The purpose of a life insurance plan is to provide financial security such as education expenses to the beneficiary in case of the death of the policyholder. A life Insurance plan can be defined as the financial benefits to the insured in exchange for a fixed premium amount based on a legal contract between an insurance company and the insurance holder. The insurance company promises to provide a sum of money as a policy benefit in exchange for the premium paid by the policyholder upon the demise or critical illness of the insured or beneficiary. Potential clients can buy a life insurance plan based on their needs from following types of life insurance policies.
Overview of a Life Insurance Plan
Meaning of a Life Insurance Plan
In a life insurance plan, the insurance provider or Insurance Company promises to bear the financial obligations of the client by providing financial security among beneficiaries in case of accident, illness, old age or death of the insured. However, the Life Insurance policy is not a contract indemnity that allows the insurer to reimburse a fixed amount on the maturity or end of the policy. Generally, a Life Insurance plan benefits the beneficiaries decided by the policyholder in case of their demise. The different types of life insurance plans fulfil different needs and individuals may select a plan according to their unique needs
Importance of a Life Insurance Plan
Life Insurance plans offer several benefits for policyholders as well as for beneficiaries in terms of financial securities and Wealth Management. Life Insurance plan provides financial protection and financial stability and ensures the stress-free life of loved ones in case of insured demises or critical illness. Life Insurance plan also offers health benefits which cover Hospital bills and other health-related expenses, accidental cover benefits and availing benefits in case of disability based on policy terms. Life Insurance plan also creates investment opportunities to increase wealth, helps in reducing taxes under section 80C benefits and supports estate planning. Some life insurance policies also offer flexibility to increase life coverage through top-up features.
Types of Life Insurance Plans
Term Insurance Plans
Term insurance is a type of life insurance policy that covers health benefits and death benefits pure Limited periods such as 5 years, 10 years and 30 years. Term insurance is a pure protection plan that provides financial support for the nominee in case of sudden death or critical illness of the policyholder. There are many types of term insurance plans such as increasing term plans, decreasing Term plans, level Term plans and return of premium term plans. Policyholders can also include the clause of Return of premium based on the policies and plans in case the client survives the covered duration.
ULIPs- Unit Linked Insurance Plans
ULIP is a unique type of insurance plan in which the client gets dual benefits of their premium the form of investment that covers insurance as well as investment for wealth development. The premium paid by the client in unit linked insurance plan is divided into two parts one of which covers financial protection for the beneficiary and the remaining amount invested in bonds and market-related shares to maximize the returns. ULIP offers complete life coverage, allows long-term growth, boosts the returns and saves taxes.
Endowment Insurance Plans
An endowment insurance plan is a combination of dual features in which it provides Life Insurance coverages along with guaranteed savings. An endowment plan is a low-risk investment option that offers guaranteed Returns at the time of a policy maturity and it also supports with tax benefits. The endowment insurance plan provides financial coverage and security in case of critical illness and demise of the policyholder along with maturity benefits.
Money Back Insurance Plans
Money-back insurance plan is an investment policy which offers clients a pre-determined sum by the insurance company at the time of policy matures. Money-back policyholders can get regular Returns monthly or lump sum amounts at a fixed time decided during the policy. This insurance plan offers Returns to clients based on investment performance a guaranteed amount decided in the policy or a combination of both.
Whole Life Insurance Plans
The permanent type of life insurance is known as a whole life insurance plan in which the policyholder gets complete life and health coverage for 99 years by only paying premiums on time regularly. The whole life insurance plan can be utilised to create supplementary retirement income and it also offers guaranteed death benefits for beneficiaries. Whole life insurance allows premiums to be locked for life and offers additional cash value. It also provides guaranteed level premiums guaranteed growth and tax-deferred growth along with tax-free death benefits.
Child Insurance Plans
A child insurance plan is a type of investment plan offered by insurance companies to secure the future of a child by providing them financial safety if the Guardian or policyholder dies suddenly. The child insurance plan offers investment in large life goals of the child such as higher education, building a house or marriage. A child insurance plan is a good investment policy because it offers tax benefits without loss to principal investment.
Retirement Insurance Plans
A retirement insurance plan is especially designed for policyholders to take care of their post-retirement life and help them in leading stress-free life. There are several types of retirement insurance plans such as Deferred annuity, pension funds, Life guaranteed period annuity, etc. These different policies support policyholders to invest systematically and save for a steady income after retirement. The insurance plan also offers tax benefits and death benefit guaranteed lifetime income.
Conclusion
Life Insurance plan is a good investment because it provides stability and financial security for beneficiaries if the policyholder dies. The different types of life insurance policies support individuals in taking care of their family members by providing them with a secure life in exchange for premium payments. Individuals can select different types of life insurance plans based on their special needs such as a whole life insurance plan for lifetime coverage, a child insurance plan to secure the future of children, a retirement plan to enjoy stress-free life after retirement, etc.