A life (term) policy provides coverage life insurance coverage to the policy holder for a certain period of time or years. The minimum age of entry is 18 years and the maximum age limit is 65 years.
If the insured dies during the policy tenure, a death benefit (or sum assured) is paid out to his/her nominees.
No pay-out is made if the insured survives the tenure of the policy.
Such plans provide pure play life cover which means that there is no savings / profits component associated therein.
The purpose of taking life insurance is to provide life cover to the policyholder and financial security to his family.
Given that this is a pure life cover with no savings, the policy holder can typically take much higher sum assured with lower premiums.
The premiums for Term insurance policies are generally the lowest among all the types of life insurance policies since there is no investment component therein and the entire premium is marked to cover the risk.
Such policies offer tax benefits under Section 80C of the Income Tax Act, 1961 which is an added advantage for those who have some gap in their 80C limits.
Endowment Policy
These policies offer insurance cover to the policyholder for the chosen policy term and upon maturity pays out a lump sum amount upon maturity.
In case of death before maturity, the lump sum amount is paid to nominees.
Typical maturities in such a policy are ten, fifteen or twenty years or up to a certain age limit.
This maturity amount can be used by the policy holder or his/her nominee to meet various financial needs such as funding retirement, children's education and/or marriage or buying a house property.
One of the most traditional forms of life insurance available in the Indian market, such plans help the policy holder on two counts. The need for life cover as well as to do some savings.
Such policies offer tax benefits under Section 80C of the Income Tax Act, 1961 which is an added advantage for those who have some gap in their 80C limits.
The policy holder also has the options to obtain loan against the policy, in case of any financial emergency.
These policies come with long-term savings and a very low level of risk when compared to mutual funds etc. Given the nature of the policy and risk levels associated with it, the ROI on such policies are low when compared to options like mutual funds etc.
Earlier these policies were plain vanilla ones. However, now such policies do allow the policy holder to opt for additional riders at a small cost uptick to cover for disabilities, critical illnesses, accident and even loss of job etc.
The benefit for such plans is to enter at a very early stage and then continue for a long period of time.
