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Life Insurance - Should you opt for traditional life insurance plans?

07 Jul 2021

These plans are the type that provides multiple benefits to the policyholder such as fixed income return, risk cover, along with tax benefit. Experts say these plans are for individuals with a low-risk appetite.

Life insurance plans guarantee compensation to the nominee for loss of life in return for paying a specified premium. The nominee, whose name has been mentioned in the contract of a life insurance policy, receives the specified sum insurance, from the insurer in case of any unfortunate event such as permanent disability or death of the policyholder.

Whole life insurance or Traditional insurance policy

These plans are the type that provides multiple benefits to the policyholder such as fixed income return, risk cover, along tax benefit. Experts say these plans are for individuals with a low-risk appetite.

Traditional insurance policies provide insurance coverage to policyholders for their entire life. For instance, in case of the death of the policyholder, the insurer will payout to the beneficiaries.
Experts say, with the mix of insurance and investing, these plans are primarily used for wealth creation, offering a small cover by way of protection.

Traditional insurance plans are further divided into two plans;

Endowment plans – Under this plan, on maturity or death, the policyholder or the nominee gets a lump sum along with bonuses. These plans offer the sum insured to the nominee on the death of the policyholder, along with a bonus. Note that the bonus is paid only for the years that the policyholder survived while the policy was active. If the policyholder survives the term, the maturity proceeds along with a guaranteed bonus or profit at the end of the term will be given to the insured.

As compared to a term plan, the premium of endowment plans is much higher and must be paid for a fixed number of years.

Moneyback plans – Along with life coverage during the term of the policy, the plan also offers maturity benefits that are paid in installments. Note that the payout with this policy is staggered and paid at specified, regular intervals. The insurer will also get a bonus on maturity if he/she survives. Experts say one can use this policy to achieve goals like a child’s education, marriage, etc.

The premium of moneyback plans is high compared with term plans similar to endowment plans and is divided between insurance and investment.

Industry experts say one should go for these policies if one has no idea about investing or can’t exercise discipline while investing. Financial planners always suggest avoiding traditional plans as they offer a low sum insured with low returns.

Source: Financial Express BACK

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