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Types of life insurance
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Updated date : 04 February 2020
An individual today has an array of options to choose from when it comes to financial planning. Mostl people focus on the wealth creation aspect and compromise with the protection element. In the wake of rising inflation, change in lifestyle patterns and move to nuclear families, life insurance should be the first step in financial planning.
Insuring your life for the financial security of your dependents must be paramount before proceeding to address any other aspects. In this article, we are going to discuss different types of life insurance policies.
Different Types of Life Insurance are:
- Term Life Insurance
- Whole Life Insurance
- Endowment Policy
- Money Back Policy
- Savings & Investment Plans
- Retirement Plans
- Unit Linked Insurance Plans – ULIPs
- Child Insurance Policy
1. Term Life Insurance
Term life insurance is a type of life insurance that provides a death benefit to the beneficiary only if the insured dies during a specified period. If the insured survives until the end of the period, or term, the coverage ceases without value and a payout or death claim cannot be made. Term life insurance is income replacement that remains active for a specified number of years. Term life insurance is (one of) the most affordable types of life insurance. It can further be classified into level term life insurance, decreasing term life insurance and increasing term life insurance.
2. Whole Life Insurance
Whole life insurance is an insurance plan that provides you coverage throughout your lifetime provided the policy is in force. Whole life insurance policies also contain a cash value component that increases over time. You can withdraw your cash value or take out a loan against it as per your convenience. In addition, in case of your unfortunate demise before you pay back the loan, the death benefit paid to your beneficiaries will be reduced.
An endowment policy is defined as a type of life insurance policy that is payable to the insured if he/she is still living on the policy's maturity date, or to a beneficiary otherwise. An endowment policy provides you with a dual combination of protection and savings. In an endowment policy, if the insured dies during the term of the policy, the nominee receives the sum assured plus the bonus or participating profit or guaranteed additions, if any. The bonus or profit is paid for the number of years that the insured survives in the policy term.
4. Money Back Policy
Money back policy gives you money during the policy tenure. It gives you a percentage of the sum assured at regular intervals during your policy term. If you live beyond the term of the policy then you will receive the remaining portion of the corpus and the accrued bonus also at the end of the policy term.
But in case of an unfortunate event before the full term of the policy is over; the beneficiaries are entitled to receive the entire sum assured regardless of the number of installments paid out. Money back policies are the most expensive insurance options offered by insurance companies as they offer returns to the insured during the policy tenure.
Money Back policy gives way for a person to plan the course of his life with a sum that is expected in regular intervals. Plans such as children’s education, children’s marriage can be executed in a better way with the help of this policy.
5. Savings & Investment Plans
Savings & Investment Plans are the types of life insurance plans that provide you the assurance of lump sum funds for you and your family's future expenses. While providing an excellent savings tool for your short term and long term financial goals, these plans also assure your family a certain sum by way of an insurance cover. This is a broad categorisation that covers both the traditional and unit linked plans.
6. Retirement Plans
A savings and investment plan that provides you with income during retirement is called the Retirement Plan. Retirement plans are offered by life insurance companies in India and help you to build a retirement corpus. On maturity, this corpus is invested for generating a regular income stream which is referred to as pension or annuity. Retirement plans are further classified into.
7. Unit Linked Insurance Plans – ULIPs
Unit linked insurance plans are a type of life insurance plan that provide you with a dual advantage of protection and flexibility in investment. A unit-linked insurance plan (ULIP) is a type of life insurance where the cash value of a policy varies according to the current net asset value of the underlying investment assets. The premium paid is used to purchase units in investment assets chosen by the policyholder.
8. Child Insurance Policy
A child insurance policy is a saving cum investment plan that is designed to meet your child‘s future financial needs. It allows your kids to live their dreams and gives you the advantage to start investing in the children‘s plan right from the time the child is born and provisions to withdraw the savings once the child reaches adulthood. Some child insurance policies do allow intermediate withdrawals at certain intervals.
Life insurance is not just to fulfil the daily expenses of the family in the absence of breadwinner. It should be capable enough to bail out the family during large financial exigencies. So, one should always choose one or two best types of life insurance which can support his/her family in different stages of life.
How do you select the Right Types of Life Insurance?
- Firstly, set your goals, expectations and other expenses that may crop up during your lifetime.
- Look for plans that will give your family financial stability when you are no more.
- Check out the best insurance companies and compare the plans offered by them.
- Take a close look at the policy inclusions and exclusions, life coverage, claim settlement ratio and claim settlement record.
- Consult a financial advisor for additional information and advice on what is best for you and your family, if you have any doubts.
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