One of the most common Investments now a days is Life Insurance Policies; the benefits of Life Insurance Policies are listed below:
Risk Coverage: Insurance provides risk coverage of the insured family in form of monetary compensation in lieu of premium paid
Different Plans For Different Uses: Insurance companies offer a different type of plan to the insured depending on his need for insurance
Promotes Savings/Helps in Wealth Creation: Insurance policies also come with the savings plan i.e. they invest your money in profitable ventures
Loan Facility: Insurance companies provide the option to avail loan on select policies
Tax Benefits: Insurance premium is deductible under Section 80 C of the Income Tax Act, 1961. Maturity proceeds of all plans except Pension Plans and Traditional Plans in aggregate to Rs. 5 lacs premium per year are tax free under Section 10 (10) D of the Income Tax Act, 1961. This is a per recent Union Budget of FY 2023-2024 and is subject to change from time to time
Unit Linked Insurance Plan (ULIP):
. A ULIP is a combination of Life Insurance and Investment
. ULIP requires a policy holder to pay regular premiums so as to enjoy policy benefits
. Part of premium is utilized to pay life insurance coverage to the policy holder and the remaining amount is pooled with the assets from other policy holders, and then invested in financial instruments (Equity and/or Debt)
. An investor can buy units in a single strategy or choose to diversify their investments across several funds available in the plan
. The investments under ULIP are managed by dedicated fund managers appointed by the insurance company
. An investor in ULIP has to generally bear different kind of charges before their money is invested; these charges are Premium/Fund Allocation charge, Fund Management charge, Policy administration charge and Mortality charge
. Investor has an option to chose their funds for investments from different options that are Equity, Debt and Balanced Funds
. ULIPs are for investors willing to stay invested for relatively long periods
. ULIPs offer a variety of fund options each with varying risk-return profiles
. Investors have an option to switch their funds for unlimited times per year
Traditional Plans:
- Whole Life Insurance Plan
- Endowment Plan
- Money-Back Insurance Plan
- Retirement Insurance Plan
- Child Plan
- Term Plan
a) Whole Life Insurance Plan:
• This kind of insurance plan ensures coverage for a lifetime, provided the policy is in force
• Apart from providing death benefit option, a whole life insurance policy also contains a savings component
• Loans can be availed in Whole Life Insurance Plans
• Whole Life Insurance guarantees payment of a death benefit to beneficiaries in exchange of level, regularly due premium payments
b) Endowment Plan:
• In an Endowment Plan, the Insurer provides a pay-out to the insured if he or she survives until the maturity date; otherwise, the sum assured is paid to the beneficiary
• The insurance option offers dual benefits of protection and savings
• Most insurers also offer guaranteed additions to the invested sum or declare bonuses, increasing the returns from such policies
• Endowment Plans can help achieve financial goals like a child’s higher education, marriage, buying property, etc.
• An Endowment Policy is a Life Insurance contract designed to pay a lump sum after a specific term or death
c) Money -Back Insurance Plan:
• In a money-back plan, the money invested as a Premium comes back to an Investor at regular intervals as a Guaranteed Income
• An Investor is also eligible to receive bonuses declared by the Insurance Company
• Such policies can meet interim needs for funds of Investors
• Maturity benefit is paid to the policy holder at the end of the plan tenure post with survival benefits
• Death benefit is total sum assured amount without taking into account the paid survival benefits
d) Retirement Insurance Plan:
• Retirement or Pension Plans are a type of Investment Plans that help an Investor to accumulate a part of their savings over a long-term period so that he/she can have a secured financial future
• With these plans, an Investor can create Wealth and get a Fixed Income after regular stops
• When an Investor continuously invest in Pension Plan, the amount multiplies due to the benefit of the power of compounding, which makes a lot of difference to the final savings corpus
• During the vesting period, an Investor gets regular pay-outs from the accumulated sum
• In case of the unfortunate demise of the policy holder during the accumulation phase, the nominee receives a death benefit
• The annuity plan also allows an Investor to make provisions for his/her spouse in order to continue receiving the income after an unfortunate event
e) Child Plan:
• Child Plans are Insurance cum Investment Plans that help an individual create a corpus for children’s future, over a period of time
• On maturity, these plans pay a lump sum amount which can be used to pay child’s college fees or marriage expenses
• A child insurance plan is a combination of insurance and investment that ensures a secure future for a child
• Life cover is available as a lump sum payment at the end of the policy term
• These plans also provide flexible pay-outs at important milestones of child’s education
• Guaranteed loyalty benefits at the end of each policy year
• Financial security for child in case of an unfortunate event
f) Term Plan:
• Provides peace of mind by ensuring that the family is financially secure and independent, in your absence
• A Policy Holder pays specific Premium at fixed intervals during the policy term
• In case of death of the policy holder, Sum Assured is paid to the nominee in the policy
• Term Plans also provides additional benefits such as Critical Illness and Accidental Death Cover
• One can opt Premium Payment Options as – One time / Limited / Regular Pay
• Many Insurance Companies provide Whole Life Cover option