Insurance helps serve various needs in addition to providing life cover. These could be saving for children’s future, planning for retirement or ensuring health coverage along with life insurance. Once you know your specific needs you can choose from a wide array of investment, savings and protection options under the life insurance umbrella.
Below are a few broad categories of plans under which insurance products are devised and customised to meet your exact requirement. For Example: A child plan can be an endowment plan or a ULIP based on your preference and risk appetite.
Term Plans –
Term insurance is a plain vanilla insurance plan that offers financial security to your loved ones in the eventuality of your death. These plans are purchased for a fixed duration wherein in case of the policy holder’s death the nominee or nominees receive the entire sum assured. If the policy holder outlives the term of the plan then no maturity benefits or added bonuses can be availed. The premiums for term plans are typically lower than other insurance policies and can be paid as one single premium or at regular intervals. The policy holder can avail of tax benefits by purchasing this plan. Riders such as Waiver of Premium and Accidental Death can help add to the benefits of the term plan. This is one of the best for someone
• Pure Term Plan –
Sarnath pays Rs. 10,000 p.a towards a cover of Rs. 1cr, for a period of 30 years. Assuming he was 30 years old at the time of taking the policy, if he dies at 55 (Any age below 60), his family gets an assured amount of 1cr. On the other hand, If he outlives the policy term, he will not receive any money.
So that means this is a pure protection plan.
• Term plan with return of Premium –
Sarnath pays 30,000 per year, towards a cover of 1cr, for a period of 30 years. Assuming he was 30 years old at the time of taking the policy, if he dies at 55 (any age below 60), his family gets an assured amount of 1cr. If he survives beyond 60, he gets back the premium he paid minus the applicable taxes.
Endowment plans offer the policy holder the dual benefit of protection and savings. These plans are most suitable for those individuals who do not want to risk their investments in market-linked returns. Endowment plans provide a death benefit and a maturity benefit. In case of the policyholder’s death, the pay-out, along with bonuses or guaranteed additions, if any, goes to the beneficiary. The bonus usually depends on the number of years of the policy term that the policyholder has lived.
Akash decides to invest Rs. 50,000 p.a for 10 years. In an endowment plan, the returns have 2 components; one is a guaranteed return which could be for example 80% of premium paid and the other is an interest amount that varies between 4-8% of premium paid. Thus, in an endowment plan Akash can get a maximum return of Rs. 4,40,000/-
Unit Linked Plans (ULIPs)
Unit linked plans give you the flexibility to invest in stocks or bonds while availing life insurance. Under these plans a portion of the premium paid is invested in stocks, the returns of which are paid out at the time of maturity. The remaining portion of the premium is used to offer life cover to the insured. ULIPs offer tax benefits to the policyholder and under current Indian income tax laws; maturity benefits of ULIPs are tax free. Depending on how they will be used ULIPs are available for wealth creation, children’s education, health solutions and retirement planning.
Mr. Banerjee pays Rs. 1 lakh p.a for a period of 20 years, thus making the total premium paid Rs. 20 Lakh. In this case, depending on Mr. Banerjee’s risk appetite, the company invests the money into, Blue Chip, Govt. Bonds/ Securities and the Insurance Co. shares in a 50:25:25 ratio.
The corpus benefit received by Mr. Banerjee depends entirely upon the funds’ performance.
There is always a minimum investment limit in a ULIP.
Pension plans are also known as retirement plans. These life insurance plans are an effective way of building a corpus for the retirement years and ensuring a steady income even when one has stopped earning. There are several options to consider for pension plans including investing in the government’s National Pension Scheme and ULIPs. Plans “with life cover” and “without life cover” are also available. Annuities can be deferred, immediate, guaranteed for a certain period or can also be received for life depending on the policyholder’s preference. The most popular is usually the deferred annuity option where the insured builds a corpus by paying single or timely premiums over a set period, which is fixed under the policy terms. The pension starts as soon as the policy term is over.
Harpreet Singh at 30 years, decides to buy a pension plan. He pays 2000 p.m i.e. 24,000 p.a, for a 25-year policy term. At the end of 25 years, the returns are accumulated but are not paid to Harpreet because the contract may specify an age limit after which he can get the money. The company sometimes pays bonus for another 5 years, and he gets money only when he is 60. There is always a minimum period specification in case of Pension Plans and some plans have death benefits too.
Money Back Plan
A money back policy is a more complex life insurance policy in comparison with a term plan or a standard life insurance cover that pays the sum assured to the insured party on maturity. It provides
certain amounts called survival benefits in addition to the sum assured and a bonus from
the insurance company based on its performance.
These are participating plans, and also declare reversionary bonuses and once declared they form a part of the Guaranteed Benefits.
In this case there are 2 different periods we need to understand – One is the Policy term (20 years) and the other is the Premium paying term (PPT) (10 years).
Let us assume Sarita pays a premium of Rs. 10,000 p.a for a period of 10 years. She then receives the following benefits;
a. Maturity benefit – 8-10% of the premium for a period of 5 years, after PPT
i.e 11th to 15th year – Rs. 5,000/-
b. Money back value – 60% of Premium paid after 20 years i.e Rs. 60,000 /-
c. Death Benefit – 10 times annual premium i.e Rs. 10,00,000/- (in case of death during the policy term)
• Policy term – Overall duration of the policy
• Premium paying term – The duration for which premium must be paid. (PPT)
1) All figures mentioned are for illustration purposes only
2) The benefits in all plans are obtained only on payment of regular premiums.