Every responsible person keeps his family’s security above everything else and he works hard to provide comfort and luxuries to them. He also plans financial security so that his family members will have same lifestyle when he is not with them. Life insurance is one of the convenient and safest way to provide financial security to the family after the breadwinner’s demise. Under the term of life insurance policy the insurance company assures to pay a sum of money to the policyholder’s family.
What is Life Insurance?
Life insurance provider and an individual sign a contract in which the insurance provider assures to pay a specific amount of money i.e. sum assured, to the nominee in case of insured’s death. In order to get this fortification, the policyholder pays a premium.
The main purpose of life insurance is to provide the financial security to an individual or insured’s family after his or her demise.
Common Aspects Related to Life Insurance Policy:
Premium: A premium is the amount of money that an individual must pay for an insurance policy. It depends upon the coverage of policy that you choose at the time of buy.
Nominee: A person to receive the policy money in the event of the death of the Policyholder.
Policy Term: It is a certain period of time in which insurance policy provides protection to the policyholder.
Sum Assured or Death Benefits: This is the money received by nominee after the policyholder’s demise.
Policy Paying Term: The time duration for which policyholder have to pay the premium.
Types of Life Insurance Plans
- Term Insurance
- Unit Linked Insurance Plans (ULIPs)
- Endowment Policies
- Whole Life Policies
- Money Back Plans
- Annuity/Pension Plans
Term insurance is a pure protection plan, which provides a life cover to the policyholder for a limited period of time. If the insured person unfortunately dies during the policy term then the amount of sum assured is paid to the nominee that may be a family member.
In case if the policyholder survives the policy term no amount is paid because in term insurance maturity benefit is zero. Usually, term plans are brought by those who want large life cover at a low cost of the premium.
Unit Linked Insurance Plans (ULIPs)
ULIP is integrated plan of both insurance and investment offered by insurance companies. In ULIPs the investment is done in stocks, mutual funds and bonds etc so ULIPs are risk associated. Policyholder can manage both the parts (Investment and Protection) according to his requirements and choices.
Unit Linked insurance plans also offer tax benefits under section 80C of Income Tax Act. Also, ULIPs are the best way to save money and to also ensure the growth of the saved amount.
Endowment plans are divided into two categories-
Endowment plans without profits: Same as term insurance plan. Nominee receives sum assured amount only after the death of the policyholder, No maturity benefits.
Endowment plans with profit: These types of endowment plans have maturity benefits. Nominee receives the sum assured with bonus until the policy is in force in case of insured’s demise. If the policyholder survives the complete policy term or on maturity insured receives sum assured amount with a bonus.
Whole Life Policy:
As the name suggests whole life insurance plans cover your entire life. In this plan, the insured have benefits of life cover and bonus. A part of the premium paid by the policyholder is used by the insurer to provide him protection and the remaining invested by the insurance company to make profits which are paid in the form of bonus to the policyholder.
There are two types of whole life insurance policy:
Pure Whole Life Insurance: The premium is paid by insured until his death. The life cover is for whole life and sum assured is paid to the nominee after the demise of the policyholder.
Limited payment Whole Life Insurance: The only difference in this plan is premium payable for a limited period of time which is chosen by the insured person.
Money Back plan:
The Money Back plans are also investment cum insurance plan. It provides life coverage and maturity benefits which comes in instalment on the specified interval of time. After a few years from the start of the plan, the money back plans start to pay an amount as survival benefits to the policyholder till the maturity of the money back plan. In case of unfortunate death of an insured person, these survival benefits do not pay anymore, only maturity amount as a death benefit is paid to the nominee of the policyholder.
Thus, the money back plan is a good source of regular income as a survival benefit with life protection cover.
Pension or Retirement plans are good investment plans that secure your life after the retirement. An amount is paid on regular basis or as a lump sum to the individual after the maturity of the plan. These retirement plans provide you with a regular income after the employment years.