the most crucial cost variables will be the type of life insurance you opt for. Mentioned below are the key parameters that impact life insurance rates: –

• Age: The younger you are when you get a policy, the lower your insurance policy premium. That’s because your life expectancy is higher, and your general state of health is better when you are younger. 

• Gender: The National Center for Health Statistics estimates that women have a life expectancy of over five years longer than men. Thus, men often pay a higher premium for life insurance than women.

• Health: Life insurance costs are greatly affected by your health. The insurer assesses your previous and present medical problems to calculate your anticipated lifespan. While buying life insurance, always disclose your complete medical history. 
• Lifestyle: Life insurance rates may be higher if you smoke, drink, or engage in adventure sports.

Exclusions in Life Insurance 

Here are the general exclusions in a life insurance policy:

1) In case of suicide within 12 months of the policy commencement date, the nominee is entitled to receive a surrender benefit if the policy is in force.

2) In case of Death benefits, if opted by the insured, the benefit shall not be paid, in case the death occurred due to:

• Self-inflicted injuries
• Taking part in dangerous or hazardous sports
• War, rebellion or riots
• Diseases occurring within the waiting period
• Insured being under the influence of drugs, alcohol, and banned substances
• Involvement in criminal activities

There are many other exclusions besides these when it comes to life insurance plans. Hence, it is always advisable to read the policy documentation carefully before buying the plan.

A life insurance company may reject a claim regardless of the cause of death if it believes that complete information wasn’t disclosed. For example, the life insurance company may reject the beneficiaries’ claim if someone lies about their health or other details on the application.

Like most insurance buyers, you are likely to consider life insurance as something you’ll need if anything unfortunate happens. Remember, it’s a critical financial safeguard for your dependents if something happens to you. Analyze the features and benefits of life insurance plans and choose the one that best suits your loved ones’ anticipated financial needs.