Financial stability and security come from sound financial planning. What you plan and do now, will deliver great results in the future. Not just for you, but your loved ones too. Life is uncertain, and you never know what is going to happen. An untimely death can shake the financial ground for a family. To make sure that your loved ones have something to fall back on, certain financial tools can be implemented such as getting a life insurance. In this article we would detail about various types of life insurance plans.
What is Life Insurance?
Unlike health insurance that acts as a financial safety in case of accidents and hospital visits, life insurance guarantees a sum paid to your family (or anybody else listed as the beneficiaries) after your demise. In more technical terms, it is a legally binding contract between a policyholder and the life insurance company where the latter has to pay a pre-decided sum to the former or the beneficiaries upon the death of the insured or after the completion of the period decided while getting the insurance.
Features of Life Insurance
Here are some key features of life insurance plans.
1) The policyholder/insured must pay a premium to keep the life insurance policy in force (active). This premium can be a one-time payment or paid in installments over a period i.e. monthly, quarterly, half yearly or yearly.
2) While getting life insurance and deciding upon the sum, the policyholder must disclose various details such as age, gender, medical history, occupational hazards, and high-risk hobbies.
3) There are multiple parties involved. There is an insurance company, the policyholder, and the insured. The insurance company is the one that provides an individual with the insurance and at maturity or death, the pre-decided sum. In most cases, the policyholder and the insured are the same. Still, in cases where it is not, the policyholder will be the individual on whose name the life insurance policy is while the insured will be beneficiaries receiving the amount post the policy holder’s death.
4) In case of the untimely demise of the policyholder who was the sole breadwinner of the family, the life insurance acts as a safety net to the insured’s family. It is a guaranteed income to keep the family financially stable for a while.
What are various types of Life Insurance Plans?
#1 – Term Insurance
Considered as one of the affordable choices of the life insurance policies, a Term Insurance remains active for a term. The term is pre-decided by the insurance company and the policyholder and can be 10, 20 or 30 years. If the policyholder/insured dies during the term, the death benefit (or guaranteed sum) goes to the beneficiary.
#2 – Permanent Life Insurance Policy
This type of life insurance, the policy stays in force for the entirety of the policy holder’s life. If the insured can keep paying the premium or decides to surrender the policy, the permanent life insurance remains active.
#3 – Single Premium Life Insurance Policy
Rather than making monthly, quarterly, or annual payments, the policyholder pays the premium for the life insurance in one go. In this kind of life insurance policy, the cash invested builds up quickly because the policy gets funded by the lump sum of premium paid up front.
#4 – Unit Linked Life Insurance Policy
A unit linked insurance plan (ULIP) acts as an insurance policy and an investment. The premiums that you pay gets invested in funds of your choice. Here, the cash value of the policy will vary depending on the net asset value (NAV) of the assets in the funds you have invested. A unit linked insurance plan can garner better returns. There are various charges in ULIPs where one should review before opting for such plans.
#5 – Endowment Life Insurance Policy
In this life insurance, the sum is payable to the policyholder (or the beneficiaries) if he/she is still alive on the date of maturity of the insurance policy. But if the insured dies during the term of the policy, the beneficiary will receive the promised sum and a bonus or guaranteed addition. This bonus is for the number of years the policyholder lived or survived during the term.
Conclusion: Getting a life insurance provides peace of mind to you and your loved ones. Sound financial planning can take the stress off your shoulders about the future. Getting a life insurance can protect you and your loved from uncertain moments and help with achieving financial stability.
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Team – Myinvestmentideas
What are various types of Life Insurance Plans
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