Understand the 5 types of life insurance plans before buying a policy.

The harsh truth on the Earth is that everyone who got born has to die one day by accident or by heart attack the reason could be anything. So whenever we imagine that how difficult it will be for our family to survive on this Earth when I will not be there, then life insurance is the first thing that comes to our mind. We all want to secure our loved ones our family members in any bad circumstances so we decide to buy life insurance in the hope that it will support our family when we will not be there with them anymore. But when we try to buy the life insurance policy we got confused because there are many types of life insurance. When we try to get some help from agents they suggest to us the plans that will be profitable for them in which they got more commission. So, you don't have to face difficulties while choosing the best life insurance plan according to your need we decided to write an article on this topic. Before starting the article "types of life insurance" we must know what is life insurance.

What is life insurance?

Life insurance is the contract between the insurer and insured in which the insurer guarantees to pay a sum insured in exchange for a premium to the policy holder's family in the case of death.

The life insurance market in India has been growing rapidly. There are many companies in the market which are offering life insurance. So, we are going to discuss the types of life insurance in this article.

Types of life insurance

There are mainly 5 types of life insurance plans;

1. Term insurance plan

Term insurance plan is said to be a pure insurance plan because in this plan you have to pay the premium up to a limited time duration which you have selected and the insurer guarantees to pay the coverage in the case of death of the policyholder to the nominee mentioned in the policy. Usually, the sum insured in this plan is very high because if the policyholder is safe up to the duration he won't get anything from the insurance company. The term insurance plan is the least expensive way to buy a high coverage policy at a low premium amount.

Now maybe you are thinking that why should I opt for this plan. See Sum insured in term insurance plan is higher than other plans. You can use this plan to diversify your portfolio. You are making investments in stocks and mutual funds. Put a little amount in this plan too. Usually, what happens agents suggest the endowment plans and try to convince you to invest and insure in a single plan so they can get more commission. In terms insurance plans, the commission of agents is too less or negligible.

Now maybe you are thinking that how much cover should I get? Simply get enough sum Insured that if your family put that whole amount in FD then the interest which will come from Fd can replace your salary means the returns should be equal to your income.

2. Whole life insurance plan

The plan is said to be a whole life insurance plan because this plan never expires it triggers until the policy holder's death it doesn't matter at what age. But you can choose the duration till which time you want to pay the premium. Because this is the whole life insurance plan the premium of this plan is usually very high as compared to the term life insurance. The whole life insurance plan premium is fixed and not increase with the age of the policyholder. The death benefit of a whole life insurance plan is tax-free unless it includes capital gains in the sum insured.

See different types of policy triggers in different situations some policies even give you coverage while you are alive,  and some policies cover up to age. If you want to get coverage while you are alive you shouldn't go for the whole life insurance plan. 

The great benefit of this plan is it triggers up to whole life and the beneficiaries will get the benefits after the death of the policyholder and disadvantage is that the premium of this plan is usually very high.

3. Money-back life insurance plan

Most of us invest in that policy which triggers after the death of a policyholder or after a maturity period but sometimes we face some temporary problems then we need some funds to get rid of the problems. In the money-back life insurance plan, the policyholder gets a percentage of the sum insured at the regular intervals up to the plan tenure instead of getting the lump-sum amount. In the case of the death of the policyholder during the plan tenure, the beneficiaries will get the whole sum insured. people who want to save money usually buy the money-back policy because in this policy insurer gives some amount at regular intervals. If the policyholder is still alive after the policy period the remaining sum insured will be given to him as maturity benefit.

The great advantage of this policy is whereas in other policies you get the benefits after a maturity period or the beneficiaries will get the sum insured after your death, in this policy you will get an amount at regular intervals there is no problem of liquidity in this plan as in other policies. 

4. Endowment life insurance plan

It is the most common life insurance plan. In the endowment life insurance plan insurer guarantees to pay a lump sum amount to the beneficiaries in the case of the policy holder's death. If the endowment policy will be expired the policyholder will get the maturity benefit (sum insured+bonus+additional bonus).On the other hand, if the policyholder got dies before the maturity period the beneficiaries will get the death benefit which is the sum insured including bonus and additional bonus if applicable. In this plan, the policyholder will not get any amount at the regular interval before the maturity period like in the money-back insurance plan. 

Every insurance agent will suggest you this policy as compared to the term plan because they will get a commission up to 30% in the endowment plan whereas commission in term insurance is too less almost negligible and you get convinced easily too because of maturity benefit.

As compared to term insurance sum insured is very less and the premium is too high in the endowment plan because of the maturity benefit in this plan.

After some time policyholder can withdraw some amount from the insurance company whereas the term insurance plan doesn't have an option like that.

5. Unit linked insurance plans (ULIPS)

The unit-linked insurance plans are a combo of insurance and investments. By buying this policy you get the insurance plan as well as the investment options in debt, equity, and hybrid funds the choice will be yours.  The premium term in this plan may be a one-time payment, regular interval payment, or a fixed duration payment. The policy term of this plan varies from 5-30  years. In this plan insurer guarantees to pay a sum sump amount up to the sum insured to the beneficiaries in the case of the death of the policyholder. The death benefit in this plan depends upon the fund value and sum insured. The amount which will be more in these two will be given to beneficiaries. If the policy gets expired the policyholder will get the fund value. The lock-in period of  ULIPS is 5 years if you want to withdraw before the lock-in period you will have to bear some surrender charges but you will get only the fund value.

If you want to learn about investments in mutual funds you can read this book, I have personally read this book and it's too good. 

The bottom line...

Look insurance is the thing that covers the risk of uncertainty. From my point of view if you want to get life insurance buy a term insurance plan among these types of life insurance plans because the sum insured is very high in this plan if any uncertainty happens at least your family will be got enough amount that if they make a fixed deposit the interest can replace your income. For investment options, you can choose mutual funds. By doing this you can diversify your investments as well as risks.

Click here to know the importance of health insurance.