Life insurance is a great tool to have if you want financial security for you and your family. It covers you and your family in situations that you never know when they are going to occur. The best examples in this context are death and disability. You may suddenly either develop a disease of get into an accident that leaves you disabled or ends up being fatal. In such a case, your family would still need the living expenses and other responsibilities fulfilled. That is exactly what life insurance does. However, buying life insurance is a bit trickier that you might think.
Among the various buying decisions that you need to make with life insurance, choosing the exact type you want to buy is a crucial one. Life insurance is an important tool for you and your family. With each type being starkly different from the others, it is important to know which type of coverage to have and which to avoid. Here are a few types of life insurance listed and explained:
Term insurance plan
A term insurance plan is one of the simplest and most sought-after life insurance policies in India. The reason for that is that they purely focus on insurance coverage and have no investment or savings components. However, as they are the cheapest life insurance option, they allow you to save a lot of money and still have extraordinary coverage. Moreover, term insurance is often bought for a long period of time. While you still have to pay annual premiums, the overall term of the policy can range between 10 and 40 years.
Due to being solely focused on insurance coverage, the policy does not offer any maturity benefits. It is one of the many reasons that term insurance is one of the cheapest life insurance policies available. One advantage of term insurance is that you get a much bigger amount as sum assured than the other types of life insurance.
Term insurance also has a sub-type of life insurance known as ROP term insurance or Return of Premium term insurance. It is practically identical to the basic term insurance policy except for one major difference. An ROP term insurance offers a maturity benefit as well. This benefit is essentially all the premium you have paid over the term of the policy.
Unit Linked Insurance Plan (ULIP)
When you have some money saved up with yourself, you want to use it in a productive way. The two best options you can think of is either insurance or investment. However, you can often not do both at the same time. Unless, you choose to buy a ULIP.
Known as Unit-linked insurance plan, ULIP is one of the unique types of life insurance policies you can have in India. It is a type of life insurance policy that offers you life coverage and investment opportunities. As it is a type of life insurance policy with an investment component, it has a lock-in period. The insurance provider decides the lock-in period but most insurance companies often go for a duration of five years.
Endowment policies are similar to ULIPs in some level. The similarity is the fact they have an extra component in their workings in addition to life coverage. Endowment life insurance is for people that are looking to get the combined benefit of life coverage and savings out of their life insurance policies. The primary benefit they offer is that of financial security for you and your family. The first step towards that is covering you in case of unfortunate events. The other way they help you become financially secure is helping you save money regularly and in a systemic manner. The money that you save over the term of the policy helps you create a lumpsum that you receive at the time of plan maturity.
Now that you know what these different types of life insurance policies are and what they do, it is important to ensure you make the right choice. The only way to do that is to make sure you know your coverage needs and your buying capabilities.