Life insurance plans play a very important role when it comes to providing for an emergency fund in case of an unforeseen demise of the person insured. Earlier insurance used to cover only the death risk of an individual at very low premiums in the form of a term insurance plan. Due to absence of returns on maturity, these plans were not very popular and insurers launched guaranteed benefit plans in the form of traditional insurance plans. Today, with further evolution, insurance plans are categorically divided into traditional plans and unit linked plans. Both the types are very different in their features and benefit structures and fulfill different requirements. But today we are talking about traditional life insurance plans which are also called guaranteed life insurance plans and their usefulness. Find out whether you need to consider buying guaranteed life insurance plans. This primer aims at providing an insight into whether to consider buying guaranteed life insurance.
Guaranteed Life Insurance plans which are also called traditional insurance plans are those plans which promise a guaranteed benefit payout either on death or maturity of the plan. These plans come in two variants of participating plans and non-participating plans. Participating plans are those which promise a bonus payout. The bonus depends on the profit earned by the company in a financial year and it varies according to the company’s performance. Non-participating plans do not provide bonus.
Guaranteed Additions and Loyalty Additions are also promised under some plans. These additions may accrue either in a participating plan or a non-participating one. While Guaranteed Additions accrue every year for a specified tenure, Loyalty Additions are added after a certain term has elapsed.
What are the Types of Plans Available?
Guaranteed Benefit plans come as Endowment plans or Money back plans. While Endowment plans provide a lump sum payout on maturity, Money back plans provide periodic payouts for enhanced liquidity. A new variant called Monthly Income plans are also available in the market today which are Endowment type plans providing a steady source of monthly income either after maturity or death. You need to ascertain whether to consider these guaranteed life insurance plans.
With a slew of investment products available in the market which provide a good growth option, these plans lose out on their usefulness. The cons outweigh the pros and so many of us give these plans a miss. For a clearer picture, let us consider the pros and cons of these plans in details:
Whether you like it or not, investors consider buying guaranteed life insurance plans and they do sell in the market. Whether they are good or bad for investment depends on your requirements and perceptions. If you are nearing retirement, you might want to save in these plans and not take the risks of the capital markets. While some of you would prefer other plans for investing rather than these plans.