Confused About Multiple Insurance Plans? Here’s how to choose the right font for you | Photo credit: iStock Images
New Delhi: Insurance companies in India come up with new plans every month to meet the needs of different customer groups. With several choices available to customers, it has become difficult to choose the right plan for someone who is purchasing a policy for the first time. In this article, we’ll walk you through choosing the right insurance policy for you.
A term insurance plan is the most basic and common insurance plan that you will find among insurance companies. This is the primary and most necessary life insurance coverage that one should purchase. These plans offer financial protection up to the sum insured to members of the policyholder’s family (nominees) in the event of unfortunate death from any cause other than suicide in the first 12 months.
These plans provide for a lump sum for the nominee in the event of the death of the insured. As soon as a person begins to earn money, they must first purchase term insurance. Some of the temporary plans also offer protection against terminal illnesses.
However, the amount of the premium for term insurance plans for the same person and the same mandate may vary from one company to another due to the characteristics inherent in the policy. For example, in the basic term insurance policy, companies pay a lump sum on the death of the insured. But if you think that your nominee is not financially savvy and cannot handle a large body of work on her own, then you can opt for term plans which provide the sum assured in the form of an annuity. Again in the annuity option also there are different types of annuities. In some plans, the amount of the annuity will continue to increase each year by a fixed percentage. Depending on these characteristics, the premium amount for a term policy may vary. It should be mentioned here that the premium you pay for term insurance qualifies for a tax benefit under section 80C, provided the sum insured is greater than 10 times the annual premium.
Two other major categories of insurance policies available in the market are traditional endowment plans and unit-linked insurance plans (ULIPs), where part of the premium you pay is used to provide you with life coverage and a significant portion of the premium is invested to provide you with a lump sum at the time of maturity in case the policyholder survives the entire term of the policy.
But in the case of endowment plans, the net returns over the life of the policy will not exceed 4-5%. However, in the case of ULIPs, if you choose to invest in the stock plan, you can get much higher returns. It should be mentioned here that ULIPs offer several fund options from which you can choose a fund or a combination of funds depending on your risk appetite. For example, 60% in equities, 20% in government securities and 20% in corporate debt. Your final returns will depend on the type of fund you choose.
Before investing in a particular ULIP or endowment plan, check the historical returns of that plan to get a fair idea of ââthe return you will get if you survive.