Types of Life Insurance Policies: Traditional Policies

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The change in lifestyles and increase in stress has made it compulsory for everyone to avail a life insurance policy as a measure of financial protection for their dependants. Unfortunately, due to high diversity of products and multiple players, people remain unaware of what sort of product they need and end up getting insured for high premiums or market based returns (which might fulfil the purpose of insurance).

This mis-marketing of life insurance products can only be solved once people are aware of the type of insurance policies.

This article aims to briefly detail with the type of life insurance policies, thus enabling one to choose as per his comfort.
The most basic demarcation of life insurance policies divides it into the following two categories:
1. Traditional, &
2. Non Traditional

Traditional plans refer to the aged and tested conventional life insurance plans that are not linked with the market. On the other hand,  non-traditional plans are those where insurance component gets related to the market too.

Hence, it is now self evident that traditional insurance plans pursue the purpose of financial protection and do not focus on anything else.
Non traditional insurance do extend their reach to provide more than just protection and are semi-insurance-investments products.

Let’s have a look at what kind of insurance plans you can find under Traditional ones:
Term Plan: Term plan is the oldest and most economic insurance right now. Recommended to subscribe as early as possible. Term plan provides financial cover resulting to a high amount at a cost of very small premium.
A 26 year old earner can protect his family for an amount as much as Rs. 1 Crore for a premium that is as low as Rs. 8000/year.
These plans are often termed as charity by persons involved in insurance sales as there are no returns in these plans if the person survives beyond the age of policy maturity.

There is also a concept of Whole Life Insurance Plans, where the term of the plan is as long as the insured survives. The insured amount is given to the heirs, after the insured is no more.

Money Back Plan: Not many people know that money back plans are not related to the market and benefits paid at regular intervals are based on insurer’s profit. Money back plans have a higher premium than term plans.
Let’s understand a money back plan via this example.
Say you took an insurance plan under this scheme for a sum of Rs. 500,000. The premium is Rs. 15,000/year and the total duration of the plan is 15 years.

At regular intervals, say at the end of 3rd, 6th, 9th and 12th year, the insurer pays out a certain amount to the insured as a survival benefit. This survival benefit is usually in terms of percentage and is decided by the insurance company (as its based on its profit).
At the end of the plan, the insured is given the amount for which he was initially insured, Rs. 500,000 in this case. If the insured dies within the policy period, his family the sum insured and there are no money back benefits then.
Money back plans is for those who seek some return for the amount of money they invest in insurance plans.

What are Non-Traditional Plans? How to understand their working? Find out in our next article post.

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