Types of Life Insurance Plans
Life insurance can be broadly classified into two main types: term life and whole life. As the names suggest, term plans are for a fixed duration whereas whole life plans are for the entire life of the applicant. Term plans are meant to provide security whereas whole life plans provide both security and an investment opportunity.
Term Plan: Term Plans are also referred to as pure insurance plans. This is because they provide simple insurance cover. They provide financial security. On the death of the policy holder, within the insured period, the insurance provider pays out the guaranteed sum. Term insurance policies provide the highest payout ratio in relation to premium charged. Most importantly, term life insurance policies are for a fixed time only. The term can be for a year or more than a year, but is for a set time.
Whole Life Insurance Policies or Investment Plans: Whole life insurance policies are for the life of the applicant. These insurance policies also act as saving mechanisms. The applicant not only secures his/her life but also provides for future returns on maturity of the policy. The premium paid is generally higher and the payout in case of death is lower. When the term of the policy comes to an end or matures, the policy holder is paid back a guaranteed sum. There are various policies that allow for early withdrawal, income replacement, secure funds and other benefits.
Unit Linked Insurance Plans or ULIPs: ULIPS stand for Unit Linked Insurance Plans. These plans are a newer form of insurance. They provide for insurance cover and a means of investing securely. The Net Asset Value (NAV) of the underlying asset determines the values of the policy.
Child Insurance: Child life insurance allows for guardians and parents to ensure a secure future of their children. It is generally applicable for minors, below the age of 15. In the case of death of any of the parent’s, the future needs of the child are met.
There are also a number of different insurance policies provided by a number of insurance providers. It is important for applicants to determine the purpose for which insurance is being sought, whether security or investment or both, and the credibility of the insurance provider. Insurance also provides tax saving for both premiums paid, and payoffs received. Most governments support the social security that an insurance policy provides, as this reduces the burden on the state.