What are the different types of life insurance plans, do they offer saving options?

Life insurance plans are meant to cover the risk to life, but besides pure protection, some policies also offer saving options. Depending on the purpose, financial goal or customer segment for which the saving is intended, here are the various types of life insurance plans.

Term plan

This is a pure protection plan, which means that the only purpose of this policy is to offer financial security to the insured’s beneficiaries on his death. The insured pays premiums for a fixed term and, on his demise, a predetermined sum is offered to the beneficiaries nominated by the policyholder. No financial benefit accrues to the policyholder if he survives the policy term.

Term with return of premium plan

On popular demand for some kind of survival benefit to the policyholder, another version of term plan was introduced, which offered to return all the premiums deposited by the policyholder if he survived the policy term. In case of his death, his beneficiaries get a predetermined lump sum.

Whole-life policy

This protection plan is intended for the entire life of the policyholder, or at least till 99 or 100 years. Besides the guaranteed death benefit to beneficiaries on the demise of the insured, this plan also provides a saving component. According to this, a part of the premium is kept aside as cash that grows over time and the policyholder can withdraw from this accumulated corpus or take a loan against it in case of emergencies.

Traditional plan

In addition to providing death benefit, this also offers wealth creation and guaranteed returns. While a portion of the premium goes towards building death benefit, another part is used to create wealth by investing it in a variety of financial instruments. This is provided to the policyholder as maturity proceeds on the completion of the policy term.

Traditional plans are typically of two types—endowment and moneyback. These are distinguished depending on the manner in which the maturity proceeds are provided to the policyholder. In endowment plans, the maturity benefit is given as a lump sum, while moneyback’s maturity amount is staggered over a pre-specified period and in a predetermined proportion during the policy term.

Ulip

Like traditional policies, unit-linked insurance plans also offer the option of wealth creation, but this portion is invested in market-linked instruments, usually a combination of equity and debt. So the beneficiaries receive death benefit on the demise of the policyholder and maturity benefits at the end of the policy term. These plans come with a lock-in period of five years.

Retirement plan

Also known as pension plans or annuities, these life plans offer a life cover as well as a saving option for post-retirement life. The plan invests a portion of the premium for retirement and, at the end of the term, the policyholder can buy an annuity for regular, periodic payouts, or take the proceeds as a lump sum, or have a combination of both.

Child plan

These plans are intended as saving instruments for children’s financial goals, while also providing a life cover for the parent. On the parent’s death, not only is the death benefit disbursed to the child, but the invested corpus is also provided to achieve the child’s goals like education and/or wedding on completion of the policy term or when the child attains a certain age.