Types of Life Insurance
InsuranceLife insurance in India includes five main types: term insurance (pure protection), whole life, endowment, money-back, and ULIP. For most people, term insurance + mutual fund investments is the most effective combination. Other types mix insurance and investment poorly.
In detail
Life insurance types:nTerm insurance: pure death benefit, no maturity. Rs 1 Cr for Rs 10-15K/year. Best for protection.nWhole life: coverage for entire life (100 years). Very expensive. For estate planning by HNIs.nEndowment: fixed term (15-30 years), maturity benefit if alive. IRR typically 4-6% -- beats inflation marginally. Not recommended for investment.nMoney-back: periodic payouts during policy term + maturity. Complex, low returns.nULIP: investment-linked. Already discussed.nnTerm insurance is unambiguously the best life insurance for protection at minimum cost. All others mix insurance and investment suboptimally.
Real-life example
Arun at 28 needs Rs 1.5 Cr life coverage. Options: (A) Term plan: Rs 14,000/year. (B) Endowment (Rs 1.5 Cr sum assured): Rs 1.2L/year, maturity after 30 years approximately Rs 1.8 Cr. Total invested: Rs 36L. At 12% CAGR: same Rs 36L in mutual fund = Rs 3.9 Cr. Endowment: Rs 1.8 Cr. He is better off with term + mutual fund: Rs 3.9 Cr corpus AND Rs 1.5 Cr insurance throughout.