Types of Life Insurance Policies – Overview
When you walk into an insurance office, you are bombarded with fancy names: "Jeevan Anand", "Wealth Maximizer", "Smart Protect". They all fall into two main buckets.
The Two Main Categories
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1. Term Insurance (The Helmet)
- Concept: Pure Risk cover. Like car insurance.
- Cost: Very Cheap. (e.g., ₹10k for ₹1 Crore cover).
- Survival Benefit: Zero.
- Best for: High cover at low cost.
2. Endowment Policy (The Fixed Deposit)
- Concept: Part of premium pays for cover, part is invested (mostly in Debt).
- Cost: Expensive.
- Survival Benefit: Lump sum at maturity.
- Returns: Low (4-6%).
3. Money Back Policy (The Cash Flow)
- Concept: Same as Endowment, but pays money back periodically (e.g., every 5 years).
- Best for: People who need liquidity at intervals (e.g., child's education milestones).
4. ULIP (Unit Linked Insurance Plan) (The Mutual Fund Mix)
- Concept: Part of premium is invested in Stock Market (Equity/Debt funds).
- Returns: Linked to market (can be high or low).
- Transparency: You can see your NAV daily.
- Correction: Earlier ULIPs had high charges; new ones are cheaper but still complex.
Comparison Table
| Feature | Term Plan | Endowment | ULIP |
|---|---|---|---|
| Primary Goal | Protection | Savings | Wealth Creation |
| Premium | Low | High | High |
| Returns | 0% | 4-6% | Market Linked (8-12%) |
| Risk | None | Low | High |
| Suitability | Must Have | Avoid (Usually) | Only for informed |
Which one should you buy?
Note
Recommendation: Buy a Term Plan for protection. Invest the difference (Premium saved) in Mutual Funds (PPF/ELSS). This strategy is called "Buy Term and Invest the Difference". It usually yields far higher wealth than Endowment/ULIP.
Summary
- Term: Pure coverage. Cheap.
- Endowment: Traditional savings. Safe but low return.
- ULIP: Market-linked. Risky.
- Money Back: Periodic payouts.
Quiz Time! 🎯
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Next Chapter: Deep Dive into Term Insurance! 🛡️