Why Life Insurance ?
A life insurance policy is a contract with an insurance company to take care of insured life in case of any mishappening. The company insures the life in exchange for premium payments for the agreed period. The insurance company provides a lump-sum payment on maturity of the policy or after the death of the insured, whichever happens earlier. In the event of premature death, the benefit is given to the family of the insured person. Life insurance is always chosen based on the needs and goals of the insurer. There are number of Insurance policies are available from different Insurance compnanies giving different options,terms and benefits, as such it is important for the insurer to study the details properly. It's important to note that death benefits from all types of life insurance are generally income tax-free.
Types of Life Insurance Policies:
There are various types of policies available, but it is for the individual to select the right policy and period etc. depending his personal requirements. Broadly, the different types of life insurance policies are:
This is the most basic form of life insurance. It provides life cover with no savings / profits component. It is the most affordable form of life insurance as premiums are very low as compared to other life insurance plans. The term insurance plans provide pure risk cover, which is the reason for its lower premiums. Only, a fixed sum of money - the sum assured – is paid to the beneficiaries if the policyholder expires before the policy term is over. If the policyholder survives, there is no pay out.
This policy is the real life insurance policy as it covers the entire life of the policy holder.The main feature of a whole life policy is that the period is only limited by the life time of the policy holder as such the policy holder enjoys the benfit for the entire life. The policyholder has to pay regular premiums till his death, upon which the corpus is paid out to the family.
This plan is slight different from other policies because it gives maturity benfit in either case i.e. in case of premature death of the policy holder or at the time of maturity of the policy whichever is earlier. Both the sum assored and the profits are paid.It may be noted under this policy the premium charged is slightly higher. The profits mentioned are an outcome of premiums/money being invested in asset markets – equities and debt by the insurance company.
ULIPs are a some what similar to endowment plan.They pay out the sum assured (or the investment portfolio if its higher) on death/maturity. But ULIPs differ from traditional endowment plans in some areas. As the name suggests, performance of ULIP is linked to stock markets. Individuals can choose the allocation for investments in stock/debt markets. The value of the investment portfolio is captured by the NAV (net asset value). To that end, there are many similarities between ULIPs and mutual funds. However, ULIPs differ in a way that, they are a combination of investment and insurance, while mutual funds are a pure investment avenue
As the name itself suggests , money is given back to the policy holder periodically.A money back policy is a variant of the endowment plan. In this way , a portion of the sum assured is paid out at regular intervals. If the policy holder survives the term, he gets the balance sum assured. However, in case of death over the policy term, the beneficiary gets the full sum assured.
While there are so many types of coverage as mentioned above, let us also be clear as to what is not covered in Life Insurance Policy. These are:
N.B.: Please carefully study/understand all the options/offerings/benefits made by the Insurance Company, before deciding to go for it.