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What Are The Different Kinds of Life Insurance Policies?


Know More Before You Make Your Choice

The TDS for life insurance policies where maturity proceeds are taxable have been halved from 2percent to 1 percent in Budget 2016, says an article published in The Economic Times in February 2016. Maturity/survival benefits and death benefits from a life insurance policy are exempt from taxation under section 10 D of the Income Tax Act except for cases where the annualpremium exceeds 10%of the sum assured. Premium payments are also eligible for tax deductions of up to Rs.1.5 lakhs per year under section 80 C.

Life insurance is a must have product in your investment basket. Not only does it provide financial security for your family after your death, but also offers tax benefits.

Know More Before You Make Your Choice
There are five types of policies sold in India. They are: term plan, whole-life, endowment, ULIPs and money back policy. A Term plan is a pure vanilla product, while all other polices are part investment products. Given below is a detailed explanation.

  • Term Plan - As the name suggests, it has a specific term (5-30 years). It is one of the cheapest life insurance policiesoffering the highest cover. The entire premium amount goes towards funding the risk. It only offers death benefit.
  • Endowment Policies - This is an extension of the term plan. However, unlike the latter, it also offers survival benefits. Alongwith the sum assured, it offers added returns as well. A part of the premium goes towards funding the cover, while the other is invested in assets, equities and debt instruments. The sum assured is disbursed either when the policy expires or upon the death of the policyholder (whichever happens first).
  • ULIP - ULIPs are market-linked policies that offer the twin benefits of insurance and market investments. A part of the premium goes towards the cover, while the rest is invested in market-related instruments. Returns are dependent on market movements.
  • Whole-life - Unlike term and endowmentpolicies that offer life cover upto a maximum of 75 years, whole-life offers you cover till you live or 100 years (whichever is earlier). You have to pay premium up to a certain age (also called the maturity period). On reaching maturity, you can either claim the sum assured and the bonuses (if any) or choose to continue the policy.
  • Money Back Policy - Unlike the endowment policy where bonuses are paid along with the sumassured, in a money back policythe insurer pays the bonus to the policyholder periodically. On death of the insured, the entire sum assured is paid along with the survival benefits.

You must consult your financial advisor before making a choice. He will advise you whether to choose a term plan,a money back insurance policy or any other plan keeping in mind your insurance needs and risk appetite.