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Socio economic changes, income growth and lifestyle changes and related life threats have increased the demand in life insurance plans many fold. Insurance is gradually finding place as an important aspect of financial planning. Yet for anyone seeking the right policy, there is confusion as to which life insurance is right. Here we talk of some of the key life insurance products, their features and why one should have them.
Term insurance comes under the pure protection plan. It is the cheapest of all life insurance products and allows maximum cover for minimum possible premium. It can be taken for a fixed duration. If anything happens to the Insured during the insurance term, the insured amount is given to the nominee. If one survives the term, the insurance simply ceases to exist. There are no survival benefits.
Endowment plans are investment linked insurance plans. They provide the life cover and act as tools for savings and investment. They are taken for a specific duration and have survival benefits attached making it more expensive than Term plans. Since it is a traditional plan, tenure, Premium and Maturity amount is fixed. In most endowment plans one gets guaranteed additions along with the maturity amount. Other than this the insurance companies announce Loyalty Additions or Bonus from time to time. This amount is also added to the maturity amount. The insured gets the maturity amount and all the additions on the maturity date. It is ideal for those who wish to save for a specific purpose.
Similar to the endowment plans, money back plans are also investment linked. They have guaranteed additions and bonus may also be announced from time to time. They differ in the manner the maturity amount is given out. Money back plans are taken for a fixed duration. In case of death during the term, sum Assured is given to the nominee. There are survival benefits attached. Here the maturity amount is paid back periodically to the insured at pre identified intervals. Finally the remaining additions and maturity amount is paid back on the maturity date. It is ideal for those who wish to insure their life, save and get
Whole life plans are insurance plans for whole life, generally taken as up to the age of 100 years. The plan acquires a cash Surrender Value over the period. The premium and Death Benefit are fixed. Along with the cash value, the insured starts getting returns in the form of bonus. The insured can also take a loan on cash value at the time. There are no other survival benefits. Death benefit goes to the beneficiary.
They are dual benefit plans that combine insurance with investment flexibility. Apart of the premium goes towards providing insurance and the rest goes towards investment. In case of ULIPS the Proposer has the flexibility to choose the type of funds that he/she wishs to invest in. One can choose between equity funds, debt funds or a mix of both. The drawback here being that the insurance company deducts allocation charges from the premium based on the funds chosen.
These are special plans that allow one to get regular income after retirement. In this case the insured has to pay a premium over a period or as single pay. At the chosen retirement age up to 1/3rd of the corpus can be withdrawn. At this stage part or whole of the accumulated corpus is used to purchase annuities that allow the insured to get income over a chosen period of time. One has the option to accumulate corpus over a fixed number of years (deferred Annuity plans) or buy the annuity from the retirement benefits that one may have received and immediately start getting returns immediately (immediate annuity Plans). Pension plans can be unit linked or traditional with fixed benefits..
Other than a pure term insurance plan, each type has some cash value attached to it. Each type of insurance plan has a specific focus. It is important to identify individual needs and then choose the type of insurance most suited.