Life Insurance Policy: Comparison Between Traditional and Non-traditional Plans
Updated On Aug 17, 2022
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Life insurers offer a variety of products to consumers based on their unique needs. These plans frequently provide a wide range of coverage, investment options, policy terms, rewards, etc. Life insurance plans can be divided between traditional and non-traditional plans. Depending on what you want to gain out of your life insurance policy, both are good financial vehicles. Let's examine how well these two categories contrast with one another.
What is Traditional Life Insurance?
Traditional policies are relatively low covers that provide policyholders with assured maturity returns. To guarantee policyholders' maturity proceeds, these plans often engage in bonds as well as other low-risk investment vehicles. Retirement plans, endowment policies, entire life insurance policies, money-back plans, etc. are a few examples of classic life insurance products.
Even term plans, which provide only life insurance coverage, might be regarded as classic life insurance products. These are referred to as classic plans since they are the traditional, long-standing kind of life insurance coverage.
What is Non-Traditional Life Insurance?
Combining insurance and investing under a single policy is one of the key components of non-traditional life insurance coverage. These products provide both elements and appeal to clients who choose high-risk insurance. These programmes include market investments, therefore there is some degree of risk involved.
These programmes include a high degree of risk, but there is also the possibility for bigger rewards. The most typical non-traditional policy is a ULIP, which is relatively new in comparison to other life insurance products. Customers looking for high-risk, high-return insurance policies may get ULIPs from the majority of the biggest businesses on the market.
Differentiating Factors Between Traditional and Non-traditional Plans
The following are the main distinctions among traditional and non-traditional life insurance policies:
Coverage Types
Traditional life insurance policies come with assured maturity rewards and insurance coverage. They are low-risk investments. High-risk plans, that combine insurance and investing, are non-traditional.
Flexibility
Investors in traditional life insurance policies are unable to select the precise securities in which their money will be placed. Companies include information about their investment strategy in the policy paper, and any investments are made at their discretion.
In non-traditional insurance, the ways in which investors can invest their money are up to them. Investors have a variety of debt, equity, and hybrid products to choose from on the market depending on their risk tolerance.
Switching Feature
Investors in traditional life insurance plans are unable to swap between funds under these programmes since they have no influence over the investments made.
Investors in non-traditional insurance plans are free to switch between other funds at any moment since they are able to track their money.
Surrender
In traditional life insurance, after paying premiums consistently for three years, endowment insurance may be canceled. Depending on the fund value and fees, the surrender value gained may vary.
In non-traditional insurance plans, following the first lock-in period, policyholders may renounce these plans at any time and get the whole fund value.
Conclusion
Depending on a person's needs, standard and non-traditional life insurance policies serve very diverse functions. Policies vary greatly even within conventional plans depending on their categories. For example, the coverage provided by a term plan and an endowment insurance are very dissimilar. While there is a risk associated with ULIPs, it is also possible to earn substantial profits, which is not the case with conventional insurance policies. Both kinds of plans share the benefit of providing policyholders with tax reduction.
Also read: Features of Term With Return of Premium (TROP) Plans
