TYPES OF LIFE INSURANCE
In today’s scenario, an individual has a variety of options to choose from when it comes to personal financial planning. Most people compromise with the protection aspect while focusing on the wealth creation part. In the wake of booming inflation, insurance should be the first and ideal step in financial planning.
In this article, we will discuss different types of insurance alternatives available to an individual.
TERM LIFE INSURANCE
Term life insurance lasts for a number of years before its maturity. If an individual dies before the policy term is completed, a set sum of money, often called the death benefit, is given to the designated nominee/beneficiary. This is considered the simplest and most accessible life insurance policy.
When an individual makes payments of premium, he/she is paying for the death benefits that will be assigned to the beneficiaries in case of demise. The death benefit can be paid out as a monthly installment, a lump sum, or an annuity. Most people choose to receive their death benefits as a lump sum. When compared to other types of life insurance, term life policies are more affordable and often have lower premium costs.
WHOLE LIFE INSURANCE
Whole Life Insurance is a plan that aims to provide individual coverage throughout his/her life provided the policy is active and in force. These policies also contain a cash component that increases over tenure. The policyholders can withdraw their cash component or take a loan against it as per their feasibility and convenience. Adding to it, in case of the unfortunate demise of the individual before he pays back the loan amount, the death benefits assigned to the beneficiary will be reduced.
This policy can be defined as a type of life insurance policy that pays a lump sum amount to the individual if he/she is still alive on the policy’s expiry date, or to a beneficiary otherwise. Endowment plans provide an individual with a dual combo of savings and protection. In this policy, if the individual dies when the policy is active, the nominee receives the sum assured along with the guaranteed additions or bonus, if any. The profit or bonus is paid for the number of years that the insured survives in the policy tenure.
MONEY BACK POLICY
Money Back Policy provides an individual with money during the policy tenure. It gives a specific percentage of the sum assured at regular intervals during the policy tenure. If one lives beyond the tenure of the policy then he will receive the remaining component of the corpus along with the accrued profit or bonus at the end of the tenure.
But in the scenario of an unfortunate event before the whole tenure of the policy expires, the beneficiary is entitled to receive the entire sum assured irrespective of the number of premium installments paid out. These are the most expensive investment alternatives offered by insurance companies as they provide returns to the insured during the policy term.
VARIABLE LIFE INSURANCE
A variable life insurance policy’s cash component is more related to investing. The money contributed to it goes into a series of mutual fund-like sub-accounts wherein an individual can get some additional capital growth, but he/she can also lose money depending on the market conditions. Along with that, the policy offers coverage to nominees in case of death of the policyholder during the policy term.
While this makes variable life insurance policies a better investment option when compared to whole life insurance policies — with potential for tax-deferred, higher growth, but one can only invest in the sub-accounts available through this policy. This means that the individual doesn’t get to choose from the wide range of mutual funds that are available on the market.
SAVINGS & INVESTMENT INSURANCE PLANS
Savings and Investment plans are the types of plans that provide an individual with the assurance of lump sum payout for the investor and his family’s future expenses. While providing an ideal and excellent savings tool for meeting long and short-term financial goals, these plans also assure the family/beneficiaries a particular sum by the way of insurance coverage. This is a broad categorization that covers both the unit-linked and transitional plans.
RETIREMENT INSURANCE POLICY
These plans provide an individual with a steady income after retirement. These plans are offered by insurance companies across India and assist an individual to build a retirement corpus along with offering insurance coverage. On expiry/maturity, this corpus is invested for generating a steady income stream which is referred to as annuity or pension.
ULIP LIFE INSURANCE PLAN
These are a type of life insurance plan that provides an individual with the dual benefits of flexibility in investment and protection. A part of the premium sum paid is used to invest in different assets chosen allocation by the investor and a part is utilized to provide life insurance coverage to the investor.
CHILD INSURANCE POLICY
A Child insurance Policy is a saving cum investment plan which is outlined to meet an individual’s child’s future financial commitments. It allows the kids to live their aspirations and gives an individual the advantage to start investing in the children’s plan right from the very start and provisions to withdraw the savings once the kid reaches maturity. Intermediate withdrawals at specific intervals are allowed by some policies.
WHAT TYPE OF LIFE INSURANCE IS BEST FOR YOU?
- First and foremost, an individual should set his goals, expenses that may crop up during life, and expectations.
- Then the individual should start looking for plans that will give his/her family the required financial stability in case of an unfortunate event.
- Compare the plans offered by the best insurance companies.
- Take a detailed look into the policy, exclusions, and inclusions, claim settlement ratio, coverage, and its claim settlement record.
- For additional information, consult an advisor who will advise on what is the ideal policy for you and your family, in case of any doubts.