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Which type of life insurance should you choose?
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Life insurance is an essential financial product — and unfortunately, it’s one that’s often overlooked. Many people put off buying a life cover until they’re almost close to retirement, while some don’t buy life insurance even then. This can be a costly mistake because it leaves your family without any financial safety net in case of your demise.
However, if you still haven’t purchased a life cover, the best time to correct this error is now. That said, there are different kinds of life insurance plans available in India today. And you need to choose the right kind of policy for your family’s financial well-being.
Check out the different types of life covers and when it makes sense to choose each of them.
1. Term Life Insurance
This is the simplest kind of life insurance, and it is a pure life cover. So you get death benefits on your policy. The life cover is valid for a specific term or period, which is why this kind of policy is known as term life insurance. In case of your demise during this period, your beneficiaries will receive a lump sum payout. Some term plans also offer the option of periodic payouts.
The premiums charged for term insurance are the lowest because these plans do not offer any maturity benefits.
Choose this kind of life insurance if:
You want a significant life cover at affordable premium rates.
2. Endowment Plans
Endowment plans, also known as savings plans, offer guaranteed maturity benefits in addition to death benefits. So, in case you survive the policy term, you will receive a guaranteed sum of money as maturity benefits. For this reason, endowment plans are also known as guaranteed savings plans.
However, if you do not survive the policy term, your beneficiaries will receive the sum assuredly offered under the plan.
Choose this kind of life insurance if:
You want to get the benefit of a life cover as well as guaranteed savings from the same policy.
3. Unit Linked Insurance Plans
Unit Linked Insurance Plans (ULIPs) are life insurance plans that give you the benefit of financial protection as well as investment options. Under these plans, you can choose to invest in different ULIP funds, such as debt funds, equity funds, hybrid funds etc. You can select funds that align with your financial goals and risk appetite.
Aside from the investment benefit, ULIPs also act as life covers and offer death benefits in case of the policyholder’s demise during the policy term.
Choose this kind of life insurance if:
You want the dual benefit of protection as well as market-linked investments from one policy.
4. Whole Life Insurance
Whole life insurance, unlike term insurance, offers you a life cover for practically your whole life. The cover is valid till you attain 99 years (or 100 years in some cases). Considering the average human lifespan, this means you will essentially be protected throughout your life.
Aside from this benefit, whole-life insurance plans also come with an element of long-term guaranteed savings, just like endowment plans.
Choose this kind of life insurance if:
You want lifelong protection coupled with the benefit of guaranteed savings.
5. Child Plan
Child life insurance plans offer a death benefit, as all life covers. In addition to this, they offer milestone benefits that can help you meet the costs of various key milestones in your child’s life, like their higher education or their wedding. This kind of investment cum insurance plan essentially helps secure the future of your child or children financially.
Choose this kind of life insurance if:
You want to have the corpus required to fund your child’s higher education and/or wedding and simultaneously offer them a financial safety net.
6. Pension Plans or Annuities
As the name indicates, these life insurance plans offer a death benefit as well as periodic payouts in the form of a pension or annuity. There are different types of annuity plans you can choose from such as immediate annuity, deferred annuity, joint annuity and more.
Choose this kind of life insurance if:
You want the combined benefits of a life cover as well as pension payouts to secure your post-retirement life.
Conclusion
Choosing the right type of life insurance is extremely crucial because it decides the extent and the kind of protection that your loved ones will enjoy. It will influence the additional benefits that you will receive from your life insurance plan, such as guaranteed savings, investment opportunities or pension benefits. So, ensure that you evaluate all your options carefully and make an informed and prudent decision.
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