In this article classification of life insurance is explained in detail so it might help you to decide the perfect life insurance policy for your loved ones.
Life Insurance is a contract between an insurer i. e an insurance company and the policyholder where the policyholder pays a premium and in return, the insurer pays a sum assured after maturity or upon the death of a person. Below you will find its classification
Life without life insurance is a danger for you and your family.
Importance of life insurance
For many, life assurance never crosses our mind until we, or somebody we all know, go through a life-changing event. Life Insurance is a tool to help people prepare for unexpected things. Unfortunately for several Candidates confusion exists about why they should have life assurance and today only 43% of people own a private life assurance policy.
A recent survey highlighted a pair of reasons why Canadians delayed shopping for life assurance. Most felt it absolutely was a low priority for them or they thought that life assurance was not reasonable.
Deferring the purchase of life insurance can be an easy decision for individuals. However, the longer you procrastinate, the harder it may be to get coverage, costs or premiums may be higher and there is always the risk that the unexpected happens and your family doesn’t have income protection when they need it.
Mentioned below are a few more reasons to opt for life insurance as a mandatory go.
1-Protection against illness and commitment
Everyone has goals, whether owning a home, paying off a mortgage, providing for your family, or something else. Achieving these goals depends on things sort of steady financial gain or good health condition. But these will be derailed by surprising events such as a car accident, major illness, or death. Unfortunately, you can not stop these events from happening. But you’ll facilitate to check that you and your family are covered financially, just in case if it happens. By having the correct type of insurance, you can still succeed in your goals and enjoy peace of mind.
As you will move towards retirement illness protection is a must against some deadly diseases like cancer and heart attacks. policies are there which can cover these kinds of diseases will be very helpful in the later part of life.
If you are a complete family man then you should think about the financial problems that can happen in case of your sudden demise.
With a partner and children who depend on you, you should take measures. As you know, raising a child is not an ordinary job. It also requires a good amount of money, be it their education, post-graduation, and marriage. There is a variety of life insurance plans to choose from.
3-Growth in savings
Few life insurance plans can be used to invest in debt and equity markets along with insuring an individual. Also when you pay a premium towards any insurance it will make your habit of saving regularly. Most of the policies pay you a good return on investment.
4-Less Premium to pay at a young age
yes, that’s right.you are healthy as young as compared to old age. The insurance companies decide premium based on health and death risk. At a young age, you will have both ie good health and very little risk of death.that will help you to get the policies with low premiums.
Lets understand this with an example
If you are a non-smoking person, plan to buy a term life insurance plan with a base coverage amount of Rs 50 lakh till the age of 65, then, here the premium amount will vary with age:
|Age at time on purchase||Policy Term||Sum Assured||Premium Range(Monthly)|
|20 years||35 years||Rs.50 lakh||Rs 300-Rs 500|
|25 years||30 years||Rs.50 lakh||Rs 350-Rs 550|
Another best part of buying life insurance is that you can save tax through life insurance policies under section 80C and 10D of income tax act 1961.
Classification of life insurance policy
In India, different types of life insurance exist based on the needs of an individual. Check below for the classification of life insurance and its details.
|Classification of Life insurance policy||Brief Overview|
|Term Life Insurance||Provides coverage for death risk for a specified period|
|ULIP life insurance Plans||Offer the combination of insurance and investment|
|Endowment Plans||Provides the benefit of insurance and savings|
|Whole Life Insurance||offers life insurance coverage while life or in some cases till 100 years.|
|Child Insurance Policy||Helps to build a corpus for child future|
|Retirement Insurance Plan||It helps to create a retirement corpus|
|Money-Back Life Insurance Policy||Provides Regular bonus along with coverage benefit|
1-Term Life Insurance
It is the most affordable coverage policy to buy with low premiums. It provides death risk coverage for a specific period. If the policyholder dies with the policy period the insurer will pay a lump sum amount or monthly payout to the Nominee.
However, if the policyholder survives until the end of the term/coverage he or she will not get any amount. Nowadays insurance companies are coming up with a term plan that will return all your premium once you survived till the end of the plan but these plans are costlier than other term insurance plans.
It is best known for low premium and high coverage. It is pure death benefit plan which can give your family a sense of financial security.
2-ULIP Life insurance plans
ULIP is called “Unit-linked Plans”.This insurance has a dual advantage of protection and investments. The amount you pay towards premium is partly used as a risk cover ie insurance and also it is invested in the capital markets like equities, bond, debt funds, etc.
You can choose the funds offered by the insurance companies based on your risk-taking capability. if you have a long term Horizon for investment then you can go for it. here you are getting the option to invest in the equity, debt, and funds through insurance companies which is completely safe.
This plan is very similar to ULIP as this also offers a combination of both insurance and savings. A certain amount is kept by the companies for life cover and the rest is invested by them.
In this plan, if the policyholder outlives the coverage plan he or she will be given maturity benefit. Also, the bonuses are paid regularly to the policyholder. In case of death, the maturity amount plus bonus both are paid to the nominee.
This is an investment component but the risk is very low and hence the returns. This is for the people of having long term saving option and less risk-taking capability for investment.
4-Whole Life Insurance
A whole life insurance covers person entire lifetime or in some cases up to 100 years. Sum assured is paid to the nominee on the death of the policyholder.
In case if the policyholder outlives 100 years the matured amount with a bonus if any is paid to the life insured. The premium is generally higher for this insurance.
It gives lifetime protection to the insurer and great feeling of financial security to individual family.
5-Child Insurance Policy
A child insurance plan mainly focuses on building capital for the future. It can be for marriage, higher education, etc.
This policy an individual can take at the time child is born and can be withdrawn when the child reaches adulthood. Most child plan provides an annual installment or one-time payout after the age of 18 years.
In case of an unforeseen event if the insured parent passes away the companies pay the amount to the child or the family. Few insurance companies waive the premium in case of the death of the policyholder and pay it after the maturity period.
It is best for building fund that can help your child in future for his/her dream.
6-Retirement Insurance Plan
This insurance plan helps you to make sufficient amount of capital to live a worry-free retirement life. You can choose annual payment or a single payout after the 60 years of your age.
In case of an unfortunate event the insured passes away during the policy term, the amount is paid to the nominee by the insurance companies.Death benefit will be more than coverage or fund value or 105% of the premium paid.
It is long term savings and best for building corpuses for the retirement.
7-Money Back Life Insurance Policy
As the name describe this insurance policy will give you a percentage of the sum assured on regular intervals during your policy term. if you outlive the insurance policy the remaining portion of the corpus and bonus you will get at the end of the policy term.
But in case of an unfortunate event before the full term of the insurance policy, if the insurer dies then the entire sum assured is paid to the beneficiaries irrespective of the installment paid.
this plan also offers the bonuses declared by the company from time to time which helps policyholders to fulfill short term goals.
It is the most expensive policy offered by the insurance companies as returns are being provided until the policy continues.
I hope this article about Life Insurance and its classification will open up your eyes to the importance of life insurance in your life. You have a variety of the option to choose from that fits your suitability.