Life insurance is protection against financial loss resulting from insured Individual’s death. In realistic terms, life insurance provides you and your family the financial security and certainty to deal with the aftermath of any unseen unfortunate events. Insurance products fall into three key broad categories:
Term plans 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.
TEndowment 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. The profits are an outcome of premiums being invested in asset markets – equities and debt.
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.
ULIPs are a variant of the traditional endowment plan. They pay out the sum assured (or the investment portfolio if it’s 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 equity/debt markets. The value of the investment portfolio is captured by the NAV (net asset value).
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 expires only in case of an eventuality as there is no pre-defined policy tenure.
An annuity is a type of policy issued by an insurance company that allows you to save money for retirement. The money you pay in can be either a lump sum or a number of payments. These contributions then earn interest, generally tax-deferred, and after a period of time, provide you with a stream of income.