Do you have an insurance plan that is suitable for your needs? Most people go by what their insurance agents recommend. They don’t bother to check details of the product or learn more about its features.
As a result many people have inadequate insurance cover and are stuck with expensive products that don’t match with their needs at all. Buying the wrong insurance product is a mistake most buyers are likely to commit.
The only way out is for customers to educate themselves a bit about various types of insurances cover. Here’s a little list to start you off.
Whole life Insurance Plans
You pay the premium for almost entire life. In most cases, the insurance cover extends up to the age of 75 or 80 years, and you pay premiums even after you retire. But a better option is to buy a whole life cover that has a limited premium paying term. It’s possible to plan it so the end of the premium paying term coincides with your retirement. Even after you stop paying premiums, the life cover continues.
Pros: Whole life plans are relatively inexpensive.
Cons: Most financial advisers argue that you don’t need insurance cover after retirement. Also, they don’t favor using money from one’s retirement to pay premiums.
Unit Linked Insurance Plans (ULIPs)
Unit linked insurance plans are the current favorite among insurance plans. They give various investment choices, and returns are linked to the debt and stock markets. As stock markets boomed, many investors opted for higher equity allocations in their ULIPs. They are a combination of insurance cover and mutual fund scheme.
Pros: ULIPs allow you to invest according to your risk appetite.
Cons: financial experts say ULIPs are not very transparent. They are also the most expensive kind of insurance product.
Endowment Insurance Plans
It is your regular insurance policy, where you pay premiums for a limited period. If you were to pass away during the policy term, your dependents would get the insured amount plus the bonuses accumulated up to that point. If you outlive the policy term, you get the insurance cover and all accumulated bonuses.
Pros: Easy to understand.
Cons: Costly, and returns aren’t high.
Money Back Insurance Plans
The main attraction of the plan is that it gives you a lump sum (a percentage of your insurance cover) amount at periodic intervals. On maturity you get the insurance cover along with accumulated bonuses.
Pros: Many people like the idea of getting money at regular intervals from their insurance plan, rather than wait until the policy matures.
Cons: They are very expensive and returns are low.
Term Insurance Plans
These are the smart person’s insurance choice. They are also called ‘pure cover’ plans, because they usually incorporate no saving or investment element. This is how they work: If you pass away during the policy term, your dependents get the insurance cover. If you outlive the policy you will not get anything back. There are some types of term plans that will return your premiums, but they are slightly more expensive than pure cover plans.
Pros: They are the cheapest insurance option, and you can buy truly adequate life cover for a modest amount.
Cons: None, really.
There’s no getting away from riders these days. Insurance companies are busy attaching additional cover to your basic life insurance policy. Riders are additional benefits that can be tacked on to your basic life insurance policy, by paying a marginal additional premium. Examples: accident and disability benefit, critical illness, waiver of premium, and so on, Riders can be added, amended or deleted from the main policy at any time, subject to risk assessment.
Pros: It’s easy to add these benefits to your basic cover.
Cons: Some riders are not very transparent and some are expensive.