Monday, 14 May 2012

Pure Insurance and insurance with investment

You must have heard a lot of insurance policies such as Term life insurance, whole life insurance, endowment insurance, money back insurance plan, Unit linked insurance plan, retirement insurance plan and so on. These terms may make you confused a lot and you may wonder which schemes to be selected for your insurance needs. Insurance agents also made you more confused by narrating advantages of each type of insurance schemes. But you must have a general knowledge about each type of insurance schemes.

In India the concept of insurance mingled with investment. But in foreign countries, people do not like to mix up insurance and investment. Once I posted a query in a forum. The query was “Can we mix up insurance and investments? Is it profitable?” But all the replies I got were against mixing up insurance and investments. Insurance is for getting enough coverage for the expected loss and the concept of investment is growing our wealth. Insurance compensates our monetary loss while investment increases our money or wealth.

But in India it is considered that insurance is a product which helps investment also. So in India insurance companies issue a lot of insurance products mixed with investments. We can classify insurance into three categories as follows:-

Insurance which gives complete protection: - These types of insurance are pure insurances which have no investment factorin it. This insurance gives complete coverage of the monetary loss of the damage as per the terms and conditions of the policy. This type of policy does not give any monetary benefit, if the insured person or insured material overcomes the insured period. Pure term life insurance, home insurance, auto insurance, health insurance etc are under this category. Normally this insurance period is one year and we should pay renewal premium every year and we will get insurance protection till the end insurance period and this period will be extended for another year after paying the premium. Pure term life insurance policy is one of these types of life insurance policy. This insurance policy has comparatively low premium (cheap insurance policy) when compared to insurance policy which has investment factor.

Insurance policy which gives protection and investment: This type of insurance policies cover monetary loss and at the same time a return for your premium in between or at the end of the insurance period. A large portion of life insurance policies are under this category. Endowment policy, money back policy, whole life insurance policy, unit linked insurance policies etc. are gives insurance protection and a return for your premium amount. As per the nature of the policy we have to pay high premium than pure insurance policies. Whole life insurance policy gives insurance cover till the end of your life, all other insurance policies gives life cover till the policy term (for a stipulated period) only. When the investment factor is high the premium also will be high.

Insurance policy which gives investment only: There are certain insurance policies give you investment only, no insurance protection. Retirement insurance plans are coming under this category. We should invest a stipulated amount as premium for a certain period and at the end of the insurance period or retirement of the insured, the insurance company gives you a regular income (monthly, quarterly, half-yearly or annually) as per the terms and conditions of the policy. Normally the insurance company invests the accumulated money in an annuity which gives you a regular income.

You can choose from any of these insurance categories or altogether, but when you join an insurance policy learn all the aspect of the policy. Go through the prospectus and terms and conditions of the policy and compare same type of policies with different insurance companies. Some websites also helps you to compare insurance products of various insurance companies. Do your home work well and choose a suitable plan to secure the future or you and your beloved ones.

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