Given the unpredictability of life, it makes sense to have a safety belt to handle any kind of untoward situation. Such a safety belt is especially needed for your loved ones when you are not around. And to take care of such uncertainties of life, you can opt for a life insurance plan. Thus, a life insurance is all about making arrangements to provide financial protection to your family in case of your sudden demise. However, before buying a life insurance, you need to be aware of its types and the purpose behind each type.
Types of Life Insurance Plans
The life insurance plans serve a specific goal and you should understand this well before finalising one for your family. Each type is loaded with unique features and it is important to gather all the information in order to take an informed decision. Here are the various life insurance types available in India.
Term Plan: This is a pure protection plan that offers financial security to the family in case of the sudden demise of the policyholder. The important feature is that the benefit is availed only if the policyholder passes away during the term of the policy. And in case she/he survives the plan, the policyholder does not get any benefit. It covers the risks at a reasonable premium (amount paid by the policyholder to the company to get the insurance) and is thus, considered cost-effective.
Whole Life Plan: It offers coverage to the policyholder for the entire life (100 years). Just like a term insurance plan, here the nominee gets the benefit when the policyholder passes away during the policy term. However, in case the policyholder survives the policy, she/he gets the survival benefits along with bonus given by the insurance company.
Unit Linked Insurance Plan (ULIP): It is the plan that offers the benefits of both insurance and investment. A part of the premium paid is used for coverage, while the remaining is invested in various funds to get returns. The investment can be made in equity, debt or hybrid funds. This is a good means of creating wealth for various financial needs.
Money Back Plan: This is a combination of savings and insurance. Thus, apart from providing protection, the plan is also a means to save money. The policyholder gets back a part of the sum assured at regular intervals. On surviving the policy term, he/she receives the remaining part of the sum assured along with any bonus declared by the insurance company. However, in case the policyholder happens to pass away during the policy term, the beneficiary gets the entire sum assured irrespective of the amount given back. This plan helps to save money for certain important stages of life.
Retirement Plan: Also called an annuity plan, this insurance plan provides an insurance coverage along with a pension after your retirement. Thus, it offers financial protection for those times when the sources of income might dry up. It helps lead a financially happy life when you are not in a condition to earn.
Child Plan: This insurance plan is a combination of insurance and investment. Here, apart from the benefit provided at the end of the policy term, the policyholder also gets pay-outs at certain intervals to financially safeguard the child’s future. These milestones can be higher education or a marriage.
Endowment Plan: It combines the benefits of insurance and savings. Thus, through disciplined saving, you create a wealth corpus to be used for various requirements of life. Similar to a regular insurance plan, the endowment offers benefits to the beneficiary, if the policyholder does not survive the policy term. However, if the policyholder lives through the policy, he/she gets the savings once the policy matures.
Thus, before picking up the type of insurance, analyse your needs and requirements and how the insurance plan will help you meet your financial goals. Once this analysis is done, you can decide the sum assured and the duration of the policy. Don’t go for a big amount or the premium to be paid will be higher. This amount should be based on your affordability. Another important step is comparing the insurance companies on the basis of claim settlement ratio so that you are sure of a smooth and hassle-free claim when needed.