Term insurance Term insurance or term plans as they are popularly called are the basic form of life insurance. While they are the cheapest and most affordable, one must keep in mind that they do not have any savings or a profit component. You can also choose an online term insurance plan, that comes with premiums that are considerably lower, as they purely provide a risk cover. This means the if the insurer expires during the term of the policy- a definite sum or a sum assured is paid to the beneficiaries of the insurer. In case the insurer survives, he does not receive a pay out. Life assurance policy.
Whole Life insurance There is no predefined policy tenure of a whole life policy. When a policyholder opts for a whole life policy, he pays a regular premium amount and enjoys life insurance cover throughout his life. Upon his demise, his beneficiaries receive a lumpsum. There are different varints of whole life policies such as regular pay options and money backs.
Endowment Policy The one thing that differs and defines endowment policy, is the maturity benefit that a policyholder receives. Unlike term plans that pay the sum assured only in case of the the death of the insured, an endowment plan pays the policyholder the sum assured along with profits even if the policyholder survives after the lapse of the policy period. Since endowment plans invest in various asset classes such as equity and debt, the policyholder receives a profit along with the sum assured after the policy comes to an end. Naturally then, endowment plans charge a higher fee which is reflected in higher premiums that a policyholder is expected to pay.
Money Back Insurance policy A variant of an endowment plan, a money back policy makes periodic payments to the policyholder over the term of the policy. This essentially means that a stipulated portion of the sum assured to the policyholder is paid out to him at regular intervals. If he happens to survive the policy term, he gets the balance of the assured sum and in case of his death during the policy term, his beneficiary gets the full sum assured.
Unit Linked Insurance Plans As the name suggests, the performance of these plans are linked to the fate of the markets. According to his risk appetite, a policyholder can choose the allocation between equity and debt and reap the benefits of investment and insurance. The value of the investment portfolio can be assessed through the NAV or net asset value. While many draw similarities between ULIPs and mutual funds, the basic difference lies in the fact that while mutual fund schemes are a pure investment avenue, ULIPs also come with a life cover.
The most obvious benefit of life insurance as we mentioned earlier, is the security net that it provides for your family in case of your untimely demise. But life insurance has other benefits too.
Asset protection and appreciation- While the core benefit of protecting your family remains for a life insurance policy, a life insurance policy comes with the underlying benefit of both aapreciation and protection of your assets. From an investor’s point of view thus, buying a life insurance polcy with long term financial goals in mind, can serve as the building blocks for wealth creation.
Access to cash- Life insurance as it exists today is tailormade to the needs of the policyholders. Thus when a policyholder pays regular premiums for a substantial period of time, his insurance policies can serve as his nest for cash when he needs it to fulfill his financial ambitions at certain milestones in life.
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Planning for retirement and estate planning- With the cost of living increasing by the day and more and more people working in the private sector, retirement planning is an absolute necessity from the earliest possible age. There are a plethora of pension oriented plans that can ensure that a policyholder continues to live a stress free and dignified life, even when his professional income begins to ebb. Besides with whole life policies, a policyholder can also leave back a substantial amount of wealth for his next generation.
A policyholder can enhance his insurance coverage by opting for additional benefits along with his policy. These are called “riders” in financial parlance. These riders are available for purchase separately at an added cost, apart from the basic policy charges. Depending upon his individual needs, a policyholder can choose from any of the following riders to expand his safety net. The cmost commonly offered riders are as follows:
Accidental death or permanent disability benefit rider- In case of an accidental death, the beneficiaries can avail of an additional benefit over and above what the basic policy covers. In case the policyholder is permanently disabled after an accident, he may receive benefits such as periodic payments and waiver of fuure premiums.
Critical illness rider- This rider protects the insurer if he is diagnosed with certain specific illnesses during the term of his policy. The illnesses covered (most commonly) under this rider are-
This kind of rider provides for the payment of a one time lump sum or periodical payments as per the terms and conditions of the contract.
Major surgical assistance benefit- In case of a medical emergency that requires immediate surgery this rider can come in handy. However this rider does not include pre exisisting illnesses or does not cover hospitalistaion charges.
Waiver of premium rider- This rider is most applicable in the case of child plans where one parent recieves the benefit of the waiver of premium in case of the untimely death of another.
Long term care of spouse rider- This rider provides for the insurance coverage as well as periodic payments to the spouse in case of the death of the policyholder.
An insurance policy is contract between the insurance company and the policy holder to assure his life. The insuarce premium he pays is the consideration he pays to the insurance company to validate his contract. The following are the different variations of premium that a policyholder can choose from:
Level Premium- When the premium remains unchanged over the whole of the policy term, it is called level premium. Most life insurance plans involve level premium as it is advantageous for the policyholder.
Single premium- Those with a high income bracket or those who have idle money lying with them and want to increase their insurance cover can opt for single on a one time premium payment.
Increasing and decreasing premiums- - In some term insurance policies, the mortality risk of the life insured increases each year. As a result, the cost of insurance also increases annually. This translates into increasing premium. Decreasing premium becomes applicable to mortgage redemption policies. In such cases, the premium to be paid decreases with the decrease in the outstanding loan amount of the policy holder.
Discounts on life insurance premiums Based on the mode of payment on the basis of the sum assured, companies offer a discount on the premium rate payable. These are called “rebates”
Rebates for periodic payment- Depending upon the cash flow situation of an individual he can choose to pay his premium annually, half yearly, quarterly or monthly. Higher the frequency of the premium payment, the lesser chances the policyholder has for rebates as higher frequency of payments translates into higher cost of servicing for the company. Insurers therefore offer a higher premium for premium paid at one go for the whole year. Such rebates are also worked into single premium payment policies.
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Rebates on online payment- When a policyholder opts for online payment of his insurance policy, the insurance company saves on both cost of servicing as well as on commissions that need to be paid to agents in case of policies that are sold physically. These benefits are then passed on the policyholders as rebates.
Non-payment or late payment of premium If the premium on a policy is not paid by the due date it is gets lapsed and the policyholder loses the benefits, he is otherwise entitled to. Most policies however have a grace period which gives the policy holder an additional amout of time to pay his premium after the lapse of the due date. For most policies, this grace period goes upto 30 days. In case a policy gets lapsed, it can be revived by payment of the overdue premiums and in some cases with a declaration of health. However the discretion to revive the policy lies with the insurer.