Green Tree Distribution recommends that you have adequate term insurance to protect your loved ones.
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What is Insurance?
Insurance is a legal agreement between two parties i.e. the insurance company (insurer) and the individual (insured). In this, the insurance company promises to make good the losses of the insured on happening of the insured contingency. The contingency is the event which causes a loss. It can be the death of the policyholder or damage/destruction of the property. It’s called a contingency because there’s an uncertainty regarding happening of the event. The insured pays a premium in return for the promise made by the insurer.
How does insurance work?
The insurer and the insured get a legal contract for the insurance, which is called the insurance policy. The insurance policy has details about the conditions and circumstances under which the insurance company will pay out the insurance amount to either the insured person or the nominees. Insurance is a way of protecting yourself and your family from a financial loss. Generally, the premium for a big insurance cover is much lesser in terms of money paid. The insurance company takes this risk of providing a high cover for a small premium because very few insured people actually end up claiming the insurance. This is why you get insurance for a big amount at a low price. Any individual or company can seek insurance from an insurance company, but the decision to provide insurance is at the discretion of the insurance company. The insurance company will evaluate the claim application to make a decision. Generally, insurance companies refuse to provide insurance to high-risk applicants.
Choosing from the different types of life insurance in India is a crucial financial decision, as it helps you protect your loved ones from life’s uncertainties. Still, you may not be fully aware of the types of life insurance policy in India and how they affect your financial health. Let’s check the types of life insurance and their benefits in detail below.
Different Types of Life Insurance Policies in India
Term Plan – pure risk cover
Unit linked insurance plan (ULIP) – Insurance + Investment opportunity
Endowment Plan – Insurance + Savings
Money Back – Periodic returns with insurance cover
Whole Life Insurance – Life coverage to the life assured for whole life
Child’s Plan – For fulfilling your child’s life goals like education, marriage, etc.
Retirement Plan - Plan your retirement and retire gracefully
Term Life Insurance
Term insurance is the simplest form of life insurance plan. Easy to understand and affordable to buy.
A term insurance provides death risk cover for a specified period. In case the life assured passes away during the policy period, the life insurance company pays the death benefit to the nominee. It is a pure risk cover plan that offers high coverage at low premiums.
There’s an option to add riders to widen up the coverage.
The death benefit is payable as lump sum, monthly payouts, or a combination of both.
There’s no payout if the life assured outlives the policy term.
However, these days there are companies offering Term Plans with Return of Premiums (TROPS), where insurance companies payback all the paid premium amount in case the life assured outlives the term period. But, such plans are costlier than the vanilla term insurance plan.
Best known for: High sum assured (coverage) at a low premium.
Benefit of Term Plan: In case of an untimely death of the breadwinner, family is supported with an enormous amount of money – sum assured, which helps them to replace the loss of the income caused due to the breadwinner’s death. Moreover, the money could be utilized to pay off loan, monthly household expenses, child’s education, child’s marriage, etc.
Unit Linked Plans (ULIPs)
A unit linked plan is a comprehensive combination of insurance and investment. The premium paid towards ULIP is partly used as a risk cover (insurance) and partly is invested in funds. One can invest in different funds offered by the insurance company depending on his risk appetite. The insurance company then invests the accumulated amount in the capital market i.e. in bonds, equities, debts, market funds, or a hybrid funds...
Best known for: Long-term investment option with much more flexibility to invest.
Benefit of ULIP: Invest money as per your risk appetite. You have the option to invest either in equity, debt or in hybrid funds through the life insurance company with complete transparency.
Endowment plan is another type of life insurance plan, which is a combination of insurance and saving.
A certain amount is kept for life cover – insurance, while the rest is invested by the life insurance company. In an endowment plan, if the life assured outlives the policy term, the insurance company offers him the maturity benefit. Moreover, Endowment Plans may offer bonuses periodically, which are paid either on maturity or to the nominee under death claim. On death, the death benefit is payable to the nominee.
Endowment plans are also commonly known as traditional life insurance, although, there is an investment component but the risk is lower than the other investment products and so are the returns.
Best known for: Long-term saving option for people with much lower risk appetite for investment.
Benefit of Endowment Plan: Long-term financial planning and an opportunity to earn returns on maturity.
Money Back Life Insurance
Money back plan is a unique type of life insurance policy, wherein a percentage of the sum assured is paid back to the insured on periodic intervals as survival benefit.
Money back plans are also eligible to receive the bonuses declared by the company from time to time. This way, policyholder can meet short-term financial goals.
Best known for: Short-term investment product to meet short-term financial goals.
Benefit of Money Back Plan: Short-term financial planning and an opportunity to earn returns on maturity.
Whole Life Insurance
A whole life insurance policy covers the life assured for whole life, or in some cases, up to the age of 100 years. Unlike, term plans, which are for a specified term.
The sum assured or the coverage is decided at the time of policy purchase and is paid to the nominee at the time of death claim of the life assured along with bonuses if any.
However, if the life assured outlives the age of 100 years, the insurance company pays the matured endowment coverage to the life insured.
The premiums are higher as compared to term plans. Whole life insurance plans also offer partial withdrawals after completion of premium payment term.
Best known for: Life coverage for whole life.
Benefit of Whole Life Plan: Lifelong protection to the insured and an opportunity to leave behind a legacy for heirs.
Child plan helps to build corpus for child’s future growth. Child plans help to build funds for child’s education and marriage. Most of the Child Plan provides annual installments or one time payout after the age of 18 years.
In case of an unfortunate event, the insured parent passes away during the policy term - immediate payment is payable by the insurance company. Some child plans waive off the future premiums on death of the life insured and the policy continues till maturity.
Best known for: Building funds for your child’s future.
Benefit of Child Plan: Helps in fulfilling your child’s dream.
Retirement plan helps to build corpus for your retirement. Helping you to live independently financially and without worries. Most of the child plans provide annual installments or one time payout after the age of 60 years.
In case of an unfortunate event, life assured passes away during the policy term - immediate payment is payable to the nominee by the insurance company. Death benefit will be higher of coverage or fund value or 105% of premiums paid. Vesting Benefit will be payable if the life assured survives the maturity age. In which case, payout will be fund value which has to be utilized for buying an annuity.
Best known for: Long-term savings and retirement planning.
Benefit of Retirement Plan: Helps in building corpus for retirement.