With an increase in awareness, people are now understanding the need and importance of financial planning. And life insurance is an important part of an individual’s financial planning. This helps people in having a financially secure life. Since most of the people focus on wealth creation plans, many compromise with the protection. However, life insurance is important to help the family members be secure, in case something untoward happens to you.
If you have a life insurance policy, your insurer will pay a promised sum of money to the beneficiaries on your death. This is the fundamental principle of life insurance and is the only information that most people are aware of. However, the truth is that there are so many sides to a life insurance plan which everyone should know before choosing one. Know the various life insurance plans to select the right one as per your needs.
What is Life Insurance?
A life insurance is an agreement between the insurer and insured, under which the insurer has to pay some assured amount of money to the nominated beneficiary, in case the insured dies during the tenure of the policy. The insured pays a certain sum to the insurer as premiums regularly in exchange, during the policy term. Under some policies, the payment from the insurer can also be made, in case the insured is suffering from a critical health issue. People often confuse life insurance with general insurance without knowing the meaning of general insurance. General Insurance is all kinds of insurance other than life insurance; for instance, vehicle insurance and health insurance, etc.
A life insurance plan can also provide benefits at the end of policy term other than death benefits; these are commonly called maturity benefits. These benefits are received by the insured if the policy term ends before his death. However, there are many more variations and policies available.
Types of Life Insurance
It is necessary that an individual understands the meaning of life insurance and its types so that the selection of an appropriate policy becomes easy. Here is the list of various life Insurance types:
- Term Insurance Plan: It is the most fundamental type of insurance plan opted by a majority of insurance customers. Under this policy, the insured is entitled to a death benefit for a certain number of years. The beneficiaries will receive the assured sum, if the insured passes away during the policy term. The benefit can be taken annually, monthly or as a lump-sum amount in one go. There are no benefits if the insured outlives the policy.Advantages of Term Insurance Plan
- Offers various additional rider policies to enhance the coverage
- The death cover is provided to the beneficiaries and can be availed either in one go or in installments
2. Retirement Plan: This plan helps to build corpus for your retirement so that an individual can be financially secure even after retirement. As part of the plan, the insured gets a fixed amount either annually or in one go after the policyholder turns 60. This is a two-way policy, i.e. the insured gets retirement benefits if he outlives policy terms and his beneficiaries receive benefits in case of his/her unfortunate demise.
- Advantages of Retirement Plan
- Insured can accomplish his retirement goals without worrying about finances
- Retirement policy is an effective tool for long-term savings
- If the insured passes away before retirement, the beneficiaries receive the pre-decided pay out as the death benefit
3. Whole Life Insurance Plan: This is the plan that provides coverage for lifetime. Some companies provide policies lasting up to 100 years of age. The sum assured is selected at the time of inception and is paid to the beneficiary at the time of death of the policyholder along with bonuses, if any. In case, the insured outlives the age of 100 years, the insurance company pays maturity endowment coverage to the insured. Whole life insurance policy variants are also available as ULIPs.
- Advantages of Whole Life Insurance Plan
- Coverage is offered for as long as the insured lives
- There is no age limit in this plan
- After the period of paying premiums are completed, the insured can make partial withdrawals from the assured sum
4. Endowment Policy:It is a combination of insurance and investment where the insurance company keeps a part of the money for investment and the remaining amount is the life cover. If the insurer lives longer than the policy term, then he receives a pay out at the time of maturity. Some companies provide bonus payouts at regular intervals. The bonuses can be provided both before and after the demise of the insured. Endowment policy provides a lower risk investment option to the insured, but the expected returns are also lower. Another name for this type of policy is traditional life insurance.
- Advantages of Endowment Policy
- Perfect long-term saving option for people with lower risk appetite for investment
- The policyholder can earn returns on maturity
5. Child Plan:The policy is opted by the insured for the financial assistance for his child’s future. This plan ensures a financial corpus for the child when the policy matures (usually when the child turns 18). This can help the insured sponsor his child’s education or wedding smoothly. If the insured passes away, unfortunately, the immediate pay out is provided to the nominees.
- Advantages of Child Plan
- Helps the insured to financially secure the future of his/her child
- Financial security in case of insured’s demise is also a major benefit that ensures that the child will be financially protected even after the demise of the breadwinner (insured)
6. Money Back Life Insurance:In this policy, insurance company gives a percentage of the sum assured to the policyholder as survival benefit. Under this policy, the insured also gets eligible to receive the bonuses which gets declared from time to time.
- Advantages of Money Back Life Insurance
- The insured can meet short-term financial goals
7. Unit Linked Insurance Plan (ULIP): ULIPs are a combination of investments and insurance. They are beneficial as they not only come with long-term investment benefits but also flexibility in long-term investments. The premium paid is the base for the provision of insurance coverage. Whatever remains is invested by the insurer in various financial products such as hybrid funds, bonds, market funds, and equities, etc. The market funds are selected by risk-taking ability of the policyholder. Insured’s preferences are highly considered while investing in capital funds.
- Advantages of ULIPs
- Insured is provided with total independence related to investment options
- Insured can gain maximum benefit from both investments and insurance
Thus, it is not enough to know just the meaning of life insurance; it is also necessary to know the detailed benefits so that one can choose the right policy. It is required to consider the benefits, premium amount, insurance company’s reliability and your exact needs against the available life insurance plans before taking the final call of purchasing the policy.
Why is Life Insurance Helpful?
- Many people question the need for life insurance, but many factors prove its utility.
- The breadwinner of the family plays an important role, and his/her sudden death could cause a financial crisis for the dependents. It is not possible to compensate for the human life, but an assured sum can largely help in covering the financial risks involved. Insurance plans provide tax benefits also in certain conditions and act as a financial cushion in the long-term.
- When an individual is not the breadwinner of the family, having life insurance can help in getting a payout at the time of an accident or critical illness (depending on the policy). This can serve as a valuable cushion in critical times.
- There are many types of life insurance plans, and the decision to buy a particular plan is based on the requirements of specific customers. The plans are designed by the insurance companies keeping in mind various groups of customer base and their insurance needs. If a policy does not completely comply with your needs, there are additional riders that can maximise the coverage.