What are the features of life insurance policies in India?

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Last month, in one of our webinars, a member of the organisation we were addressing asked us, “I get that we need to get a health insurance plan considering the rising cost of medical services. However, can’t I just get a savings account instead of a life insurance plan—after all, it’s just about saving for the future?”

And that’s where the misconception lies!

While life insurance plans may start out as a mere savings plan, the overall benefits go far beyond this! To tap into the full potential of a life insurance plan, you must first analyse the type of policy you want to go ahead with – term life, ULIPs, Endowment plans, whole life, or retirement/pension policies. Based on the type of life insurance plan you choose, we would suggest you take a quick look at its features before you make a final purchase!

The features of life insurance plans (any of the above-mentioned types) would offer you insight into the perks they offer. And since life insurance plans are crafted to be a long-term financial commitment to offer a financial cushion for your family’s financial future, the least you can do is thoroughly research the product you are about to purchase!

To mitigate this burden of scouring through legal + financial documentation and analysing the features of life insurance plans, we have done the work for you!

Read on to learn all about the characteristics of life insurance policies!

What are the Characteristics of Life Insurance Plans?

Pro tip: The health insurance market can be a labyrinth. Instead of spending hours navigating through the hundreds of policies out there, why not book a 30-minute call with our expert IRDAI-certified advisors? We don’t spam or pressure you to buy. Just honest insurance advice.

What are the Types of Life Insurance Plans?

Types of Life Insurance Plans	Affordability	Risk Factor	Recommendation
Term Life	✅	↓	Recommended
Endowment	✅	↓	Not recommended
Whole Life	❌	↓	Not recommended
Retirement/Pension	✅	↓	Recommended
Unit Linked Insurance Plan (ULIP)	❌	↑	Not recommended

Term Life Insurance Plan – This is a pure financial protection plan that is supposed to act as an income replacement and help your family achieve their future financial goals in the event of your unfortunate absence. This is the most affordable type of life insurance and offers a significant cover amount. Naturally, this is the most preferred variant, considering it also offers many term insurance riders that ensure complete customisation of the policy to suit your tailored financial requirements and future goals.
Endowment Policy – This combines the perks of savings with a life coverage option. Since a maturity benefit is involved, it guarantees a payout for the policyholder, irrespective of whether he survives the policy term. Endowment plans may also offer bonuses (reversionary or terminal bonuses) that are added to the maturity benefit payouts.
Whole Life Insurance Policy – This is a tweak to the standard term insurance plan. Whole life insurance policies offer coverage to the policyholder until he turns 99 or 100 years old. This is almost equal to an assured payout since the average life expectancy of an individual is between 72 and 75 years. However, because a guaranteed payout is involved, the premiums become higher than those of pocket-friendly payments towards term insurance policies.
Retirement/Pension Policy – Much like the name suggests, under this type of life insurance policy, a certain amount/corpus is set aside that kicks in after the policyholder has retired. The corpus then is disbursed as a lump sum or as a monthly income amount, as preferred and chosen by the insured individual at the time of policy purchase.
Unit Linked Insurance Plan (ULIP) – ULIPs have been gaining rapid popularity over the years among potential and existing policyholders since they are quite appealing financially (on pen and paper). This type of life insurance plan is a market-linked product that fetches returns and combines life insurance coverage and investment aspects. On the other hand, the premiums are exceptionally high for ULIPs, and the returns are based on market fluctuations, making this a high-risk product.

In our general recommendation, we always suggest never combining protection, savings, and investment channels. The idea is to keep a corpus aside as your fall-back financial plan to safeguard your family’s future financial goals in the event of your unfortunate absence. Along with this, you can always invest a section of your finances towards investment options. This will help you maintain the perfect financial balance. Additionally, your age has to be a deciding factor in choosing the weightage of your finances that you should expose to market fluctuation-based risks and the amount for safekeeping.

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What are the Features of Life Insurance Plans?

Each type of life insurance policy comes with a set of features that act as perks for the insured individuals –

Death Benefit: A lump sum paid to beneficiaries upon the insured’s death.
Premium Payments: These are regular payments made to maintain the policy, which can be fixed or flexible depending on the type of plan.
Cash Value: Some policies, like whole life or universal life, build a cash value over time that you can borrow against or withdraw.
Policy Term: Life insurance plans may be term (coverage for a specific period) or permanent (life coverage).
Riders and Add-ons: To customise your policy, you can add optional benefits like accidental death coverage, critical illness coverage, or disability waivers.
Tax Benefits: Premiums paid and death benefits received may have tax advantages depending on the country’s tax laws.
Loan Facility: Some plans allow policyholders to take out loans against the policy’s cash value.
Surrender Value: Certain policies offer a payout if you decide to cancel the policy before its maturity or the insured event.