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A First-timer’s Guide To Different Types Of Life Insurance – All You Need To Know
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Tomorrow is uncertain! Nobody really knows when death comes calling and your family is left stranded for money and a regular source of income. That is where life insurance comes in. Though we tend to see it as a huge investment, we generally do not see the true significance behind securing our lives.
Life insurance is nothing but an agreement between the insurance company (insurer) and you (the insured). The insurer promises to pay a certain sum of money to your beneficiary upon your death.
While we all know what life insurance is, it is important to know about different types of insurance.
Term Insurance- what life insurance does is it pays out a huge sum of money or provides a regular source of cash flow to the beneficiary should you die within the ‘term’ of the insurance – this is known as ‘term insurance’. Term plans are usually considered the cheapest form because of the tax benefits and risk cover attached with it.
In a term policy, you can choose three kinds of policy:
- ‘Increasing cover’ – The insured person pays a higher premium, an amount that would be paid out takes into account the inflation during the term of the policy.
- ‘Decreasing cover’ – Pay out decreases with lower premium
- ‘Level cover’ – Payout is same amount – whenever you die.
Whole Of Life- This type of insurance is paid to the beneficiary whenever you die. It is designed to build an estate for the heirs of the insured. It is viewed as a financial and investment planning tool. It is not used for protection purposes, for which, term is the best.
Endowment Policy-It is a combination of both investment and insurance. If the insured dies within the policy term, all the bonuses and benefits will be given to the beneficiary. But if the insured survives the term, he will be given the sum assured with the bonuses.
Unit Linked Insurance Plans– market linked plans that offer both wealth creation and life cover options. These can be used for planning in different stages of your like – like children’s education, old age, etc.
Money Back Insurance Policy- life coverage is given during the term of the policy. In addition, maturity benefits are paid in installments. But should the insured die during the period, death benefits would be paid to the beneficiary and the policy would cease to exist.
Retirement Plans– meant to provide a source of cash flow after retirement.
Savings And Investment Plans¬– plan provides ways to save money and invest it.
Child Insurance Policy – to provide financial assistance for increasing education assistance and other needs of children.
Term Life Protection Plan – protects the family from contingencies for a fixed tenure.
Choose from the different types of insurance that suits you the most in keeping to your financial planning and treat is as an investment.
Author Bio :- Neha Sharma is a finance student who loves to write in her free time. She has spent considerable time researching about life insurance and different types of insurance. She wishes to give advice on life insurance.
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