Insurance Policies: Types, Benefits & Features

Risk and uncertainty are incidental to life. These uncertainties are increasing day by day due to the fastness of life hence causing risks and damages. A man may meet an untimely death or may suffer from an accident, destruction of property on fire, floods, earthquakes etc. thus, whenever there is an uncertainty, there is the risk as well as insecurity.

Therefore, to secure these and fight against the risks and policies Insurance Policies came into being. Therefore, an Insurance means a protection from the Financial Loss. It is a type of Risk Management to fight against the risks and uncertainties.

For issuing an Insurance, an Insurance Policy is a must. An insurance policy is a standard form contract that deals with the insurer and the insured known as the policyholder which determines the claims which the insurer is required to pay.

The Life Insurance Sector is one of the rapidly growing financial sectors in India. There is a number of products that are offered right from the fueling investment need to meeting different financial goals. In this article, we are going to talk about the different Insurance Policies.

Types of the Insurance Policies

There are basically two types of Insurance Policies: Traditional Whole Life and Term Life Insurance.

The Traditional Whole Life Insurance is a type of Insurance policy that will pay you till the death of the policyholder and the Term Life Insurance is a policy for a fixed period of time.

The Main types of Insurance Policies are:

1. Endowment Policy
2. Term Insurance
3. Money or Cash Plans
4. Whole Life Insurance
5. Children’s Policies
6. Annuity plans

Now let’s talk about these Insurance Policies one by one.

Endowment Policy

It is a traditional insurance plan that pays a lump sum of money at the time of the death of the policyholder.

Key Features of the Endowment Policy

• The sum accumulated in the Endowment Policy can be payable either at the time of survival or the death of the policyholder.
• The Endowment Policies are available “With Profit” and “Without Profit” plans.
• Under the Endowment policies, bonus for the full term is payable at the time of the maturity or in the event of death, whichever is earlier.
• Premiums for the endowment policies can be limited for a shorter period of time can be paid as a single premium.
• The premiums can be ceased on death or on the expiry of the term whichever is earlier.

Benefits of the Endowment Policy

• The Endowment Policy will provide an insurance cover during the policy term.
• This will pay out a sizeable lump sum amount at the end of the policy term i.e. when once the policy has matured.
• The policy works to serve a dual purpose. It not only serves as an Insurance Policy but also serves as a long-term investment offering decent returns.
• The Endowment Policies comes with tax benefits.
• In terms of Investing, the endowment policy is the safest and best one to use as they offer returns which are close to the mutual funds.
• The endowment policies enable long-term savings.
• Through this policy, you can be assured that you will receive a considerable amount upon maturity.
• Most of the endowment plans will extend the insurance coverage and the promise of benefits even after the maturity date. In some cases, the life insured attains an age of 100.
• Policyholders have an option for additional riders which provides cover for specific illness, critical illness, disabilities etc.

Term Insurance

A term insurance is defined as the type of Insurance that can be availed at a certain period of time or for a fixed period of time. The term insurance comes in different terms such as 10 years, 20 years, and 30 years. The most significant feature of the term insurance policy is that they have a built-in feature that gets converted to permanent life insurance policies irrespective of the state of health of the term of the Insurance Policy Holder.

Benefits of the Term Insurance

There are several advantages of Term Insurance:

• Term Insurance Plans are an excellent way to build a financial security.
• The term insurance policies come at the fixed and affordable premium.
• In this insurance plan, the benefit received is more than the amount that you have invested. Thus, you get a greater returns on these policies.
• It provides you a sufficient coverage. The sufficient cover is equal to 10 times to that of the annual income.
• The term insurance has different customized plans (Term Return of Premium Plans) under which they provide survival benefits in the form of premium funds at maturity.
• The term insurance plan offers a coverage for a fixed term. This indicates that you can take term insurance for a fixed duration wherein your family is financially protected. Following this, you can retire comfortably.
• Claim rejections are lower in the Term Insurance Policy.
• The term insurance plans offer a flexibility of buying a policy offline or online.
• It also offers flexible premium payment options, allowing the policyholders to choose theirs as per their convenience. The premiums can be either single pay, limited pay or regular pay.

