Wednesday, 26 October 2011

Basic types of life insurance policies

Life insurance policies can basically be divided in to four named Term life insurance policies, Whole life insurance policies, Universal life insurance policies and Variable life insurance policies. Whatever may be the name and performance of a life insurance policy, it includes in any of these classifications.

Term Life Insurance Policies 

Term life insurance policies cover your life for a stipulated pre determined period; say one year, ten years, 20 years etc. These insurance policies allow you to pay a fixed amount of premium throughout the term of the insurance and your life will be covered for the sum assured throughout the entire term of the insurance. If you want to continue the insurance cover after completing the pre determined term, you have to renew your insurance policy and the premium amount will be more than that of the earlier premium. Term life insurance is a pure life insurance and there is no investment factor inside. The nominees of the insured could receive the sum assured, only if the death of the insured occurred before completing the predetermined period. If the insured is alive till the maturity, nothing will get back. Term life insurance is suitable for those who need only insurance cover and the insurance cover with lowest premium. There is not investment in it. The premium of Term life insurance is very less comparatively with other insurance policies.

Whole Life Insurance Policy

The insurance policy which gives life long life cover of the insured is known as whole life insurance policy. The insurer gives compensation for the entire life of the insurance policy holder. But the premium for the whole life insurance policy is higher than term life insurance policy. The insurer offers some guaranteed additional payment other than sum insured and this may be called as bonus or guaranteed addition. This type of insurance policies are not a mere insurance policy, it has some investment factor also. Premium for some whole life policy needs to be paid for the entire life, while others need premium payment only up to a certain age of the insured. Most insurance companies grant loan against the insurance policies under certain conditions.

Universal Life insurance policy

Universal life insurance policy is a mix between term life insurance policy and a separate savings & investment account. The premium will be deposited in an investment account and whatever may be the cost of term insurance deduct from the savings account and the interest or income received from the investment account will be credited in the savings account. If any time your savings account becomes zero balance the term insurance and the insurance coverage will be over. You can increase or decrease the premium payments and insurance cover at any time you wish to do so. You can choose a fixed death benefit option for a fixed term (fixed number of years, say 10 years, 20 years etc. ) or increasing death benefit option (including increasing sum assured and increasing term of insurance). For fixed death benefit option you should pay premium only up to the term ends, but increasing death benefit option you should pay premium for your lifetime. This policy is good to those who wish to get a lifetime insurance coverage and wish to include investment factor along with insurance policy.

Variable Life Insurance policy

Variable life insurance policy is a combination of whole life policy and universal life policy. But the investment factor gets more importance here. The money in the investment account will be invested in stocks, bonds and money market funds. You can choose where to invest and the death benefit and cash value will be according to the performance of your investment portfolio. This is suitable for those who wish to mix their insurance with a little risky investment.

Your life insurance policy is any of these basic insurance policies and the name may be endowment policy, money back policy, Unit Linked Insurance Policy etc. Fix your insurance goal and choose a suitable insurance policy.

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