Life Insurance-9 Types of Life Insurance Policy

Last Updated on January 24, 2023

Life is a precious gift and death is an universal truth that cannot be neglected. People cannot predict at what day they are going to die. People earn money to fulfill their wants, desires and upgrade their life.

Also, humans have families to look upon and taken care of and among those are earning members upon whom is the responsibility to fulfill the needs of non-earning members and of themselves.

In, an event of death or fatal injuries to that earning member the financial burden fell upon other members of the family and if the earning member is insured by the life insurance policy then the financial burden is taken by the insurance companies.

Life Insurance Definition

Life insurance is a contract between the insured person and the insurer/insurance company in which for an amount of premium, the insurance company provides or promises to pay a certain fixed sum of money in the event of death of the policyholder, or on the expiration of the fixed time period mentioned in the policy.

Thus, there are various types of life insurance policies available in the market, which provide financial security in the event of unnatural or premature death or compensate an adequate amount of money at old age when the policyholder’s earning capacity got reduce. Every type of life insurance has its own distinct features and benefits.

Types of Life Insurance Policy

1. Whole Life Insurance

The whole life insurance policy is issued for the entire life which is generally set as 100 years of age. If the policyholder died in that time period a fixed agreed amount is provided to the beneficiary of the policyholder. Only the beneficiary is entitle to the amount of compensation and the insured person cannot benefit from it.

The insured has to pay a premium every year. Some part of the premium amount is invested by the insurance companies in different investment avenues and the remaining part of the premium is treated as the policy cost for providing financial cover.

If the policyholder survives till the maturity period or opts for the withdrawal. The policyholder is entitled to get the profit amount from the investment as a bonus.

The whole life insurance provides tax benefits to the policyholder and can be use as an investment option for building a corpus of money. The policyholder can also avail loans by putting the whole life insurance policy as collateral.

2. Term Insurance

The term insurance policy is taken for a short time period generally ranging from 3 months to 7 years. The term insurance provides financial cover at the event of the death of the insured person in between or before the policy expires.

The amount of compensation is fixed and is given to the beneficiary/nominee of the policyholder. The premium amount is low as compare to other type of life insurance policies. The term insurance is the cheapest life insurance policy. The insurance policy got terminated if the insured person survives till the end of maturity.

The sum assured by the term insurance policy can be provided to the beneficiary in a lump sum, monthly installments, or annuity basis.

3. Pure Endowment policy

In pure endowment policy, the sum assured is payable on the surviving of the policyholder till the expiry of the endowment term. In the event of death of the insured person within the duration of maturity of the policy, the premium amount may or may not be returnable as it depend upon the terms and conditions of the policy.

Thus, a pure endowment policy is the opposite of the term insurance because the insured is compensated if the he/she survives till the expiry of duration of the insurance policy.

4. Ordinary Endowment Policy

The ordinary endowment policy represents life insurance in a true sense. This policy provide benefits of both family protection and investment. The policy is taken for specific period of years. The sum assured in the policy is payable either on the policyholder’s death during the period of the policy or on his/her survival till the end of the maturity period.

Premiums are payable throughout the term of the policy or to a limited period, or till the premature death of the insured. Ordinary endowment policy contains features of both term insurance and pure endowment.

5. Joint Life Endowment policy

The joint-life endowment policy covers more than one person’s life under a single policy. Under this a fix sum mentioned in the policy is payable on the expiry of the term or on the death of one of the insured persons during the endowment policy period.

The premium is calculated with certain modifications according to the age of all the persons insured under this type of policy.

6. Money Back Policy

The money-back insurance policy provides a portion of the fix amount assured by the insurance company at regular time intervals during the policy period. In case of the death of the insured, the whole remaining amount is payable to the beneficiary.

If the insured person survives till the policy period ends, then the whole sum assured money is compensated to the insured.

7. Double Endowment policy

Under double endowment life insurance policy, a special benefit is given to the insured person. A condition is agreed upon if the insured person dies during the policy period, the basic sum assured mentioned under the policy is payable, and if the person survives till the end of the policy period than double the sum assured is paid by the insurance company to the insured.

8. Child Marriage/Education Insurance

The child education/marriage insurance policy is taken onto the life of the father or guardian of the children. The eligible person undergoes a medical examination after which the policy is been issued.

The child for which the policy is taken and get benefited from it is called the beneficiary of the policy. The sum assured under the policy agreement in the event of the death of the father is paid in equal periodic installments and not in a lump sum to the child.

9. Unit Linked Insurance Plan (ULIP)

The unit linked insurance policy works as an investment avenue for the policyholder. Out of the premium paid by the policyholder, a certain portion is taken out by the insurer as a charge for their risk cover and expenses and the remaining amount is invested in mutual fund schemes.

This policy offer a facility to the policyholder to decide how the balance amount to be invested and allowed to choose among the fund schemes portfolios. The insurance company announces the net asset value (NAV) from time to time. Unit linked insurance policy is a mixture of both mutual fund and insurance.