A Life Insurance is basically a legally binding contract between the two parties, namely the insurance provider and the policyholder, wherein the insurer guarantees to pay the beneficiaries in case the insured dies against the premium amount paid by the policyholder during his/ her lifetime. Apart from life insurance, one should also be well aware of the different types that one can opt for. Below are the different types of life insurance policies; let us have a look.
Different Types of Life Insurance Policies
The different types of life insurance policies are important and offer flexibility and adaptability. Life insurance allows you to make decisions in a mature manner about your financial future and the well-being of your loved ones, and being proactive in this area is key.
- Term Life Insurance
It is a type of life insurance plan that offers optimum coverage at an affordable cost. If the insured dies before the policy’s tenure ends, the entire sum assured will be given to the nominee, and then the policy will be considered terminated. However, if the insured is alive until the end of the policy’s tenure, no amount will be payable as the maturity amount.
- Whole Life Insurance
As the name suggests, this plan covers the policyholder’s whole life. Its main feature is its undefined validity, so the policyholder enjoys life cover throughout his life. The insurer will pay the insured in case he/she dies during the policy’s tenure.
- Endowment Plan
These are basically savings-focused plans that help you create a financial corpus for your goals. The endowment plan ensures that it will pay either a maturity benefit in case the insured survives after the policy tenure or a guaranteed death benefit on premature death.
Hence, in case an insured does not survive and dies within the policy tenure, the whole sum assured and the accrued bonuses would be paid to his/ her nominee, leaving the policy to be terminated. But, if he survives the policy tenure, the sum assured and the accrued bonuses would be paid to the policyholder himself, and then the policy would be terminated.
- Unit Linked Insurance Plan (ULIP)
Unit-linked insurance Plans are considered to be a combination of investment and insurance plans. An insured has the privilege of investing in market-linked funds along with the insurance benefits. You would be surprised by how much investment is linked to life insurance. So, let us first know What is Investment, It basically means acquiring an asset or money with the intention of earning an income. It is the purchase of an asset or goods that aims to earn an income or create wealth in the future. Here, the policyholder pays the premium during the policy tenure and gets the advantage of selecting the market-linked funds within which he would like to invest as per his/her financial goals.
As we all know, ULIPs are best known for their flexible and market-linked investment opportunities across varied asset classes such as debt, equity, balance, and many more. Also, one can even make switches between funds, withdraw funds partially, make payments towards top-up premiums, etc. and lastly, manage their investments subject to the terms and conditions thereof.
- Money Back Policy
These policies provide money-back offers at regular and pre-determined intervals. The insured receives insurance coverage and regular payouts as survival and maturity benefits. Irrespective of the payouts already made, the nominee will be getting the sum assured in case the policyholder dies during the policy tenure.
- Retirement Plan
This plan is basically meant to create a corpus of funds. It offers two plans: Deferred Annuity and Immediate Annuity Plans. The deferred annuity plan allows the creation of a corpus by saving the funds over the policy tenure, promising the insured a regular or lump sum amount at some pre-decided date.
On the contrary, the immediate annual plans start making payments immediately after the policy is bought. Once the lump sum amount is paid to buy the policy, it starts providing guaranteed payments.
- Child Insurance Plan
It could be anyone, e.g., an endowment, money-back, or unit-linked plan, as these are designed with children’s future in mind. In these plans, parents are considered to be the insured, and children are the beneficiaries. Some of the child insurance plans offer the premium waiver benefit, where in case the parent dies during the policy tenure, the insurer company will waive off the premium that was to be paid in the future, and the rest of the plan will continue to pay the benefits according to the original schedule. Hence, this plan secures a child’s future whether the parent is there or not.
How Much Life Insurance is required?
As we know, the life insurance company is responsible for insuring the policyholder against the risk of premature demise or making payment on maturity, where the policyholder is required to pay the premium for the policy that is to be bought. Life insurance premium includes the cost of mortality risk, i.e. the risk of premature demise, and a saving element if the insurance policy offers a maturity benefit.
There are 3 payment modes for life insurance:
- Regular premiums – In this kind, a policyholder is required to pay the premium throughout the term of the policy.
- Limited premium – In this kind, a policyholder is required to pay the premium for a limited tenure while the policy runs longer
- Single premium – In this kind, a policyholder is required to pay the premium in one lump sum at the time of buying the policy
Also, the adequacy of the sum assured basically depends on multiple factors and acts differently for everyone. Mentioned are the factors:
- Age
- Income and expenses
- Existing financial assets
- Existing liabilities
- Financial goals
- The number of dependents, etc.
Conclusion
A life insurance policy is an important tool; hence, deciding between different policies is also an essential decision. Some tips and thorough research can help make an informed decision about finding the best life insurance policy with sufficient coverage.
