5 Types of Life Insurance Policies
When we think about money, the first thing that
comes to our mind is investments and the rate of returns that these investment
options can fetch. We tend to delay buying a life insurance cover as most of us
believe that insurance is not useful. However, it is one of the essential steps
of financial planning.
When you go to look for life insurance policies,
you will find several types of policies that only increase your confusion.
In this article, we will explain about the different
types of life insurance policies so that you can select the best policy for
yourself and your family members.
But before we dive in the different types of life
insurance policies, let us understand the meaning and importance of life
insurance.
Meaning and Benefits of Life Insurance?
When you buy a life insurance cover, the insurance
company promises to pay the sum assured life cover to your nominee after your
death, in an exchange of a premium that you pay on regular intervals.
Depending on the type of life insurance policy, you
may also receive the maturity benefits if you survive the policy term.
Life insurance is a priority if you are the sole
earning member of your family or yourfamily members depend on you. It is
because, in case of an unfortunate event, your family will receive monetary
compensation as sum assured from the life insurance company.
An adequate life insurance cover will also help
take care of your family member’s financial goals, such as children’s higher
education.
Tax deduction on the life insurance premium paid is
an added benefit of life insurance.
Types of Life Insurance
There are five main types of life insurance
policies that individuals can take to avail life cover. The basic aim of a life
insurance policy is to provide protection. However, there are a few insurance
policies that offer a mix of insurance and investments.
The sum assured will also vary among the different
types of life insurance policies. Before you get any type of life insurance, it
is always best to understand the features and benefits of the life insurance
policies.
1.Term Insurance
Term insurance is the simplest life insurance plan.
It is a pure insurance product and the nominee will receive the sum assured
after the death of the policyholder. It is one of the cheapest life insurance
policy as the nominee receives the amount only at death. This means that there
are no cash benefits on survival.
Term insurance offers a high life insurance cover
at an affordable rate. Moreover, the premium amount is less if you take the
policy at a young age. Also, you stand to gain in the long run as the premium
amount remains same throughout the tenure.
2. Endowment Plan
The policyholder can select a policy term from 10,
15, 20, 30 to 40 years.
Endowment Plan islike term insurance policy and it
is a combination of savings and insurance. It is similar like term insurance
plan as the nominee of the policy will get the sum assured after the death of
the policyholder. Moreover, if the policyholder survives the policy term, the
policyholder will receive a lump sum payout on a fixed date. The policyholder
can use the lump sum amount to purchase property, fund children’s education or
take care of retirement, etc.
Endowment plans are expensive than term insurance
plans as it comes with a higher premium as the policyholdersreceives maturity
benefits.
3. Unit Linked Insurance Plan (ULIP)
ULIPs is a combination of insurance and investment.
The aim of an ULIP is to generate wealth along with insurance cover. When you
buy an ULIP, a part of the premium is invested in asset classes such as equity
and debt instruments. The rest of the premium is used to provide insurance
cover.
You can switch from equity and debt investments as
per your risk appetite and market performance.
ULIPs have a lock-in period of five years. This
means that you can’t redeem your money before five years.
4.Money Back Policy:
Money Back Policy is a mix of insurance and
investment. While a regular life insurance plan pays a lump sum amount at
maturity, Money Back Plans offer payouts at regular intervals during the policy
term. The policy holder receives pay outs after a few years from the start of
the moneyback plan, and it continues till the end of the maturity period. The
benefit appliesif the policyholder is alive.
In case of an unfortunate event, the nominee
receives the whole maturity amount. This is irrespective of the survival
benefits that the insurance company has already paid out.
5.Whole Life Policy
The Whole Life Policy is valid for the entire life
of the policyholder. The insurance company will pay the life cover to the
nominee after the death of the insured person. The policy comes with survival
benefits as well. Policy holders can also borrow money against the policy.
Conclusion:
Life Insurance is an important part of financial
planning. Term insurance, endowment plan, ULIPs, Money Back Policy and Whole
Life Policy are some common types of life insurance plans. You can consult us
to know more.
This blog is purely for educational purpose and not
to be treated as an personal advice. Mutual fund investments are subject to
market risks, Read all scheme related documents carefully.
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