LIFE INSURANCE BASICS

Life insurance plans

In simple terms, life insurance is a back up or plan-B for life, which answers the “what if” questions for people who buy it. Questions like:

• What will happen to my family if I were to die early? 

• What happens if my money runs out after I retire?

• What will I do to fund my child’s aspirations?

Essentially, the objective of owning life insurance is to take advantage of the “peace of mind” that it brings comes with. This is achieved through different types of life insurance policies that cater to a wide variety of needs. Here are some basic types of life insurance policies

Life insurance is a means of providing protection and long-term savings. The most basic type of life insurance plan is one that offers protection or a life cover, for a fixed premium. These are protection or term plans. In addition there are a number of plans aimed at long-term savings. These plans are of two types – traditional plans and unit-linked plans. Both these plans invest your premiums in various available instruments including equity, debt and money market. In unit-linked plans the entire risk of the investment is borne by the policy holder while traditional plans offer assured returns. One should choose a long-term life insurance plan after determining how much risk you would like to take.

Detailed below are some typical life insurance plans.

1. Term Insurance Plans: This is one of the most widely bought life insurance products globally. However, we in India are just catching up to the great benefits that term insurance offers.

In simple words, term insurance is a pure risk cover product. This means that it pays a death benefit when the policyholder/person who is insured dies during the period for which he/she is insured. In case he/she survives this period, he/she will not receive any money from the insurance company.

Now you may wonder, “So what’s the use of such a policy where you don’t get the money back? Isn’t it a waste of money?”

Well, this is one concern that has kept many people away from term insurance. However, what they fail to appreciate is that term insurance is generally the cheapest form of life insurance. For a very small premium, it provides the highest amount of cover (sum assured).

If you are working and have dependents and liabilities – such a home loan – you cannot afford to ignore buying a term plan. 

Term plans also come with a return of premium option. For a slightly higher premium the life insurance company refunds all your premiums if you survive the policy term.

 

Aegon Life offers Term/Protection Plans. Click here to know more. 

 

2. Endowment Plans: This is one of the most popular traditional life insurance policies bought in India. Endowment policies combine risk cover with financial savings, and are thus seen as an alternative for fixed deposits and other safe investments.

As mentioned above, there is dual benefit that a policyholder/insured person receives from endowment policy. One, in case of death during the tenure, the beneficiary/nominee gets the cover amount (sum assured). Two, if the individual survives the policy tenure, him /her gets sum assured and benefits like bonuses depending on the policy benefits. Returns on endowment policies are conservative but guaranteed and these are meant for risk-averse individuals – those who prefer a steady though moderate return rather than take high risks for high returns. Endowment plans are a good way of safely accumulating a lump sum corpus required at retirement.

 

Aegon Life offers Endowment/Traditional Savings Plans. Click here to know more. 

 

3. ULIPs: Unit linked insurance plans (ULIPs) are plans that invest the policyholder’s premium in capital market. Unlike traditional savings plans, the risk of investment in this case is borne completely by the policyholder as the policyholder chooses the investment options in which he/she wants to invest in. A part of the amount that the policyholder pays as premium goes toward providing life cover. The rest is invested in the different investment options (equity, debt, money markets, etc) available under the product. ULIPs can over the long-term provide higher returns but come mostly without guarantees.  ULIPs are very good long-term savings investments. They combine the discipline of regular savings with the potential of good returns and a life cover as well. 

ULIPs come with a number of additional features such as riders, partial withdrawals and top-ups. ULIPs also come with fund choices (unlike traditional plans); here policyholders can choose depending on their risk capacity. ULIPs are a great combination choice and flexibility. 

 

Aegon Life offers Unit Linked Plans. Click here to know more. 

 

Other categories and variations of insurance plans:

1. Money Back Plans: Money back policies have also been amongst the most popular life insurance policies in India for many years. It is a type of endowment policy. However the popularity of the policy lies in the fact that it gives payments at specific intervals during the period of the policy.

A money back policy is very simple to understand. At fixed intervals during the period of the policy the life insurance company gives back a fixed proportion of the cover amount (sum assured) to the policyholder along with accumulated bonuses (if available) which are paid on maturity. In case of death during the policy term, the beneficiary gets the full cover amount along with the accumulated bonuses (if available).

2. Child Plans: These are unique products that are bought with the specific objective of providing for children’s future financial needs, such as higher education, marriage, etc. Child plans are available in traditional or unit linked variation depending on the consumer’s need. These plans cover the life of the parent (policyholder) and ensure that in case of his/her death, the child gets the cover amount. Not only this, the insurance company may also fund future premiums and the child gets the value accumulated at the end of the policy period. Some plans also provide income benefit to the child. Hence, Child Plans are largely suitable for safeguarding the future of your children in both circumstances i.e. whether you are there or not. 

3. Health: Health plans as the name suggests are plans which provide for medical expenses. These are similar but in many ways better to the medical insurance plans provided by general insurance companies. These plans offer fixed payout in case of health-related expenses, for a fixed premium. These expenses may include hospitalisation expenses, expenses incurred for surgical treatment, etc. Health plans are available in both categories i.e. traditional and ULIP.

4. Retirement or Pension plans: A pension plan is designed to generate regular income for individuals once they retire. Insurance companies offer various pension plans (also called as retirement plans or annuity plans) where a person has to initially invest either a lump sum amount or regular annual premiums over a period of time. In return he will get regular income (pension) for life. In case of death, the beneficiary gets the cover amount plus the bonuses/additions, if any. Retirement plans are available in both categories i.e. traditional and ULIP.

5. Whole Life Plans: A whole life policy provides life insurance cover for the entire life of the insured person or up to a specified age (the age varies from company to company but is mostly above 85 years). 

Generally, whole life plans come with limited premium payment option as people may retire and stop earning by the time the policy reaches maturity. These policies are used to create a legacy for the next generation as the cover amount (Sum Assured) is paid irrespective of the age at death of the life assured.

 

Click here to know more about products offered by Aegon Life