Types of Life Insurance Policies

We have heard about the importance of having life insurance and at some point, thought of getting one. However, the problem is there are too many types of life insurance policies in the market. Your friend might have told you about the maturity benefits of the endowment policy, but then, you read somewhere that the term plan provides more coverage for a lesser premium. And amidst all the confusion, we often end up getting the wrong product. 

Types Of Life Insurance Policy

There are five different types of life insurance policies available, and here are their features and benefits: 

Term Plan

A term insurance policy is a pure life cover and its structure is very simple to understand. You pay a premium to an insurance company for a specific number of years and in return, in case you were to meet with an untimely death, the insurer promises to pay the sum assured to your family. It does not come with any maturity benefit (apart from a Term Plan with a Return of Premium or TROP). Benefits of Term Insurance Plan:

• It provides higher coverage for lesser premiums as compared to other life insurance products. 
• TROP comes with a maturity benefit, which is the sum total of all premiums paid. No interest amount is paid on that.

Whole Life Insurance Policy

As the name suggests, a whole life insurance policy gives you a cover for life. If the premium amount is paid regularly, the insurer promises to pay the sum assured to the nominee of the policyholder after the death of the policyholder. Apart from the sum assured, it also includes a saving component. Benefits of Whole Life Insurance Policy:

• Unlike other insurance policies, it does not have a defined term. The sum assured is paid to the dependent upon the death of the policyholder.
• Apart from the sum assured upon your death, it also has a saving component. You can re-invest it letting the cash amount grow or can remit a part of the cash value during your lifetime. You can also avail a loan against the saving component. 

Endowment Policies

Endowment plans are again a combination of savings and protection. If the premiums are paid on schedule for a specific number of years, insurers promise to pay the assured sum to the nominee in case of the untimely death of the policyholder. Meanwhile, if the policyholder survives the policy term, he/she receives a lump sum payout as the maturity benefit. Benefit of  Endowment Policies:

• Apart from the sum assured there is a saving component. You can use this to make goal-based savings and in case of financial emergencies, you can avail of a loan against it.

Moneyback policy

Moneyback policies are also a combination of savings and protection. However the key advantage of this policy is that a portion of the sum assured is paid to you at regular intervals during the policy tenure. The remaining amount along with the bonus is paid at maturity. This benefit is not available for any other life insurance policy. However, if the policyholder dies during the policy tenure then the entire sum assured is paid to the nominee, this is despite the survival benefits that the policyholder has already received. Benefit of money-back policies

• The biggest advantage of money-back policies is the liquidity they provide, i.e. you receive a percentage of the sum assured at regular intervals.

Unit Linked Insurance Plans (ULIPs)

Unit unit-linked insurance plan, better known as ULIP, is a combination of insurance and investment. The investments are made in debt and equities by a fund manager assigned by the insurance provider. However, the policyholders can choose whether he/she wants to invest in debt or equity and in what proportion. Though there are no guaranteed returns, a lump sum amount is paid to the policyholder at maturity. However, if he/she dies during the policy tenure, the insurer pays him/her a sum assured. Benefits of ULIP:

• Though there is no guaranteed return, ULIP provides a higher return than traditional policies with a savings component. 

Conclusion

However, if you are planning to buy a second life insurance policy, try to assess what you need it for rather than trying to understand various types of life insurance policies in order to have less confusion. Once you know the purpose, evaluate all the policies to understand which one will give you maximum benefit. Your decision to buy life insurance should be determined by three factors – requirement, the benefits you get from the policy, and your ability to pay the premium. 

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