What is Life Insurance and Its Types

How do you define life insurance?

Like the name implies, it protects your life. If the policy holder dies premature death during the term of the policy the insurance company will pay the amount assured to the person who is named as the nominee. One of the most important tools for financial planning, insurance on life will help your family remain financially secure, eliminate debts by way of loans, ensure the lifestyle you have created and ensure that your goals remain in check.

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The types of life insurance available

Here are some types of insurance for life.

1. Life insurance term:

The term insurance plan is by far the most basic type of life insurance that is available on the market. Pure protection plans that provides comprehensive coverage with a reasonable price. A smoker aged 30 could choose an insurance plan that provides coverage of 1 crore rupees. 1 crore for a duration of 30 years paying a small fee. The term plan provides you with the option of choosing an amount that is guaranteed to be between 15 and 15% of your annual earnings.

The insurance company pays the nominee the sum guaranteed in the event that you die during the term of your policy. The money you receive from insurance helps your family members to pay everyday expenses and pay off any outstanding debts. Be aware that pure term plans do not have any maturities benefits. This means that if you do not live to the end of the policy you won’t be able to enjoy these benefits.

In recent times insurance companies have created the refund of the premium terms insurance which will refund all premiums you paid if you live to the end of the term of your policy. But , they are more expensive than pure term insurance plans.

2. Endowment plans

Incorporating investment and insurance into one product, endowment plans can provide life protection and create a corpus to fund important objectives in life. A part of the premium is used to pay the amount guaranteed, while the remainder is invested in safe avenues. If you die during the period of the policy your beneficiary will receive the amount assured.

If you are able to survive the term of your policy In the event that you survive the policy term, you receive the amount that you are guaranteed as a maturity amount with the accrued bonuses. So, endowment policies meet the two requirements of investment and insurance.

3. Money-back policies

Policies for money-back are similar to plans for endowment, with the exception that they pay a specific amount at specific intervals over the term of the policy. For example, a money-back policy that runs for 15 years could be able to pay a particular amount at the conclusion five and 10th year of the policy. At the time of maturity is when it pays the maturity benefit along with the bonuses that have been accrued.

4. Plans linked with unit (ULIPs)

Combining insurance and investing as a single policy, ULIPs offer life protection as well as the chance to earn capital appreciation through investing in diverse funds that have different levels of risk. As with endowment insurance, in ULIPs there is a portion of the premium is used to provide life insurance, while the other portion is invested in markets that earn yields.

Each ULIP includes underlying funds that belong to different asset classes , such as debt, equity, and hybrid , where it invests to produce profits. ULIPs allow partial withdrawal at the expiration of the lock-in time (5 five years) and also offer the option of switching, whereby you can change between funds. This feature is useful when you’re nearing your target, and you can change the fund you are using to be aggressive into a debt one.

5. Whole life insurance

The name implies that life insurance that is whole provides protection for the entire duration of your life. The term of the policy for whole life insurance policies extends until 100 years. so long as cost of the premium is paid in full, the benefits of the policy remain in force.

If the insured lives beyond the duration of the policy, they will receive maturity benefits. If you wish to be covered for the rest of your existence, life insurance policies are an excellent option.

The table below summarizes the key distinctions between life and general insurance:

Last Updated : March 17, 2022 by Editorial Team

Published : March 17, 2022

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