Finding your way through the different life insurance policies can be a really difficult task. But once you get the right kind of life insurance policy/ies and if it fits your budget too then you have won yourself a long-term peace of mind
Different options in life insuranceIt’s our constant worry as to how will our (dependent) family members manage if something happened to us! This is the underlying thought for buying a life insurance policy. The standard questions in our mind are –
1. Who will pay for the household expenses?2. Who will pay off the loans / debts?3. Who will plan the savings and other investments?4. Who will take up the cost of education / marriage of children or younger siblings?
But are there policies that will meet all these requirements; is there a separate policy for each agenda or one policy covers all are the usual queries. To begin with, one should keep each agenda as a unique requirement and not mix up the requirements. The first step to finding the answers is by understanding the available options under life insurance.
Also Read: Do your parents have health insurance?
1. Term insuranceTerm insurance plans, also known as pure protection plans, cover the risk of untimely death. If the insured dies within the term of the plan, then a lump sum payment is made to the nominee. This is also the cheapest form of life insurance. There are different types of term insurance plans. Of them the popular ones are:
a) Level term planLevel term plan is the basic term insurance plan where the sum assured remains fixed for the entire term. If the sum assured opted is Rs.20 lacs at the start of the policy, then this sum assured will be paid out at the time of death of the policyholder at any time during the policy term.
b) Decreasing term planA decreasing term insurance is usually taken to cover a housing loan or loan against property. With a decreasing term life insurance policy, the sum assured will stay in line with the remaining value of the home loan. As the outstanding amount of loan decreases, the amount of cover to be paid out by the insurer also decreases.
2. Whole life insuranceAs the name suggests, Whole life plans continue for the entire lifetime of the policyholder, and pay out the benefit amount to the nominee on death of the policyholder. The premiums are more expensive than on level term life cover. Earlier a lot of insurance companies used to make this payment at the age of 100 years and recently many have dropped it down to 75 years. This plan is looked at as an option of creating long-term savings or wealth kitty for children or descendents. The advantages of whole life insurance are guaranteed death benefit, guaranteed maturity amount and fixed annual premiums. The flip side of course is that the actual rate of return of the policy is not competitive with other savings instruments.
3. Endowment Assurance Endowment assurance provides a risk cover to the policy holder during the term of the policy and pays back a good sum of money to the policy holder at the end of the policy term. Endowment plans are for people who seek high returns but want guaranteed returns at the end of the policy term. They are good long-term savings tools which return bulk amount at one-go on maturity. Endowment assurance plans are relatively expensive than whole life plans because the premium paying period is shortened.
4. Money Back PolicyMoney Back Policies are good to assist us in systematically planning our finances. The plan is structured to offer guaranteed returns to the policyholder at regular intervals. A money back plan provides an insurance cover, a regular income, tax benefits and bonuses.
5. Unit Linked Insurance PlansUnit-linked insurance plans (ULIPS) are somewhat hybrid insurance policies which are a combination of mutual fund and term insurance plan. The premium paid by the customer is deducted by certain charges (Mortality charges, fund management charges, premium allocation, etc) by the insurance companies and the remaining amount is invested in a fund by converting the amount into units based upon the NAV of the fund on that date. ULIP offers flexibility to the customer in managing his liquidity and venue of investments.
6. Pension / Retirement InsuranceA pension plan basically helps to build a corpus / fund throughout the working tenure of the policyholder. After the person retires, the pension amount is paid to him regularly (monthly, annually, etc as opted). In Immediate Annuity Pension Plans, a lump sum amount of premium is paid at the start and annuity starts immediately to be paid to the policyholder.
Deepak YohannanThe author is CEO of MyInsuranceClub.com, a price and features comparison website for insurance products in India. For related queries, please write to him at deepak@myinsuranceclub.com
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