Life insurance is a legal contract between an insurance provider and the person looking to get insured.
The terms of this contract between the two parties are explained in the list below.
- The insurance company promises to protect the interests of the insured person in case of unfortunate events such as death, critical illness or any allied mishappening.
- In return for the financial aid provided by the insurance company, the insured person promises to pay a premium either as a one-time lump sum or in form of regular premiums.
- Depending on the terms of insurance instrument selected by the person getting insured, the benefit reaped by him or his family can be received as a one-time amount or in regular intervals as and when the need arises or at the time of maturity of the policy.
- There are two major variants in which a person can get life insurance.
- Protection Policy– This segment of life insurance only provides cover for a specific event.
- Investment Policy– This variant of life insurance coverage provides the person getting insured an opportunity for wealth creation which acts as an additional source of financial aid in the time of uncertainty.
Types of Protection Policy
- Term Plans
As the name suggests, a term plan offers life insurance for the insured for a fixed period of time. In case of unfortunate death of the insured during the tenure of the plan, the designated beneficiary is provided the death benefit related to the particular plan of the insurance company.
Most insurance companies offering term plans to provide the insured with an option, at the time of purchasing the plan, to choose how the beneficiary shall receive the policy benefit. The insured can choose to have the beneficiary receive full one-time payment or fixed recurring amounts being paid at fixed intervals of time.
- Whole Life Plans
This is where most people get confused. Unless life insurance policies are explained in detail, people wrack their brains over the difference between various policies. Unlike term plans which only provide insurance coverage for a limited period of time, whole life plans provide protection as long as the insured stays alive. There is no entry age criterion for whole life plans. This makes whole life plans a popular insurance instrument. The most distinguishing factor of this plan is that at the time of maturity, he gets the benefit of the plan, regardless if the person is alive.
The benefits of investing in a whole life insurance plan range from providing cover to the insured throughout his life, reaping assured sum on maturity and also being an additional source of income at the end of the premium paying tenure.
Whole life plans can also be used as a mortgage to raise additional capital in times of need.
- Endowment Plans
These plans are insurance plans which provide life cover to the insured for a stipulated period of time. The time is decided by the person investing in the plan. Any person, irrespective of his/her age, is eligible to invest in an endowment plan.
These plans reap benefits in 2 ways.
- The death benefit is provided to the nominee in the case of the unfortunate death of the insured. This provides a financial aid to the nominee in the absence of the insured.
- An additional benefit offered to people investing in endowment plans is that prior to the premium paying tenure, the insured has an option to make periodic withdrawals while still having an insurance option.
- Money back life insurance
These plans are the only flexible life insurance plans which provide liquidity options before the time of maturity. These plans are a best fit for investors looking to invest in an instrument which offers regular income as well as a good return at the time of the maturity. Most insurance companies offering money back life insurance plans also offer bonus amounts on the initial amount invested by the investor.
Distinguishing features of a money back life insurance plans are-
- They provide the advantage of insurance as well as investment to the insured. The insured has an option for wealth creation at different interval of time as well as an insurance cover.
- This insurance instrument offers death benefit as well as a lump sum amount at the time of maturity.
- Unit Linked Investment Plans
This is a main dual-benefit-providing investment plan available in the market at present. The amount invested towards a unit-linked investment plan is divided into two parts.
One part is invested in various market instruments such as equity, debt, and mutual funds. The remaining part is directed towards the provision of the insurance benefit.
ULIPs are the most feasible and popular investment instruments available as of now.
This provides the investor with the opportunity to weigh the market risks and ascertain the implications on his investments. The investor can choose-
- Where his money is invested
- The tenure of his investment
ULIPs prove to be very good long-term investments which reap good returns alongside an insurance cover.
Other than the above-listed plans, there are a few life-stage-specific plans which form a part of these variants. A few of these popular plans are-
- Child Plans–
Every parent wishes the best possible future for their child. It is very important to safeguard the future of the children from any external stimuli.
Child plans offer security and financial aid to the child to help him accomplish all his aspirations and life goals even in the absence of his/her parents.
- Retirement Plans–
It is quintessential for all individuals to realize that aging is irreversible and it is very important to plan for the old age. We all know that as we grow, our capabilities depreciate. So, it is very important for everyone to plan for and invest in a retirement plan to ensure that at the time of retirement, they have a steady flow of fiancés and are able to fend for themselves without any problems.
The above passage explains life insurance policies in detail.
As per the needs, aspirations, finances and risk appetite of a person, he can choose between the various insurance policies and safeguard his future.