8 Different Types of Life Insurance Policy [Explained]

Types of Life Insurance

Term life insurance and whole life insurance are the two main types of life insurance policies. However, depending upon the nature of insurance and the desire of the policyholders there can be many types that those two.

So, let’s understand the main types of life insurance policies.

Term Life Insurance

Term insurance is a type of life insurance policy that lasts for a set period of time. If the person who purchased the policy passes away during this time, their family will receive a sum of money.

Compared to permanent life insurance, term life insurance is usually less expensive. It offers protection for a specific time period and will pay out if you pass away during that time, provided you have paid your premiums and the policy is still active.

You can keep the same price throughout the duration of your policy, which can make it simpler to budget and prepare financially.

Term life insurance is perfect for individuals who require life insurance coverage for a specific period or need. For instance, some purchase it to replace lost income for their family during their working years if they die unexpectedly. Others buy term life insurance to pay off a significant debt such as a mortgage.

Whole Life Insurance

Whole life insurance, universal life insurance, and variable life insurance are permanent types of life insurance policies.

Whole life insurance provides coverage for the entire lifetime of the policyholder or up to 100 years. When someone buys this type of insurance, they choose a sum of money that their nominee will receive if they pass away.

This sum and any applicable bonuses will be paid out as a death claim. If the policyholder lives to be 100 years old, they will receive a maturity benefit equal to the endowment corpus.

Whole life insurance is a suitable option for those who seek lifetime coverage and are willing to pay for the benefits offered by the policy.

Also Read: The 2 Concepts of Insurance: Functional and Contractual Concept

Universal Life Insurance

Universal life insurance is another permanent type of life insurance that includes a cash value component earning interest. It offers flexibility in terms of premiums, allowing you to adjust the payments as needed.

You can choose between a level or increasing death benefit. This insurance is sometimes known as adjustable life insurance since it provides more flexibility than whole life insurance.

Universal life policies also allow you to make changes such as increasing or decreasing your death benefit and adjusting or skipping your premium payments (within certain limits).

Universal life insurance is a great option for individuals seeking lifelong coverage. Certain types of universal life insurance are appropriate for those who wish to connect their cash value gains to the market’s performance.

Variable Life Insurance

Variable life insurance allows you to invest the policy’s cash value in an available separate account. It also features flexible premiums and can be designed with a level or increasing death benefit.

You get to choose the sub-accounts in which to invest, and your decisions determine how much the cash value account grows. However, you can also lose money based on the performance of your sub-accounts.

Variable life insurance is ideal for individuals seeking lifetime coverage and who are interested in being more involved in their life insurance investments.

It’s important to note that variable life insurance is associated with a higher level of risk, so this type of policy may not be suitable for individuals who prefer low-risk investments. Overall, variable life insurance can provide the opportunity for potential investment growth along with the security of a life insurance policy.

Money Back Policy

Money-back policies differ from other types of life insurance policies in that they provide survival benefits to the policyholder at regular intervals throughout the policy term. This means that the policyholder receives payouts while they are still alive and the policy is in effect.

In the unfortunate event of the policyholder’s death, the full sum assured is paid out to their beneficiaries. While money-back policies tend to be more expensive than other policies, they can be a good choice for those who want to receive periodic payouts while still ensuring their family’s financial security.

Money-back policies are a good choice for people who want financial security while the policy is active. It pays out at regular intervals during the policy term, providing a sense of security. In addition, it ensures that the family will receive a large sum if the policyholder dies unexpectedly.

Endowment Policy

Endowment policies combine life insurance and savings. If the policyholder survives until the end of the policy term, they receive a lump sum payout.

These policies often have additional options, known as riders, to increase the policy’s coverage. In case of death, the endowment policy guarantees a payout of the sum assured along with participation profits based on the policy’s terms.

If you want a life insurance plan that doubles as a savings scheme and pays out a lump sum amount when you survive until the end of the policy term, then the endowment policy is a good choice. This policy is also useful for those who want to boost their coverage by adding riders.

Retirement Plan

Retirement plans are designed to provide a guaranteed fixed income after retirement. These plans help you build a corpus that is invested to generate post-retirement cash flow, creating a financial cushion and mitigating risks.

The money is paid out in the form of a monthly pension. These policies can assist in achieving long-term financial goals and most retirement life insurance policies offer either annual payouts through annuities or a one-time lump sum payout upon reaching 60 years of age.

Retirement insurance plans are ideal for those who want to secure their financial future after retirement and create a retirement fund. They provide a guaranteed fixed income after retirement, which helps to mitigate financial risks and create a financial cushion.

Also Read: The 7 Key Principles of Insurance

Unit-Linked Insurance Plan (ULIP)

Unit-linked insurance plan (ULIP) is the last of our eight different types of life insurance policies.

A unit-linked insurance plan (ULIP) is a unique type of life insurance that combines investment and insurance. The premium paid for the ULIP plan is divided into insurance coverage and investment in different funds.

Policyholders can choose from various funds based on their risk tolerance, and the insurance provider invests the funds in shares and equities.

Leave a Comment