The policy holders buy insurance cover from an insurance company, and pay specific periodic amounts (premiums) for the term (duration or life) of the policy. If the insured dies before this term is completed, a guaranteed sum> (the face amount of the policy) is paid to one or more named beneficiaries. If the insured survives the term then, depending on the type of the policy, he or she may receive the full or a part of the face amount of the policy.
For young families, a life insurance policy creates an ‘instant estate’ before they have enough time to accumulate other assets. And it provides liquidity to the named beneficiary (or beneficiaries) long before the deceased’s estate matters (which often call for substantial expense) are settled.
Main types of life insurance policies are
|Plans||Features||Best known for|
|Term Plan||Claim only in case of Death, No Refund if no claim during policy term|
The death benefit is payable as lump sum, monthly payouts, or a combination of both.
There’s no payout if the life assured outlives the policy term. However, these days there are companies offering Term Plans with Return of Premiums (TROPS), where insurance companies payback all the paid premium amount in case the life assured outlives the term period. But, such plans are costlier than the vanilla term insurance plan.
|High sum assured (coverage) at a low premium|
|Unit linked insurance plan (ULIP)||A ULIP is a comprehensive combination of insurance and investment. The premium paid towards ULIP is partly used as a risk cover (insurance) and partly is invested in funds. One can invest in different funds offered by the insurance company depending on his risk appetite. The insurance company then invests the accumulated amount in the capital market i.e. in bonds, equities, debts, market funds, or a hybrid funds…||Long-term investment option with much more flexibility to invest.|
|Endowment Plan||Endowment plan is another type of life insurance plan, which is a combination of insurance and saving.|
A certain amount is kept for life cover – insurance, while the rest is invested by the life insurance company. In an endowment plan, if the life assured outlives the policy term, the insurance company offers him the maturity benefit. Moreover, Endowment Plans may offer bonuses periodically, which are paid either on maturity or to the nominee under death claim. On death, the death benefit is payable to the nominee.
|Long-term saving option for people with much lower risk appetite for investment.|
|Money Back||Money back plan is a unique type of life insurance policy, wherein a percentage of the sum assured is paid back to the insured on periodic intervals as survival benefit.|
Money back plans are also eligible to receive the bonuses declared by the company from time to time. This way, policyholder can meet short-term financial goals.
|Short-term investment product to meet short-term financial goals.|
|Whole Life Insurance||A whole life insurance policy covers the life assured for whole life, or in some cases, up to the age of 100 years. Unlike, term plans, which are for a specified term.|
The sum assured or the coverage is decided at the time of policy purchase and is paid to the nominee at the time of death claim of the life assured along with bonuses if any.
However, if the life assured outlives the age of 100 years, the insurance company pays the matured endowment coverage to the life insured.
The premiums are higher as compared to term plans. Whole life insurance plans also offer partial withdrawals after completion of premium payment term.
|Life coverage for whole life.|
|Child’s Plan||Child plan helps to build corpus for child’s future growth. Child plans help to build funds for child’s education and marriage. Most of the Child Plan provides annual installments or one time payout after the age of 18 years.|
In case of an unfortunate event, the insured parent passes away during the policy term – immediate payment is payable by the insurance company. Some child plans waive off the future premiums on death of the life insured and the policy continues till maturity.
|Building funds for your child’s future.|
|Retirement Plan|| Retirement plan helps to build corpus for your retirement. Helping you to live independently financially and without worries. Most of the child plans provide annual installments or one time payout after the age of 60 years.|
In case of an unfortunate event, life assured passes away during the policy term – immediate payment is payable to the nominee by the insurance company. Death benefit will be higher of coverage or fund value or 105% of premiums paid. Vesting Benefit will be payable if the life assured survives the maturity age. In which case, payout will be fund value which has to be utilized for buying an annuity.
|Long-term savings and retirement planning.|
One should have Proper risk cover through Term Insurance and balance investment should be Done IN Mutual Funds by way of SIP