Purchasing a life insurance policy is one of the best and most responsible decisions ever made. Life insurance guarantees that your loved one will not be left without a financial support system in the event of your death. It can also help you accumulate wealth to realize the dreams and aspirations of yourself and your loved ones.
Historically, insurance has never been considered an important financial product, and as a result, its penetration rate has remained very low. The current level of life insurance penetration as a percentage of India’s GDP premium is only 3.2%. Insurance awareness tells the same story. Traditionally, most people were only exposed to savings plans. Savings plans were usually purchased by parents from social / family circles through insurance agencies.
Awareness of life insurance has increased significantly over the past few years as people have begun to recognize the need for financial protection. Insurance is increasingly seen as an integral part of one’s financial portfolio. In recent years, technology and digitalization have also permeated every aspect of our lives, leading to increased access. All of this has led to democratization of the insurance sector, and information exposure is higher than ever.
This makes it clear what the important policy comparison websites, user reviews, and YouTube videos have become to make it easier for customers to insure. Buying life insurance is one of the most important decisions in your life. You can choose from a large number of products, which can overwhelm the process.
So let’s review the different types of life insurance policies available on the market, especially for first-time buyers.
1. Term insurance
Term life insurance, or term life insurance, is the most basic form of life insurance policy and is usually what people mean when they hear or say “life insurance.” Term life insurance provides financial security to your loved ones for a fixed year / month fee called premium. If an unfortunate incident results in your death, the life insurer pays your beneficiaries a fixed amount called the “guaranteed total” (also pre-determined).
2. Serious illness
Serious illness insurance covers certain illnesses. These illnesses are listed on your insurance policy and will be notified at the time of purchase. Insurance companies diagnosed with serious illness will pay medical expenses in one lump sum. The illnesses covered may vary by insurance company, but most companies include cancer and heart disease.
3. Investment plan
There are generally two types of investment plans.
A) Unit Link Insurance Plan (ULIPS)
ULIPS has both investment and protection components. ULIP offers multiple funds to invest in, depending on how much you are willing to take risks. These can be equity, debt, or hybrid funds. ULIP also offers options such as switching funds and partial withdrawals as it takes into account that your needs will change over the course of your life.
B) Donation plan
Unlike ULIP, which is linked to the market, donation plans provide guaranteed returns. Fund plans meet both investment and insurance needs. Premiums paid with the fund plan are distributed in two ways. One is directed to death benefits and the other is invested. When you die, your beneficiaries will receive a death benefit.
If you survive the insurance period, that is, when the insurance expires, the maturity benefits will be accumulated according to the amount you invested. Donation plans can be thought of as savings plans and are highly recommended for office workers who may be willing to save for future costs such as children’s education.
4. Child plan
A big reason to invest in a guaranteed return plan or ULIP is to create a financial corpus for your child. These plans can be linked to your financial goals and help you accumulate and grow wealth for some medium- to long-term goals such as children’s education. If you anticipate that you will need funding, you will be given the freedom to predefine the stage. The child plan has an insurance component that handles the child’s finances in the event of an unfortunate death.
5. Retirement plan
Severance pay is a long-term means that allows you to raise a significant amount of money so that your financial needs during your retirement year are taken care of. Guaranteed plans can usually be linked to such goals as well, helping to accumulate enough funds to survive the years after retirement. At maturity, you can choose between a stable source of income or a one-time payment.
6. Group insurance plan
Group life insurance plans cover all members of the group under a single insurance policy. These types of plans are typically available to employers or businesses for their employees, but also to other groups such as doctors, lawyers, and members of credit associations. Most companies offer insurance benefits to their employees through these plans to group individuals. Together, businesses are subject to lower premium rates.
7. Microinsurance plan
Microinsurance plans are insurance policies designed for the economically vulnerable parts of society. This product category was created by the Indian Insurance Regulatory Development Authority (IRDAI) with the aim of increasing insurance penetration between these sections. The guarantee for these plans is less than Rs 50,000.
Because these plans address the economically vulnerable parts of society, life insurers act as intermediaries on behalf of economically disadvantaged individuals, non-governmental organizations, self-help groups, and microfinance. Often we work with an institution.
Conclusion
Choosing life insurance is a delicate balancing act and you need all the help you can get. Purchasing a policy is a decision that will affect you over the years to come, so it’s important to get it right first. There are good online resources available, but you need a basic understanding of the types of life insurance plans before doing a broader survey. We hope that the above guides will serve as a tool for beginners to help you organize your thoughts and make informed decisions.
