Term Insurance Plans
Term insurance is the cheapest form of Life Insurance available. Since a term insurance contract only pays in the event of an eventuality, the life cover comes at low premium rates. Term insurance is a useful tool to purchase against risk of early death and/or protection of an asset (housing loan).
Its are the most basic form of life insurance. They provide life cover with no savings / profits component. They are the most affordable form of life insurance as premiums are cheaper compared to other life insurance plans.
Online term insurance plans provide pure risk cover, which explains the lower premiums. A fixed sum of money - the sum assured – is paid to the beneficiaries if the policyholder expires over the policy term. If the policyholder survives, there is no pay out.
Endowment Plans
Endowment plans are savings and protection plan(s) that provide a dual benefit of protection as well as savings. Endowment plans pay a death benefit in the event of an eventuality; should the customer survive the benefit period, a maturity benefit is paid to the life insured.
Endowment plans differ from term plans in one critical aspect i.e. maturity benefit. Unlike term plans which pay out the sum assured, along with profits, only in case of an eventuality over the policy term, endowment plans pay out the sum assured under both scenarios – death and survival. However, endowment plans charge higher fees / expenses – reflected in premiums – for paying out sum assured, along with profits, in either scenario – death or maturity. The profits are an outcome of premiums being invested in asset markets – equities and debt.
Whole of Life Plans
A Whole of Life plan provides Life Insurance cover to an individual up to a specified age (85 or 100). A whole of life plan is suitable for an individual who is looking for an extended Life Insurance cover and/or wants to pay premium over as long a tenure as possible, to reduce the amount of up front premium payment.
A whole life insurance policy covers a policyholder over his life. The main feature of a whole life policy is that the validity of the policy is not defined so the individual enjoys the life cover throughout his life. The policyholder pays regular premiums until his death, upon which the corpus is paid out to the family. The policy expiresonly in case of an eventuality as there is no pre-defined policy tenure.
Single Premium Plans
Single Premium plans are investment plans offered by a Life Insurance company. The insurance company generally pays a guaranteed interest rate on the single premium investment. Returns from single premium plans are tax free in the hands of the customer.
Pension Plans
Pension plans allow an individual to save in a tax-deferred manner. An individual can either contribute through regular premiums or make a single premium investment. Savings accumulate over the deferment period. Once the contract reaches the vesting age, the individual has the option of choosing an annuity plan from a Life Insurance company. An annuity is paid till the life time of the insured or a pre-determined period depending upon the annuity option chosen by the life insured.
Moneyback Policy
In money back policies, the policy holder gets periodic "periodic payments" during the term of the policy and a lump sum amount on surviving its term. In the event of death during the term of the policy, the beneficiary gets the full sum assured, without any deductions for the amounts paid till date, and no further premiums are required to be paid.
A money back policy is a variant of the endowment plan. It gives periodic payments over the policy term. To that end, 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. In case of death over the policy term, the beneficiary gets the full sum assured.
Unit Linked Insurance Policy (ULIP)
A ULIP is a life insurance policy which provides a combination of risk cover and investment. The investment risk in ULIP is generally borne by the investor.
ULIPs are a variant of the traditional endowment plan.They pay out the sum assured (or the investment portfolio if its higher) on death/maturity.
ULIPs differ from traditional endowment plans in certain areas. As the name suggests, performance of ULIP is linked to 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. ULIPs differ in one area, they are a combination of investment and insurance, while mutual funds are a pure investment avenue
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