Variety is the spice of life, isn’t it? Then should life insurance plans be of the same type? Wouldn’t you need different plans for meeting different financial requirements?
You would and life insurance companies understand this sentiment. That is why they offer a range of plans to cater to your varied requirements. Do you know about the range and type of plans offered by life insurance companies? Test your knowledge below –
Types of life insurance plans
- Term insurance plans
This is the most basic and also the most important type of life insurance plan offered by insurers. This plan contains the essence of life insurance. It pays a benefit only in case of death of the insured during the term of the plan. So, if you buy a plan with a term of 20 years, death within these 20 years would result in the payment of the sum assured. Premiums are the cheapest since there is no maturity benefit. With this plan you can buy a high sum assured at affordable premium rates.
Usefulness of term plans
Term plans help you create financial security for your family in your absence. If you are the bread-winner, your family faces a tremendous financial loss in case of your premature death. A term plan pays a lump sum amount in this contingency and thus secures your family’s finances.
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- Return of premium plan
In essence, return of premium plans are a variant of term insurance plans. However, they have one major difference. They pay back the premiums paid during the policy tenure if you survive the policy term selected. Premium for these plans are a tad higher than premiums of term plans because these plans also promise a maturity benefit.
Why do you need return of premium plans?
These plans are a variant of term plans and thus they help provide financial security. You can choose this plan if you want a benefit on plan maturity.
- Whole life plans
Whole life plans run for the entire lifetime of the individual. The maturity age (age of the insured when the plan matures) under these plans is either 99 years or 100 years. Thus, the plan runs till the insured reaches this age or dies earlier. Whole life plans are like term plans which pay a death benefit whenever death happens. The only difference is that these plans do not have a finite term.
Importance of whole life plans
Whole life plans also fulfil the financial security need fulfilled by term plans. While term plans have a restricting tenure, whole life plans run lifelong. Thus, if you are looking for an indefinite coverage, you can choose whole life plans
Check out our video below to understand whole life plan in detail
- Endowment Plans
Endowment plans are traditional savings oriented plans which give you either death or maturity benefit. These plans create a guaranteed corpus which is paid on maturity or earlier death. You can also get bonus if the plan participates in the company’s profits.
How endowment plans help?
Endowment plans promise guaranteed benefits. So, if you want to create a guaranteed corpus, you can opt for these plans.
- Money back plans
Money back plans are a type of endowment plans where the sum assured is paid in instalments during the term of the plan. The interval when a portion of the sum assured would be paid back is specified at the onset of the plan. The instalments received are called survival benefits and they are paid only if you are alive at that time. On maturity, the remaining sum assured is paid along with any bonus or guaranteed additions as applicable. In case of death, the whole sum assured is paid irrespective of the survival benefits already paid.
Why are they needed?
Money back plans provide liquidity during the plan tenure by paying survival benefits at regular intervals. Thus, those of you looking for periodic returns can choose money back plans.
- Unit Linked Insurance Plans
Called ULIPs in short, these plans give you a combination of life insurance and investment. The premiums you pay are invested in the market. There are different funds with varied asset class and you can choose any fund as per your investment strategy. You can monitor the growth of your invested premiums. Moreover, ULIPs allow you various flexible features like switching, partial withdrawals, top-ups, etc.
Why you need ULIPs?
ULIPs are great for individuals looking to reap market-linked returns while at the same time enjoying insurance coverage.
- Pension plans
Pension plans are retirement oriented insurance plans which build a corpus for your retirement. There are deferred annuity plans and immediate annuity plans under this category. Under deferred annuity plans, you pay premiums for a specified tenure. These premiums accumulate into a corpus from which annuity pay-outs are given. Under immediate annuity plans, on the other hand, you pay a lump sum amount and annuity payments start immediately from the corpus you have invested. Pension plans can be offered as traditional plans with guaranteed returns or unit linked plans.
What is the use of pension plans?
Pension plans ensure a retirement fund. Thus, they are suitable for you if you are looking to save exclusively for your retirement. Annuity pay-outs are compulsory under these plans and these pay-outs continue for as long as you live.
Read more about Common terms in life insurance policy
Thus, there are different types of life insurance plans and each plan offers something different. Before buying a plan, assess your requirements and then buy a plan which suits such requirements.
Read more about 5 reason why you need life insurance
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Read more about What is insurance and how does it work?
Are you wondering if your life insurance policy is applicable if you are travelling abroad? Check our video below to know more
