Types of Life Insurance Policies:
It becomes apparent that Life Insurance is required for both protection and investment purposes.
- Traditional plans like term insurance, endowment, money back, etc.
- Unit linked insurance plans.
A. Term Insurance :
Term Insurance is the simplest form of life insurance. The payment of Insurance amount is made only if death occurs during the term of the policy, which may, generally, range from one to 30 years. Most term policies do not provide for any other benefit.
Thus the features of Term Insurance Plan are as follows:
- It is a pure life cover i.e. in the event of death of the insured the sum assured is paid to the family (beneficiaries/nominees).
- In case the insured survives the policy term, there is no refund of premium.
- There is no investment component in a term plan.
Example
Mr. X took a term insurance plan from ABC Life Insurance Co. Ltd. for a period of 20 years and sum assured of Rs.10lacs. In the event of his death, Rs.10lacs would be paid to Mrs. X. If Mr. X survives the term, there will be no refund of premium.
B. Endowment Plans :
An endowment policy is a saving linked Insurance policy with a specific maturity date. This type of policy serves the dual purpose of saving as well as securing the family in the event of death. Hence these days this is the most popular type of Life Insurance Policy.
The features of an endowment policy are as follows:
a) The term for which policy is taken is called Endowment Period.
b) The sum assured is paid at the end of the endowment period or in the event of death of the insured, whichever is earlier.
c) The premium under this policy is paid upto the maturity of the policy ie the point of time when the amount under the policy becomes payable.
d) Options are also available where premiums can be paid for specific periods (terms like 5yrs/10 yrs/15 yrs etc) and maturity periods can be 10/15/20/25/30/35 years (depending on the age of policy holder).
C. Money Back Policies :
Unlike ordinary endowment insurance plans where survival benefits are payable only at the end of endowment period, Money Back Policy provides for periodic payments of partial survival benefits during the term of the policy, of course, so long as the policy holder is alive.
Examples
a) In case of a 20 year Money Back Policy, 20% of the sum assured becomes payable after 5,10, 15 years and the balance of 40% plus the accrued bonus becomes payable at the end of 20th Year.
b) For a Money Back Policy of 25 years, 15% of the sum assured becomes payable after 5, 10, 15, 20 years and the balance 40% plus the accrued bonus becomes payable at the end of 25th year.
Unit Linked Insurance Plan :
Unit linked insurance plans (ULIPs) aim to serve both the protection and investment objectives of investing. ULIP’s are subject to capital market risks.
