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Types of Insurance Policies

Types of Insurance Policies

Life insurance is an excellent way to ensure the financial protection of your family in case of an untoward incident. You pay a premium either monthly, quarterly, semi-annually, or annually to avail of this protection. In case of any event covered under the insurance policy, the benefits are paid to your beneficiaries. Depending on the type of policy, the maturity benefits may differ from one plan to another.

In addition to providing financial protection, insurance plans have several more benefits. You may use these products to plan for your retirement, fund the higher education of your children, build a corpus for a specific objective, or gain assured income in case you lose your ability to earn due to an unfortunate event.

Different insurance companies today offer various types of insurance policies, which cater to the specific requirements of individual buyers. Here are five common types of life insurance plans.

Term plans

Term plans are pure risk covers, which offer protection during the policy period. When you purchase a term plan the sum assured and other benefits, if any, are paid to your beneficiaries in case of an unfortunate event during the policy tenure. In most instances, term plans do not provide any maturity benefits, which may act as a deterrent to your decision. However, you need to bear in mind that even if you survive the policy term, your family is assured of financial protection in case of an unforeseen incident. Moreover, the premium payable to procure higher coverage is significantly lower when compared to traditional plans. Additionally, the premium paid to buy a term plan is eligible for tax benefits.

Whole life plans

These types of insurance plans provide coverage against death for your entire lifetime. The duration of whole life plans is not definite and therefore, coverage continues for as long as you are alive. You must pay the premium during your entire life and the accumulated corpus is paid to your beneficiaries in case of an untoward circumstance. Therefore, you are able to avail of insurance coverage for a longer period and may enhance protection by combining other products to plan for other life goals like retirement.

Endowment policies

Endowment policies combine risk coverage along with savings for greater benefits. Firstly, in case of the policyholder’s demise, the beneficiaries receive the policy benefits. Secondly, if you survive the entire policy term, you receive a payout as an accumulated corpus that includes your premium along with returns such as accrued bonuses.

Money back plans

These types of insurance policies offer regular payouts at periodic intervals during the policy duration. In simple terms, a portion of the premium you pay is received by you at regular intervals. On maturity, you receive the balance portion of the total sum assured. In the case of an unanticipated situation during the policy period, your beneficiaries receive the entire sum assured. The premium and the accumulated returns under money back plans are both eligible for tax exemptions under the Income Tax Act.

Unit-linked insurance plans

More commonly known as ULIPs, these policies combine wealth creation and risk coverage. A portion of the premium is used towards life cover. The balance is invested in various instruments such as debt, equity, and money market products. Based on your risk profile and personal requirements, you may choose to invest in one or more of these financial instruments. ULIPs are beneficial to accumulate a higher corpus over a longer period of time. You may financially plan for your life goals such as children’s education, retirement, or children’s wedding with ULIPs.

Pension and annuities

When you buy these insurance plans, the insurer pays you a certain amount at pre-determined periods. The primary objective of an annuity plan is to provide protection against financial difficulties along with giving you a regular premium.

You may choose one or more of the aforementioned insurance plans. It is recommended you analyze your requirements and understand the features of different policies before you make an investment decision.

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