Life Insurance is an essential financial product to give protection and financial stability to your family. There are several different life insurance products each with its owns pros and cons. What is ideal for you depends on your own personal situation and your requirements for a safety net. Life insurance policies can be broadly classified as: Protection plans and protection + Savings plans. See below the comparison of the most popular life insurance products.
Life Insurance Comparison
Term Life Insurance
Term insurance is the most popular life insurance policy. In a term insurance, customer pays a premium and gets covered for the term of the insurance. He/She can choose to make a single bulk payment or annual payments or monthly payments. The nominees will receive the assured amount in case of death of the insured person before the end of the loan term. There are no survival benefits for the policyholder if they survive the term of the policy.
Term policy gives financial stability to the nominees after the death of the insured. The assured amount can be structured as a one-time payment or annual or monthly payments. The premiums are lowest in term insurance compared to all insurance products for similar amount of coverage.
Whole Life Insurance
Whole life insurance policies provide coverage for the whole life of the policyholder (or up to 100 years whichever happens first). This ensures that the beneficiaries will get a payment in the event of the death of the policyholder whenever it happens. Thus it provides more financial stability to the nominees after the death of the policyholder.
If the policyholder lives to 100 years they get maturity benefits. This policy is mostly used to create an inheritance or estate for the children. The premiums are higher compared to the term policy.
Protection and Savings Plans
Endowment policy offers both protection and savings. The biggest difference between term plan and endowment is that sum assured is paid on maturity in case of the endowment policy. So the premiums are also much higher than the term insurance policies where there are no maturity benefits.
The insurer also declares bonus periodically which is paid along with the sum assured on maturity or death of the policyholder. So the beneficiary gets paid the full sum assured + bonus in the event of the death of the policyholder during the term of the loan. If the policyholder survives the term, then also he will get paid the sum assured + bonus as maturity benefit.
Money Back Life Insurance
Money Back policies provide periodic partial payments from the sum assured during the term of the policy while the policyholder is alive. So this policy ensures you get back at least part of your premium even if you survive the term of the policy. In the event of the death of the policyholder, the family/nominees get the full sum insured. On maturity, the policyholder gets paid the balance sum assured.
This is an insurance + savings product as you get paid survival benefits. The premiums are higher compared to term insurance.
Unit Linked Insurance Plans (ULIPs)
ULIPs are the newest insurance product and are getting a lot of attention due to their unique value proposition. They are a variation of the endowment plans. The insured gets the sum assured in case of maturity or the nominee gets the sum assured in case of death of the insured.
In ULIPs a portion of the premium goes towards providing the life cover, while the residual portion is invested in equities and debts. The policyholder can choose the allocations in stocks /debt instruments and change them whenever. The value of these investments are dependent on the market performance and are therefore volatile. On maturity, you get the sum assured and the value of the investments you made.