What is a life insurance policy?
A life insurance policy is basically a contract between the policyholder and insurance company where the policyholder agrees to timely pay all the premiums for specific years, and in return, the insurer promises to pay a sum assured to the nominee of the policyholder in case of his/her untimely death. In some policies, the insurance company pays a maturity benefit to the policyholder if he/she survives the term. This term period differs from one policy to another.
It is a known fact that a life insurance policy is a necessity of recent times to ensure a good life for your dependants after you and give you peace of mind. Once you decide to get life insurance, the major issue is deciding which type of life insurance to buy. There are various types of life insurance plans offered by insurance companies, and while all of them offer some amazing benefits, it is a huge task to decide which one to choose.
While one friend will tell you the benefits of the endowment policy that he bought, there will be another person telling you about the higher cover offered by term insurance at an affordable rate of premiums. In this scenario, do not forget that the purpose of buying an insurance plan and the other factors like the number of dependents, their needs, and income differs from person to person. While selecting a life insurance plan for yourself, you must consider your details. Let’s simplify this!
In this blog, we will learn about the three different life insurance plans and their benefits that you need for your immediate and lifelong needs.
- Term insurance Plan
A term insurance plan is a pure life insurance policy that comes with an easy structure to understand. You must pay a fixed premium amount to the insurance company for a specific number of years, and in case of your untimely death, the insurer pays the sum assured as promised to your family. It does not offer maturity benefits. But TROP (return of premium) policy offers maturity benefits.
- Benefits of term insurance plan:
It offers higher cover at a low premium rate as compared to other life insurance plans.
TROP comes with a maturity benefit that is the sum total of all premiums paid by you towards the policy, and no interest amount is paid on that.
- Endowment Policy
An endowment policy is a combination of savings and protection. In return of the premiums paid towards this plan, the nominee of the policyholder receives the sum assured in case of the untimely death of the policyholder. If the policyholder survives the term, then he/she receives a lump sum payout as a maturity benefit.
Benefits of endowment plan:
The sum assured can be used as a saving component.
- Unit Linked Insurance Plan (ULIP)
Unit Linked Insurance Plan, also known as ULIP, is a combination plan that combines insurance and investment. A part of the premium paid towards this policy goes to the life insurance policy premium, and the remaining part gets invested in debt or equity funds as chosen by you. There is no guaranteed return, but a lump sum amount is paid at the time of maturity to the policyholder.
Benefits of ULIP
ULIPs offer higher returns than traditional life insurance policies with a saving component.