How to select the right life insurance type?

How to select the right life insurance type?

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life insurance type

Insurance cannot bring your loved one back to you but it can take care of your loved one after you. Insurance provide the financial aid to the dependents of the deceased one. As death is deemed but uncertain, a wise and responsible man must consider his duty to make an arrangement so that his family lives with piece and respect.

However, Life Insurance Company believes that its customers buy it but think that they will never use it. This is the reason why many insurance products have been launched so that life insurance becomes valuable both in case of survival and the dead.

Life insurance products are basically of four types

Term Insurance: This is the most basic type of insurance. The benefit will be paid in case of death and no benefit on the survival up till a certain age. The premiums are very less. These are of limited term like 10, 20, 30 so on.

Whole life insurance type

Whole life insurance provides the insurance coverage throughout the life. There is no term of the policy. The premiums are slightly higher.

Endowment insurance

Endowment insurance is a combination of savings and insurance. It is of limited term. The death benefit is payable in case of the death before the term or the sum assured is paid in case of survival to the end of the term. The premiums are high as they are saved as an investment.

Unit linked Policy

Unit linked Policy is similar to endowment insurance but the saving component of the premium is invested into the equity market and returns are anticipated from the market’s growth. Thus, it provides a potential growth of the survival benefits. The funds invested in the market are managed by the portfolio managers of the insurance company.

The choice of correct insurance product is very essential as an insurance customer, the bread earner of the family, has to finance his family needs and also have to save money for the future. Financial needs generally vary with the age as follows:

Ages 16-25

You might be in higher education or landed on the first job. Being unmarried and without dependents, you’re financial needs are narrower. It is the time to save maximum for your future. Some might be paying off student’s debt.

Recommended for you is term insurance or endowment insurance for shorter term as maturity amount may be used in future for family goals.

Age 25-35

May have married and have children; moderate income and often high expenditure; large debt. Expenses are high but need for savings is trivial.

Moderate termed term or endowment assurance for the payment of expenses like children’s higher education or marriage. ULPI products are a good choice if economy is stable and a slight risk investment can be taken.

Age 35- 60

Children become independent, debt reduce, loans paid off, income may increase and exceed the expenditure. The biggest financial need is to save for retire and make provision for sickness.

At such age, it is advised to take a whole life assurance or endowment insurance policy.

Above 60 yrs.

Insurance for Senior Citizen. Normally retires. The maturity payments of insurance contract must be used to buy pension.

There are many innovative conditions and terms available in the market. The policies must have to be compared amongst companies and company providing best accumulation plus add on covers, riders must have to be encouraged.

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Shubham Mishra is an Actuarial Analyst at Mercer Consulting Services India Ltd. Being an actuarial science graduate, he has a very deep knowledge about each and every aspect of insurance market. He has published a few research papers on insurance topics in the magazines of reputed insurance institutions.

2 COMMENTS

  1. Choosing the right life insurance plan is an important decision for you as well your family. There is a wide range of options to choose from, according to your requirement and situation. You should always analyze the kind of coverage you need and the one you can afford. Your life insurance plan should address the your needs and that of your family. A great article that will help you know your requirements. Good job!

  2. To find the right type of insurance that suit the myraid situation is a mamoth task. This requires a sound knowledge of the market,analysis and market expertise. It is not that life insurance have to be done at a very early age, it can be done at any age but it is always advised the faster the better. But it is highly recommended to invest wisely rather than to be sorry later.

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