The COVID-19 pandemic has been an eyeopener for almost everyone as to how an emergency can suddenly strike us. As many people were uninsured, unfortunate circumstances ended up causing not just mental, but financial distress for their loved ones. If only they had been insured, their family would have gotten the proper financial support. This is why you need to have a suitable life insurance policy.
However, there are different types of policies within the life insurance category that serve different purposes. If you wish to purchase a life cover, it is better to have an idea as to which policy should you go for based on your requirement. Here is more information related to the types of policy you can opt for.
Understanding life insurance
You must have heard about life insurance and must have wondered, “What is life insurance?” It’s a common question that people looking to buy life insurance generally tend to have. Life insurance is a type of insurance where the dependents of the person insured are offered financial protection, in case the person insured were to face a fatality. The benefits received from the life insurance policy can help them deal with the cost of living and save aside some amount for future goals.
What are the types of life insurance?
There are several types of life insurance policies available in the market for you to choose from. Each policy serves a different purpose. The following are the types of policies that you can select from:
- Term insurance
Life protection from different risks is provided under the policy for a specified term. For example, if the term of the policy is 25 years, the policyholder and their family would be protected by the policy for that many years. Once the policy matures or lapses, the financial protection you get also ends. If an unfortunate circumstance were to occur, the nominee would be awarded with the compensation amount. However, there are no maturity benefits at the end of the term.
- Unit-linked Insurance Plan (ULIP)
A ULIP is a policy in which the policyholder gets the dual benefits of investment and insurance. The premium you pay for the policy is used to offer you both these benefits. This policy is aimed at those who want to increase build wealth by investing in equity and debt market. It is advised to stay invested for longer duration in this plan to enjoy the maximum benefits of your investment. The policyholder and their family get life protection cover from different risks.
- Endowment plan
Endowment plans are similar to ULIPs, in which they also offer saving opportunities. These plans provide dual benefits of savings and life insurance to the policyholder. One of the major difference between ULIPs and endowment plans is that the returns in the latter are guaranteed. Another one is that endowment plans are considered to be relatively low risk. Whereas in ULIPs, the returns are subject to market risks.
- Group life insurance
This type of insurance is generally provided in workspaces by the employer to the employees. The range of organisations and the type of people who can be covered under this policy is extensive.
How to select the correct type of policy?
There are different factors you need to consider before you purchase a life insurance policy. Here are some of them.
- If your goal is to financially protect your family in your absence, you should consider the term insurance. This would get you a life cover for the stipulated period and if something unfortunate were to happen during the policy term, the sum assured can help them cope with cost of living. If there are outstanding debts or loans that need to be taken care, the sum assured can be used to clear them as well.
- If you want to gain wealth for future goals, and also want your family to be financially protected from unfortunate circumstances, you should consider investing in a ULIP. The returns from your investment can help you fulfil your life goals, while at the same time, the life cover provided under the insurance component ensures your family get the financial support they require in your absence.
- If your risk appetite is low and wish to get consistent returns without any exposure to market risk, you can opt for an endowment plan.
These are some of the types of life insurance that you can consider purchasing. Make sure that you keep your requirements in mind before buying one. If you want to know how much the policy would cost you, you can use a life insurance calculator. These are usually free of cost and easily available online.