Life insurance is an important part of one’s personal finance portfolio. But the real question is - which life insurance?
In this video ETMONEY’s Shankar Nath examines 5 different types of life insurance policies. He talks about their construct, features, premiums, who should buy such a policy, what are the things one should be careful of, and how one can make the most of these policies
00:32 TERM INSURANCE POLICY
03:50 WHOLE LIFE INSURANCE POLICY
06:09 ENDOWMENT POLICIES
07:37 MONEY BACK POLICY
10:11 UNIT LINKED INSURANCE PLANS (ULIPS)
12:05 ETMONEY OPINION
1. TERM INSURANCE POLICY
A term insurance policy is the simplest form of life insurance and is formally called protection plans. A term insurance policy is one where monetary compensation is paid to the nominee or beneficiary under the policy upon the death of the policyholder.
There are a couple of important points to note here,
1. The benefits under term insurance are payable only upon the death of the policyholder .. which means if the policyholder survives, then no maturity or survival benefits are payable
2. The death of the policyholder often covers most situations including sickness and accidents
Link to video
How to calculate the cover of term insurance https://www.youtube.com/watch?v=0FGLvHQXcM4
How to choose the term insurance plan https://www.youtube.com/watch?v=Fj_YzREhBYs
2. WHOLE LIFE INSURANCE POLICY
A whole life insurance policy is for all practical purposes a permanent life insurance policy.
This means this policy extends life insurance coverage until the demise of the policyholder .. post which the nominee is paid the benefits that are listed under this policy.
Now the phrase “whole life policy” is not a standardized one and we have seen different applications of that with different insurance companies
For example - some insurers use it as an extension of a term insurance plan that simply goes on till the age of 99 or 100 years and nothing else is paid out other than the death benefit.
But then there are some other insurers, who define a whole life policy as one .. which not only has death benefits but also come with maturity benefits, survival benefits and even a bonus in some cases
3. ENDOWMENT POLICIES
An endowment policy is one which apart from covering the life of the insured also helps the policyholder save regularly over a period of time. This money that is saved is then given to the policyholder as a lump sum amount once the policy matures. This type of policy is pitched as a savings plan .. and is almost always linked to some future event which is a good 10 to 15 years away. For example, a popular pitch made by LIC agents to parents is to start contributing towards an endowment plan for their child’s education or marriage.
From a benefits perspective, an endowment policy comes with a life cover which is paid to the nominee upon the death of the policyholder
These plans are quite clearly savings instruments that offer lower than average returns.
4. MONEY BACK POLICY
Money-back policies are another popular life insurance category
Let’s understand how money-back policies are constructed by examining the Life Insurance Corporation of India or LIC’s New Money Back Plan
So as per the policy terms, a policyholder needs to pay premiums for 15 years so not 20 years but 15 years and there are potentially 4 benefits within the plan
1. Death benefit that goes up to 125% of the basic sum assured .. and is paid if the policyholder expires anytime within the 20-year policy term
2. Survival benefit which gets activated at the end of the 5th, 10th, and 15th policy year .. and the policyholder is paid 20% of the basic sum assured
3. Maturity benefit .. which amounts to 40% of the basic sum assured and is paid out if the policyholder survives the entire 20-year policy term
4. The bonuses are nothing but the policyholder receiving a share in the profits of the insurance company.
5. UNIT LINKED INSURANCE PLANS (ULIPS)
ULIP or unit-linked insurance policy is an investment product that has insurance built into it.
ULIPs are pitched as a triple benefit product offering investment, insurance, and tax-saving benefits. ULIPs come with charges in many forms like a premium allocation charge, a policy administration charge, switching charges, and a few more expenses
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