Life insurance comes in a variety of plans to suit the needs of different individuals. Each insurer claims to offer its customers unique plans. Most of these are designed around some basic plans with add-on features. Here are some basic plans offered by most life insurance companies.
Unit Linked Investment Plan: A unit linked insurance plan (ULIP) is a financial product that offers you life insurance as well as an investment. Part of the premium you pay goes towards insurance and the balance will be invested in a fund of your choice—equity, fixed-return or a mixture of both. The investment portion of the ULIP works in a manner similar to a mutual fund. ULIPs have become very popular due to their flexibility and the dual flavour of insurance and investment.
Children’s Plans: Children’s plans are used for savings for the child’s future. Children’s insurance plans can be of two types: cover for the child and cover for the parent. You can buy a children’s insurance policy that will cover your child’s life either now or commencing sometime in the future. You can also buy a policy that covers the parent’s life but provides benefits for the child.
The investment portion of the policy can be designed to coincide with milestones in a child’s life such as graduation, higher education requirements, marriage, etc.
Term Insurance: Term insurance is perhaps the simplest form of life insurance as it offers only risk cover; there is no element of savings. This policy provides protection for a period between 5 and 30 years. Term insurance for a large sum assured can be purchased for a relatively small premium.
Whole Life Policy: An insurance policy that provides coverage for an individual’s whole life (or an expected life expectancy of, say, 80 or 85 years), rather than a specified term, is called a whole life policy. A savings component, called cash value, builds over time and can be used for wealth accumulation.
Endowment Policy: Endowment plans are insurance-cum-savings plans for a fixed term. The insured amount is payable either at the end of a specified number of years or upon the death of the insured person, whichever is earlier, along with bonuses, if that option is exercised. Endowment plan is a broad category; it has various options for individuals based on their insurance needs and objectives.
Money Back Policy: Money back policies are similar to endowment plans.
However, unlike endowment plans, in money back policies, the policyholder gets periodic sums during the term of the policy and a lump sum on surviving the term. In the event of death during the term of the policy, the beneficiary gets the sum assured.
Pension Plans: A pension plan is a means for retirement planning. It aims at providing you with a steady income when you retire. Pension plans have two stages: accumulation phase and annuity phase. At the accumulation stage, you contribute to the corpus of the plan. The premium (net of expenses) is invested by the insurance company in various instruments to earn returns and build a corpus over the term of the policy.
In the annuity phase, you can purchase an annuity from the insurer to receive regular income. Annuities are sometimes described as the opposite of life insurance because annuities protect you against the possibility of living too long and outliving your resources.
Pension plans can have an insurance cover option as well. If you choose to have an insurance cover, then, along with the savings portion, you will be paying an additional amount towards the premium for the life cover amount you choose.
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