It is a general belief by most of the people that life insurance is a lifetime investment plan without any returns. However, life insurance is more than that. There are several life insurance plans, which leave you with a constant stream of income and offer you to invest in life insurance plans to receive great returns. Investment in life insurance is a great option for those who want to make money in the long-term or short-term
Life insurance plans are of two types, market-linked insurance plans and non-linked insurance plans. Market-linked life insurance basically refers to a unit linked insurance plan offered by many life insurance companies enabling them to be a direct part of equity-based funds and the money market. Market-linked life insurance helps you to switch between funds and withdraw your funds whenever needed.
Whereas non-linked insurance plans are like conventional plans such as endowment plan and involve low-risk return options and offer policyholders guaranteed maturity proceedings and bonus. Non-linked insurance plans assure you fixed premium, which depends on the sum assured along with any bonuses mentioned in the plan.
What is a Traditional Life Insurance?
The whole concept of life insurance started in the early eighteenth century to protect humans against any kinds of risks of accidents, deaths or any fatal mishaps. There are two types of insurance, traditional and term life insurance. Traditional life insurance is very common and many people enroll in it. The traditional life insurance, unlike term life insurance, offers the contract holders an insurance for their entire life. Upon the death of the contract holders, the whole amount of coverage paid to the beneficiaries. Before paying anything to the beneficiaries, underwriting (investigation and evaluation) is conducted. In the underwriting process, the investigator asks health and lifestyle-related questions such as personal medical history, family medical history, family record, height, weight, body mass index. Upon successful investigation, the total sum assured paid to the beneficiaries.
Traditional Life insurance also offers wealth transfer, preservation and tax-deferred wealth accumulation for the entire lifetime. Because of these features, the premium is generally costlier than other two types of the insurances.
When policyholders opt for traditional life insurance plan, they get to participate in the company’s fund from the date of commencement and get to share the bonuses from the company. There are two types of bonuses. Revisionary bonuses and terminal bonuses.
Types of Policies under Life Insurance
There are several hybrid and core varieties of Life insurance policies. As hybrid varieties come from the core ones, there are eight varieties of core policies.
Term Plan – Provides pure death protection plan for a specific period. The policyholder pays for the premium over a certain period.
Whole Life Plan– The plan covers the beneficiaries as long the policyholder lives. Though the premiums are high, you can also issue loan against your premiums.
Endowment plan – Covers the risks in your life for a certain period. Generally, the premium for this plan is high. If the insurer survives the term, you get additional bonuses along with the assured term.
ULIP – The insurer gets the benefits of life insurance and returns on the investment from the mutual fund. A portion of the premium is used in stocks and bonds. Depending on the market conditions, you get returns on the investments.
Money Back Plan – You get returns on a periodic basis based on your premium payments.
Not all the policies are suitable for everyone. There are certain requirements to choose each of the insurances. There are certain factors to consider before choosing any Life Insurance plans.
Coverage time – How long you want to cover your premiums and what is your expectations from the insurance plans.
Premium charges – What is your budget to pay for the Life Insurance every year and what are your expectations from the insurance plans.
Returns – How flexible you want your insurance plans to be. In case there is a need for the money and you see, your money is blocked in the insurance plans. If you do not have any other sources of income, the insurance plans should be flexible enough for you to withdraw money at any point in time.
Convenience – We sometimes have to meet many requirements. So insurance plans should provide flexibility to deposit premium amount at any point in the year. Choose your insurance plan according to your convenience.
Life insurance is a protection plan for yourself and your family. It also provides financial stability to a family for a long period. To utilize the plans to the fullest understand your need and understand the policies available in the market. Choose carefully amongst the available options for safe financial future.