Life Insurance policy is one of the most vital investments an individual can make for their families and loved ones. The purpose of getting life insurance is to provide monetary support to the beneficiaries in case of an unfortunate death of the policy holder during the policy period.
There are different types of life insurance policies in India offering benefits to fulfill your different family goals. Thus, it’s important to understand the differences in each life insurance policy before you get one.
- Term Insurance Plans
Term insurance plans are the simplest and most basic types of life insurance policies in India that provide life cover for a pre-specified time period. The beneficiary receives a predetermined sum insured on the death of the policy holder within policy period.
These are the most widely purchase life insurance in India as you can get a relatively higher sum insured at pocket friendly premium rates.
Term Insurance with benefits such as return of premium on maturity, increasing or decreasing sum assure on yearly basis, convertibility option is offer by several life insurance companies in India.
You can opt for additional riders along with a Term Insurance like Personal Accident cover, child support, etc to increase the total coverage of your sum insured.
- Whole Life Insurance Plans
Whole life insurance policies are also termed as Permanent Plan as they provide a life cover for 99 years. In case, the policyholder survives up to 100 years, they would receive the matured endowment coverage as a maturity benefit. Thus, a Whole Life Insurance provides you with dual benefits of life cover and matured endowment.
You can consider buying a Participating or a Non-Participating Whole Life Insurance policy depending on your financial requirements. The premiums for a Participating policy are generally higher, but you can get the benefit of receiving regular dividends. While, the premiums are low for non-Participating policies as these policies do not offer dividend to policyholders.
- Unit Linked Insurance Plans (ULIPs)
Unit Linked Insurance Plans or ULIPs offer benefits of having both insurance and investment. The premiums paid for the purchase of these plans are divide into two: one portion is used to cover the cost of life insurance cover and the other portion is invest in equity funds, debt funds or other securities.
Policyholders have the choice to select and switch amongst different funds available in these plans.
ULIPs are gaining popularity in India due to tax-savings benefits on LTCG. Investments by Individual and HUF in ULIPs are eligible for deduction under Section 80C. Further, Section 10(10D) provides an exemption for any sum received under ULIP, including the sum allocated by bonus on such policy.
- Child Insurance Plans
Child Insurance Plans are unique types of life insurance policies in India as it offers a life cover to the policyholder only for a single financial goal of ensuring financial well-being of their child. Purchasing these policies would ensure that your child’s future needs such as education, marriage, etc are taken care of in your absence.
- Endowment Plans
Endowment Plans offer dual benefits of insurance and savings. These types of life insurance policies in India are best suited for individuals who want an insurance coverage along with a sizable savings component.
The policyholder receives the benefits of insurance coverage until maturity and a lump sum payment on maturity of their policy. You can consider buying an Endowment plan with or without profits depending on your financial requirements and risk appetite.
- Money Back Plans
Money Back Plans are one of the best life insurance policies in India as the policyholder gets a certain percentage of their total sum insured at regular intervals. As a Survival benefit and the remaining sum assured would be given on maturity of the policy.
In case, the policyholder dies during the policy period. The beneficiaries of the policy would receive the entire sum insured without any deductions.
- Retirement Plans
Retirement Plans are offered with an aim to provide you financial stability after retirement along with a life cover.
Under these plans, the policyholder would pay premiums until retirement to create a corpus. And after retirement, the corpus generate by the policyholder over the years would be distribute back to them as a regular income for a predetermined time period.
These plans also provide a life cover to the policyholder. Hence, if the policyholder dies during the policy period, the beneficiaries would receive the sum insured.
- Group Insurance Plans
Group life insurance in India is usually take by corporations for the financial well-being of their employees and clients.
You can avail the benefits of getting a life insurance cover at cheap premiums under a group insurance plan. However, one should know that the coverage offered under these group insurance plans are valid only until you remain a part of the group.
Evaluating best life insurance companies in India:
An average individual in India purchases a life insurance policy with limited information like premiums, tenure, sum assured and process to file a claim. Even among these, premiums are the most preferred point of comparison. Insurance company that offers lowest premiums is usually termed “best life insurance company in India”
We would recommend considering the below fundamentals in evaluating Insurance companies to get the real best:
- Claim Settlement Ratio (CSR)
Claim settlement ratio is one of the most important points of comparison. You can get the CSR figure of every life insurance company in India from the IRDAI annual reports, it denotes the percentage of claims settled by an insurance company against all claims received in a year.
Companies having higher CSR are among the best life insurance companies in India.
- Persistency Ratio
Persistency Ratio provides you with the information of how much percentage of policy holders have renewed their policies with the insurance companies. IRDAI reports these numbers for all insurance companies at intervals of 13, 25, 37 and 61 months.
Companies having higher persistency ratio are one of the best life insurance companies in India.
- Solvency Ratio
Solvency ratio indicates the financial stability of an insurance company as it compares all assets and inflows against the liabilities and outflows. IRDAI mandates all Insurance companies in India to have a solvency ratio greater than 150%.
Companies having higher solvency ratio are among the best life insurance companies in India.
- Incurred Claim Ratio (ICR)
ICR indicates the financial ability of the life insurance companies to pay claims. The ICR value is calculate using the value of claims paid against the total claim settle in a year.
Companies having higher ICR are among the best life insurance companies in India.
- Commission Expense Ratio (CER)
CER indicates the expenses paid by a life insurance company towards expenses such as agent’s commission, advertisement, employee wages, etc. The CER value is calculate as a percentage of expenses made by an insurance company to the net premium collect in a year.
A higher CER would mean the insurance company may increase the premiums in the near future. Hence, it is recommend to select insurance companies having lower CER.
- Customer Service
It’s difficult to evaluate the quality of customer service before you have purchased a life insurance policy. You may view the ratings and read reviews on the customer services on the internet for any Insurance company. However that does not guarantee a good customer service.
Hence, it’s recommend that you buy a life insurance policy from an insurance agent or advisor who can be your point of contact for most of your customer service requirements. And also guide you in choosing the best life insurance companies in India.