Life Insurance Plans To Consider If You Are Applying For The First Time
There are a variety of life insurance plans. All these plans have their features and benefits. It is important to choose the plan that suits you the best. Several factors may affect your decision. The basic reason for taking a life insurance plan is to safeguard your family and dependents against your untimely death. Therefore using that as a basic premise, select the policy which fulfills your financial goals.
Let us look at the different types of life insurance policies available on the market and see how each of them might be suitable for you.
Term Insurance Plans
Term life insurance plans are basic plans which ensure your life against sudden death due to any reason. This life cover is provided for a certain period or term. The premiums are low, and it is a simple life cover with varying terms starting from 5 years up to 40 years, depending on what you want. Additional riders can also be added to an existing life insurance plan. This can tide the family through serious financial difficulties. These riders/add-ons mean a small additional premium, but the benefits are huge. Therefore, a term life insurance plan is something that everyone must have in their financial portfolio. Note that term plans do not offer any maturity benefit. In some cases, you can get the premiums back on surviving the policy term, but that is it.
ULIP or Unit Linked Insurance Plans
ULIP is a dual benefit policy. It has the benefits of both life insurance and an investment vehicle. The premiums that you pay are divided into two parts, one part covers life insurance, and the other is used for investment in market-linked mutual funds. The amount of premium to be paid for each depends on the policyholder’s decision.
Investments made by the insurance companies on behalf of investors in a diverse pool of funds can be categorized as:
- Low risk and low gain investments: They are usually debt-based mutual funds, or a mixture of equity and debt, called balanced funds.
- High-risk high, gain investments: They are usually equity-based mutual funds.
You need to decide the one where your investment will be made. If you have an appetite for risk, then you can go for the high-risk, high-gain investment plan. However, if you do not want to take any risks, go for the low-risk, low-gain plan. In either case, the investments made by the insurance company will give you returns. You do not have to worry about where and when the investments need to be made. The insurance company has experts who will handle this for you. You also have the advantage of shifting your investment funds from low risk to high risk or vice versa. The other advantage is that the maturity values of the ULIP plan are free from Income Tax subject to Sec. 10 (10D) of the Income Tax Act. The life insurance portion acts exactly like a typical life insurance plan.
ULIPs can be modified to serve multiple purposes. You can utilize them as child plans or retirement plans at your convenience.
Endowment Insurance Plan
This sort of plan is for people who want a guaranteed return on their investment. It is for a fixed term, and at maturity, the insured gets back the sum assured with an added bonus. The tax benefit is the same as for the ULIP plan. In the unfortunate event of the death of the policyholder before maturity, the sum assured and whatever bonuses have accrued are paid out to the nominees.
Money-Back Insurance Plan
In a money-back insurance plan, the insured gets back a certain portion of the sum assured at a fixed and steady interval. In this plan, one can enjoy the benefits of the savings you make by paying premiums within a short time instead of having to wait for the policy to mature. The life insurance part is the usual, and in case of an untimely death of the insured, the insurance company will make the payout against the policy.
Whole Life Insurance Plan
In a whole life insurance plan, the policy will remain active for the entire life of the policyholder. This policy can be bought for terms of 65 to 99 years. Essentially this type of policy is bought by people who know that they have dependents even at old age. This policy provides a cushion for those dependents upon the death of the insured. This is usually quite a large sum because of the long tenure of the policy.
Retirement Insurance Plan
This is essentially a life insurance plan and it needs to be started early so that the term is long. There are clauses that guarantee a certain return upon maturity. It is possible to take the amount at maturity monthly, like a pension, or take the whole amount in one lump sum. The decision is entirely the policyholders.
Before deciding to go with any plan, it is better to understand certain aspects. The first is, what premium is affordable? This means how much premium can be paid each year. To calculate this, it is best to use a life insurance calculator. This free software allows you to calculate the premium for any sum assured. You need to input the desired sum assured, the term, and certain personal details. That’s all. The calculator will tell you what premium needs to be paid annually.