Money or Cash Plans

Money or cash plans helps you to invest a small portion of the money and a payable sum of money is assured as returned to the insured person by the insurance company. The payment is done on the periodical basis and in form of a survival benefit. When the term expires, the outstanding sum assured is paid as a maturity benefit. However, the lifetime risk is covered for the entire amount of the agreed sum assured, even if a portion of the benefits has been already paid.

Features of the Money or the Cash Plans

• It provides an adaptability to pre-prone the arrangement Maturity Date at whatever time.
• Provides an ensured loyalty benefit of 10% of the Annualized Premium every year where the Premium Payment Term is equivalent to 5 years, 10 years or 15 years.
• Wealth accumulations through extra increases.

Benefits of Money and Cash Plans

• Provides ensured money back benefits at regular intervals.
• A maturity benefit equivalent to the assured sum.
• You can make the payments the way you want such as with yearly, half-yearly, quarterly and month to month premium installment modes.
• Get tax cuts on the ventures, and on the returns according to the relevant pay impose laws.
• Get life front of no less than 10 times the annualized premium for the whole strategy term.

Whole Life Insurance

The Whole Life Insurance is a contract with premiums that includes the insurance and investment components.

Whole life insurance provides the policyholders with the ability to accumulate wealth as regular premium payments cover insurance costs. These payments also contribute to the equity growth in a savings account. The whole life insurance, as the name suggests provides insurance to an individual for an entire life.

Benefits of the Whole Life Insurance Policy

• The individual will get an insurance cover for the entire life, unlike other life insurance plans that are fixed for a certain period of time.
• It also provides a lifetime coverage along with the guaranteed level of premiums for a limited premium payment term.
• Sum assured is guaranteed and the bonuses are declared based on the performance. Some companies also offer survival benefit from the end of the premium payment term till the policy matures. Tax benefits are also available to the insured under the Section 80C and Section 10(10D) of the Income Tax Act 1961.
• It serves as the source of cash. That means, with the whole life plan you can get the cash at the end of the premium payment term.
• In Whole Life Insurance Policy, loan options are also available. The surrender value of the policy increases according to the overtime and you can borrow against the policy’s surrender value at any point in time. This is a better alternative option to borrow against the home or retirement accounts.
• The Whole Life Insurance Policy acts as a financial source for your family as well. This plan is perfect for the estate planning individuals who want to pass their estate to their legal heir as it creates wealth accumulation.

Children’s Policies

Child Life Insurance Policy is a permanent life insurance that ensures the life of the minor. It is an insurance along with the benefits of investment plans. Thus, it provides dual benefits. These plans can be taken in the name of the child or parent. But this policy is only for the benefit of the child. This helps the parents to financially construct the career and future of their child.

Features and Benefits

• This insurance policy financially secures your child’s future and provides finance during the turning points of his/her educational career.
• It is also beneficial for the marriage of your children. It offers comprehensive benefits of life cover along with the maturity benefit.
• There are two types of maturity benefits to choose from the Child Plans. Either. One can choose for the money back option which offers guaranteed payouts every year and after a few years, a lump sum amount is paid out at the end of the maturity of the policy. This options can be chosen at any point in time depending as per your convenience. The lump sum provides a huge amount which can be utilized in their education, marriage or even buying a house for your children.

Annuity Plans

An annuity is a long-term investment plan that is issued by an insurance company. This is designed to help and protect you from the risk of outliving your income. Through this policy plan, you can purchase the payments that are converted into periodic payments that can last for life. This insurance product that pays out income and can be used as a part of the retirement strategy.

Benefits of the Annuity Plans

• They offer a larger amount of cash and defer paying taxes.
• There is no annual contribution limit for an annuity.
• When you are out of cash, you can take the lump-sum amount from your annuity, but many retirees prefer to set up guaranteed payments after a specific period of time or for the rest of the life, providing a steady stream of income.