Tuesday, 12 January 2016

Life Insurance: Different Types of Life Insurance Policies


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In today’s uncertain world, Life insurance is becoming a necessity. By definition, Insurance is a legal agreement between two parties (Insured and Insurer); in which one party (insured or policy holder) agrees to pay premiums, and in return, another party (insurer) agrees pay certain amount of money on the event of loss.  Now in this day and age, everyone should have an insurance policy because the probabilities of mishappenings have been increased due to today’s hustle and bustle.

In today’s post, we will be discussing on types of life insurance. Presently, insurance companies have launched many life insurance products in insurance market. Some life insurance products cover only the event of death; and some add riders or endorsements to give extra benefits to insured (See: 10 Important Things to Consider Before Buying a Life Insurance Policy). Depending on the features, there are three basic types of Life insurance;
Types of Life Insurance Plans
Types of Life Insurance

1. Term Life Insurance
2. Permanent Life Insurance
3. Endowment Life Insurance

Term Life Insurance

It is a simplest form of life insurance, in which insured gets pure risk coverage for a temporary period with no investment components. Usually, Premiums are cheaper than other types of Life insurance because policy provides death benefits for a certain period. In term life insurance, beneficiaries or nominees do not get any type of benefits; if policyholder does not die within the policy term. Premiums increase with time in term life insurance; normally, premiums increase after a fixed time (5yrs, 10yrs, 15yrs). The major benefit of term life insurance for an individual is that it provides him peace of mind that his/her family will get financial support(tax-free) upon his/her death. 

Permanent Life Insurance

Permanent life insurance provides lifetime death coverage. The policy remains in force till the event of death or as long as insured continues to pay premiums. Permanent life insurance accumulates a cash value that is added to the face value of your policy or paid out to your beneficiary upon your death. Permanent life insurance is further divided into two subcategories;

a. Whole Life Insurance
b. Universal Life Insurance

a) Whole Life Insurance

Whole life insurance is a basic type of permanent life insurance, in which insured gets death coverage for entire life. In whole life insurance, insured pays higher premiums than term life insurance; but premiums are fixed and they don’t change over time. In whole life insurance, your nominee will definitely get death benefits upon your death. The main disadvantage of term life insurance is that the premiums and death benefits are fixed.

b) Universal Life Insurance

Universal life insurance is an advanced version of whole life insurance. Universal life insurance is a combination of life insurance and investment account. Premiums and death benefits are flexible in universal life insurance; insured or policy holder may increase or decrease the premiums or death benefits as per their needs. Universal life insurance, allows you to take loan against your policy. The death benefits depends upon your cash value; that means if cash value increases, death benefits also increases or vice versa.

Endowment Life Insurance

Endowment life insurance policy is apt for all age groups. Endowment life insurance policy pays a lump sum after maturity period (usually 10, 15, 20 yrs) or on death. Endowment policies do not cover insured lifetime and the premiums are higher in endowment policies than permanent life insurance policies. If policy holder survives the policy term then he/she will get assured amount along with benefits; otherwise, if he/she does not survive then nominee or beneficiary receives the assured amount along with benefits stated in your policy.

Also Read: 

Some more insurance products related to life insurance;

  • Group Life Insurance
  • Cash Back Term Life Insurance
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