What is a Life Insurance Policy? What is its meaning and definition?
A life insurance policy is an agreement between an insurance company and a policyholder, where the life insurer promises to pay a fixed amount of money in exchange for premiums paid periodically, after a set time period or upon the life insured’s death.
There are two simple types of life insurance policies:
- Pure Protection plan, i.e., Term Insurance Plan: Pure Protection plans, also called term insurance plans, are designed to protect your family's future by providing a lump sum payment in case of your untimely demise.
- Savings Plan: A savings plan is a financial product that helps you plan long-term goals like buying a home, fees for children’s higher education, and more while providing life coverage benefits.
Type of Life Insurance Policies in India
Term Insurance
The purest and most affordable type of life insurance plan that offers financial coverage to the policyholder against the fixed amount of premiums for a specific duration. In case of the policyholder's untimely death, their nominee receives the Cover Amount, as per the chosen policy.
Term Return of Premium (TROP)
TROP (Term Return of Premium) is a variant of term insurance that provides an additional feature of Survival benefit. In addition to the life cover, if the policyholder survives the entire Policy Term, then all the premiums are paid back, excluding GST.
Whole life Insurance
Under Whole Life Insurance, the policyholder is covered till the age of 100 years. If you want to leave a legacy for your family, and ensure that they are always financially covered, then Whole life Term Insurance is the best option for you.
INVESTMENT PLANS
Market Linked Systematic Investment Plan (ULIP)
Unit linked investment plans (ULIPs) are unique market-linked life insurance plans that provide dual benefits of wealth creation through investments (in equity, debt or both) and a life insurance cover. High performing ULIPs have shown 15-20% returns (tax free), making it a popular choice for medium to long term investors.
Guaranteed Return Plan (Endowment Policy)
A guaranteed return plan or an endowment plan offers combined benefits of savings and insurance. It helps you save systematically on a regular basis and receive the maturity benefit on the survival of the policy term. These plans also offer death benefits on the death of the policyholder during the policy term.
Retirement Plans
These are long-term investment plans which offer opportunities to get a stable post-retirement income. During the investment period, a premium amount is paid at regular intervals, which accumulates and grows. The maturity amount is then paid back post-retirement based on the preference in terms of lump sum or regular income.
Child Plan
These plans are designed to enable financial security for children where the returns on the investment help fulfill a child's future needs like education. Child plans specifically ensure these remain intact even in your absence by providing life cover to the nominee & funding the balance premiums through the insurer, thus securing the financial future of the child
Key Features & Benefits of Life Insurance Policy
After understanding What is Life Insurance, let’s get into the details of features and benefits of life insurance policy:
- Financial Security
The primary benefit of a life insurance policy is that it offers long term financial protection to the policyholder’s family in case of an eventuality. - Death Benefit
In case of any unfortunate event with the policyholder, the insurer provides financial benefit in the form of a death payout. The appointed nominee receives the entire sum assured plus the bonus accumulated over time. - Maturity Benefits
Depending on the type of life insurance policy, insurers may offer the applicable benefit amount as maturity benefit at the end of the policy term. The maturity amount in different plans, like term return of premium plans, can also be the return of premiums paid throughout the policy tenure.