What are the different types of life insurance? And which one should you choose when?

Buying life insurance is definitely not a snap decision. There are so many different types of life insurance plans out there, and you need to weigh your options carefully before making a purchase. Oftentimes, most first time insurance buyers are either overwhelmed by the options available, or they are not aware of the choices at all.

You may count yourself among either of these groups. But it always helps to know all the details about the different types of life insurance available.

And that’s just what we’re going to be taking a look at today. That, and which type of life cover you should choose when. So, let’s get started.

A term insurance plan is the simplest kind of life insurance available. This type of plan gives you a life cover for a specific term or period, hence the name ‘term plan.’ In return for the life cover, you need to pay a premium to the life insurance provider. The unique thing about term plans is that they offer a significantly high life cover for much lower premiums, when compared with other kinds of life insurance plans.

For example, the ABSLI DigiShield Plan is a comprehensive term insurance policy that gives you a life cover of Rs. 1 crore at just Rs. 477 per month.¹

The reason term plans are so affordable is because they are pure life covers. This means that in case of the policyholder’s demise during the policy term, the insurer pays out death benefits to the nominee. However, in case the policyholder survives the policy term, no amount is paid out.

When to choose a term insurance plan?
A term plan can be apt for you if you are looking for an affordable, yet high life cover. It is also a good choice if you already have a life insurance plan, but want to enhance your protection at a nominal cost.

The Return of Premium (ROP) option is just what it sounds like. In term plans that come with the ROP option, the premium that you pay during the policy term is returned to you at the end of that period. This is subject to two conditions:
i. You must survive the policy term. ii. You should have paid all your premiums.

For example, say you have purchased a term plan that offers a life cover of Rs. 1 crore for a period of 25 years. Over the course of the policy term, say you pay a monthly premium of Rs. 800. That means you pay a total of Rs. 2,40,000 during those 25 years (Rs. 800 x 12 months x 25 years).

In a regular term plan, if you survive the policy term, you will not receive any benefits at the end of that period. However, in a TROP, you get this Rs. 2,40,000 back at the end of 25 years.

Since a TROP gives you an added benefit, the premium charged may be nominally higher than the cost of a regular term plan. However, it is still more affordable than other types of life insurance.

The ABSLI Life Shield Plan is one such example of a term plan that gives you the ROP option. Overall, this policy offers 8 plan options for you to choose from.

When to choose a TROP?
A TROP is a good option for you if you live quite a healthy lifestyle, have a safe, non-hazardous job, or have no family history of any illness. In other words, the chances of you outliving your term plan are higher.

The Return of Premium (ROP) ensures that you get your money back at the end of the policy term. This is a more attractive proposition than a basic term plan, which does not give you any payouts for surviving the policy term.

A savings plan is a type of life insurance policy that gives you the dual benefits of insurance and savings. The insurance component works just like a regular life cover. If the policyholder passes during the policy term, the insurer pays out death benefits to the nominee mentioned in the plan.

As for the savings component, it comes into play if the policyholder survives the policy term. In that case, at the end of that period, the insurer pays out maturity benefits to the policyholder. These maturity benefits include a predetermined amount, as well as any loyalty additions and terminal bonus, if any.

The ABSLI Guaranteed Milestone Plan is a classic example of a savings plan. It gives you guaranteed benefits on death or maturity plus life cover.

When to choose a savings plan?
A savings plan is the perfect option for you if you want to protect your family financially in case of any unfortunate incident, but also want to simultaneously ensure that your long-term goals are fulfilled. The maturity benefits paid out under a savings plan act as a financial cushion over the years. You can make use of those funds to meet major life goals like paying for your children’s college education, saving up for retirement, or buying a house.

A moneyback life insurance policy helps you meet your liquidity needs. Here, the life cover works just like it does in any kind of life insurance plan. However, in addition to that, a moneyback policy also pays out a percentage of the sum assured during the policy tenure. This is in sharp contrast to savings plans, which only pay out returns at the time of maturity. Typically, the payouts in a moneyback plan start after the premium payment term, and continue for a specified period, or till the end of the policy term. These payouts are generally called survival benefits.

So, for example, say you have purchased a moneyback policy that has a policy term of 25 years and a premium payment term of 15 years. After the first 15 years, your survival benefit payouts will begin. And they will continue for a predetermined period of time, say 8 years.

The ABSLI Vision LifeIncome Plus Plan gives you survival benefits starting from the end of the premium payment term. Under this plan, you can choose from different payout periods like the short term income option, the long term income option, and the whole life income option.

When to choose a moneyback plan?
A moneyback plan may be right for you if you do not want to wait till the end of the policy term to receive your benefits. It is also a good choice for people who want to have an extra source of income down the line, or for people who have additional liquidity needs.

A Unit Linked Insurance Plan (ULIP) gives you the benefit of insurance plus investments under one single policy. Like all life insurance plans, ULIPs also specify a sum assured. This amount will be paid out as a death benefit in case the policyholder passes away during the policy term. ULIPs have a lock-in period of 5 years, so you can stay invested over the long term and allow your investment to grow.

In addition to that, the policy also allows you to invest in different funds like equity, debt or a mix of the two. You can choose funds that are appropriate for your risk appetite. ULIPs also give you many other beneficial features like the following.

• An option to switch funds as needed, so you can ensure your investments are in line with your changing risk appetite and goals
• A top-up option that allows you to invest additional money over time, if you wish to
• A premium redirection option through which you can decide how your upcoming premium should be allocated to different funds

The ABSLI Wealth Max Plan, for instance, is a ULIP that gives you a choice of 16 funds to choose from, in addition to top-ups and guaranteed additions.

When to choose a ULIP?
If you have your sights set on more than just savings, a ULIP may be just what you need. It helps you fulfill the need for insurance as well as investment. It is also ideal if you want to invest over the long term, and you want to tap into the potential of market-linked returns.

A retirement plan is a kind of life insurance policy that helps you take care of your retirement needs. They are also known as pension plans or annuity plans. The retirement benefits offered by the plans can be paid out as a lump sum amount, as periodic payouts, or as a combination of the two.

There are also immediate annuity plans, which start to give you your payouts right after you’ve paid your premium. And there are deferred annuity plans that give you annuity payouts after a specified period. The retirement benefits generally align with the policyholder’s retirement phase, or pre-retirement phase. This makes it easier for people to take care of their needs as they approach retirement.

In addition to the retirement benefits, these plans also provide a life cover that comes into effect if the policyholder passes away during the policy term.

If you’re looking for a retirement plan, the ABSLI Guaranteed Annuity Plus Plan may be one you can consider. It gives you around 10 plan options to choose from.

When to choose a retirement plan?
It’s best to choose a retirement plan if you want to ensure that your golden years are financially secure. It is also useful if you want to set up a reliable source of income for your post-retirement life, when your regular salary or income may not be available.

No matter what kind of life insurance you choose, you may want to enhance the protection offered by your plan. Here’s where life insurance riders come in handy. Our blog can help you understand more about the different riders you can consider.

With the ABSLI Vision LifeIncome Plus Plan, there’s no dearth of choices. The plan gives you three income options to choose from - for the short term, the long term, or for the whole of life.

Plus, you have the option to enhance coverage with FIVE different life insurance riders, which cover accidental death, critical illness, surgical care, hospital care and waiver of premium.

That sums up the main types of life insurance covers available in the market. You can take your pick from these types of plans, based on what meets your needs best. Whichever type of plan you choose, ensure that you pay your premiums as and when they are due, so you can continue to enjoy the benefits offered by your plan.