There are a plethora of life insurance policy plans available these days. Therefore, choosing a plan that suits your needs requires sound research and deliberation. Several factors determine which plan is the right one for you. Life insurance plans are a must in anyone’s financial portfolio, regardless of age. Typically the entry-level age for obtaining a life insurance policy plan is 18 years, and the upper limit is 65 years.
Let us delve into the various types of life insurance policy plans available on the market and gloss over their features so you can have a good starting point. Then, you can gauge which plan would be the most suitable for you and do further research on it later. Let’s start.
Term Insurance Plan
This basic plan is essentially a life cover with a fixed term. An amount of premium is payable each year for the entire tenure of the policy. This sort of policy covers the sudden death of the insured and protects the insured's dependents against financial distress in their absence. These are standard life insurance policy plans that offer no maturity benefits. The sum assured is usually on the higher side, and the premiums are on the lower side. Riders covering critical illness and accident clauses can also be included. Both these serve crucial areas of life. The critical illness rider assures a lump sum pay out when the insured is diagnosed with a critical illness. The accident rider means that the nominee gets twice the sum assured in case of accidental death. One can also choose a return of premiums rider to get the premiums back in case of surviving the policy term.
ULIP (Unit Linked Insurance Plan)
This life insurance policy plan has a dual benefit, as the premium paid for this policy gets divided into two parts. One part is used for the life insurance cover and the other part for investments into market-linked mutual funds. The policyholder decides how much of the premium will be used for each.
The life insurance element of a ULIP works similarly to any term plan, where you get a sum assured in exchange for premiums. The investment element has two basic options: low-risk, low-gain investments, and high-risk, high-gain investments. The former is mainly debt-based and balanced mutual funds, while the latter is equity-based mutual funds.
You can decide between the two routes based on your risk appetite. If you feel like taking risks, opt for high-risk, high-gain investments. If you want to play it safe, go for the low-risk, low-gain investments. Both give returns, but the amount varies. Gains from the investment portfolio are accumulated into a corpus you get at maturity. ULIPs offer great flexibility to investors as there is the facility of changing the investment portfolio from high risk to low risk or vice versa.
Endowment Insurance Plan
This life insurance policy plan is a simple life insurance cover for a period of time plus an element of savings. The premium is generally lower than in other plans. At maturity, the insured gets a certain sum of money. This is best for people who want a life cover to protect their families against the sudden demise of the policyholder. It is also a savings that has tax benefits. It is also possible to take loans against this policy to cover sudden fund requirements.
Money-Back Insurance Plan
This plan has a system of getting a fixed sum of money from the policy at fixed intervals. This means that a sum of money is returned to the insured after a specific time. This can be helpful, as these sums could be used for certain expenses which might arise. It is also a way of seeing returns at an early stage instead of waiting until the policy's maturity. However, note that the amount paid back at intervals is deductible from the total maturity amount.
Whole Life Insurance Plan
Whole life insurance is a long-term plan. This is essentially a life insurance policy plan that provides life cover for the entire life span of the policyholder. Similar to a term plan, upon death, the sum assured will be paid to the nominees. The difference is that whole life plans have a maturity benefit, and a loan can be taken against them in dire situations. In addition, several riders might be included, which greatly enhance the policy's utility. This sort of plan should be bought early so that the corpus at maturity is large.
Child Insurance Plan
Children can be insured by their parents. This insurance is usually a hedge against later financial needs. Since this is done by a parent, in the event of the parent's death, the child receives the sum assured as a payout. This policy, if planned correctly, can be beneficial and remove the burden of financial obligations.
However, before deciding on a policy, it is vital to set out financial goals that will indicate the kind of policy that is best suited. Then there is the amount of premium which can be paid each year. This aspect is critically important and should be carefully calculated.
An unpaid premium can cause the policy to lapse. Therefore, it is best to use the free online life insurance premium calculator. This calculator can tell you the premium for a particular sum assured over a term.
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