Life insurance is an agreement between an insurance policy buyer and an insurance provider. Under such an agreement, the insurer promises to pay a fixed amount of money to the policyholder in return for a premium. Typically, such a payment is made upon the death of the insured, in the event of an insured circumstance, or after a specific tenure.
This feature of a life insurance policy acts as a financial safety blanket for individuals and helps the insured safeguard the financial future of their family members. With the sum assured, the family of the insured will be able to pay off debt, if any, fund major milestones, and continue to lead a comfortable lifestyle even in the absence of the policyholder.
That said, let us read more about term plans, their features, and common exclusions, to help you make an informed choice.
Types of Life Insurance Policies in Brief
Essentially there are two types of Life Insurance plans:
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Pure Protection
Pure Protection is a sort of insurance plan that covers the risks of death, chronic illness, or disability. These plans provide only risk coverage and have no investment or savings component attached to them.
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Safety and Savings
Protection and savings plans offer the perks of both insurance coverage and savings/investment advantages. These insurance products combine both insurance and investing elements to offer the double advantage of enhanced protection and savings. In turn, this makes these term plan options more popular among individuals.
Here are some of the most popular term insurance options to check out –
- Term Life Insurance: This is a form of life insurance policy that comes with a death benefit that is paid out only if the insured dies before the insurance plan’s tenure expires. After the death of the policyholder, their nominee can submit a death claim. However, if the policyholder survives the insurance policy term, then no death claims can be filed, and the insurance coverage would end without any maturity value. However, these policies allow riders to provide individuals with extra coverage, such as accidental death benefits, critical sickness benefits, etc., which can be added to their term life policies.
- Endowment Policies: These policies combine guaranteed returns with the perks of life insurance coverage. Typically, endowment policies offer a lump sum amount upon policy maturity. It also allows the nominee to submit a death claim in the event of the insured’s untimely death. Some endowment plans extend a bonus amount that is more than the extent of insurance coverage.
- Pension or Annuity Plans: Note that this is a wealth-building plan for the policyholder’s retired years that additionally offers financial stability to their family members. This plan is known to offer several withdrawal options, including a lump sum payout and/or a regular stream of income.
- Whole Life Policy: This insurance plan delivers 99 years of coverage along with family protection for a long period. Note that these type of plans are best suited for those policyholders who have dependents since it offers lifelong coverage to both policyholders and their children.
- Unit Linked Insurance Plans: Unit Linked Insurance Plans or ULIPs are wealth-building insurance plans that combine the advantages of an investment plan with a comprehensive insurance plan. Individuals can invest in a variety of funds, including equities, bonds, hybrid funds, bonds, and more based on their risk-taking capacity, while earning market-linked returns on their capital. This also means they come with certain market-linked risks too and need careful planning for fruitful investments. ULIPs also come with a five-year lock-in term and allow individuals facilities such as partial withdrawal, and fund-switching options.
- Money Bank Policies: This form of insurance plan gives out a proportion of the plan’s assured sum at regular intervals. However, it returns the remainder amount, plus a bonus amount, only if the insured survives the insurance policy term. Notably, if an unpleasant mishap occurs before the end of the insurance policy’s term, the entire sum assured will be refunded to them. The insurance policy will also provide maturity perks in the form of lump sum payouts.
- Children’s Life Insurance Policy: This life insurance plan is a combination of savings and investment plans specially designed to meet the financial needs of children in the future. This plan comes with intermediate withdrawal or provision of withdrawal after the child reaches adulthood.
- Group Life Insurance: This type of life insurance policy is offered to employees by employers, bank customers, NGOs, non-banking financial organizations, professional groups, and microfinance institutions. This plan offers financial support to the employees and their family members in case of the untimely demise of the employee. Some group insurance plans come with critical illness coverage and disability along with outstanding loan coverage for debtors.
- Group Life Insurance: Employers, non-banking financial organisations, banks, trade organizations, and microfinance institutions all offer this insurance plan coverage to their employees. This insurance plan is known for extending financial aid to employees and their loved ones in case of the employees’ sudden death. Note that some group insurance policies may offer critical illness and disability cover, along with an outstanding loan cover for their debtors.
- Children’s Life Insurance Policy: This type of life insurance is an investment and savings plan that is specifically crafted to cater to the financial needs of kids in the future. This lucrative plan also comes with the option of intermediate withdrawal or the facility to withdraw funds when their child turns into an adult.
Based on one’s need, an individual may choose any of these term insurance plans. However, it is recommended to get a policy from an insurance company with a high claim settlement ratio to ensure their claims get approved. Typically, a claim settlement ratio of over 90 is deemed a robust indicator of a high claim approval rate.
Exclusions of Life Insurance Policy
Term life insurance exclusions may vary from one insurance policy to the next. However, there are several exclusions that are practically the same for most insurance policies. For instance, some of the most standard exclusions of life insurance are listed below –
- Death while performing any criminal or unlawful activities
- Death by man-made disasters such as war and riots
- Death due to sexually transmitted diseases
- Death from HIV
- Fatal injury due to indulgence in unlawful intoxicantsSelf-inflicted injury
- Suicide
- Death caused while taking part in any adventure sports or other hazardous activities such as bungee jumping, mountaineering, diving, rock climbing, etc.
Besides these term life insurance plans do not cover the deaths that occur during the waiting period. Regardless of the choice of term life insurance individuals decide to get, they must check the key exclusions and features in detail to understand whether the same will benefit them or not.
