Loss of a life cannot be compensated for and this is the basis of Life Insurance products. Products such as medical insurance would reimburse an individual for an expense incurred by the respective person in case of medical mishap. A Life Insurance products aims to pay an amount (known as sum assured) in an unfortunate incident of death of a insured person. In return of this committed amount, the insured person pays an amount known as ‘Premium’ to the Insurance Company. The amount required to be paid as a premium varies upon multiple factors which impacts the risk of life on a individual such as current age, existing medical ailments, lifestyle of the insured, duration of the insurance contract and amount of insurance sought.
Amongst the types of life insurance products available in the financial market, the most popular options are Term Insurance, Endowment Insurance Policy and a Unit Linked Insurance Plan (ULIP)
In a Term Insurance policy, the insured person pays a regular insurance premium for the duration of the insurance policy and if the insured dies during the tenure of the policy, the lump sum amount of sum assured is paid to the nominee of the insured. If such an event does not arise with the policy term, no amount is paid by the insurance company to the insured. In other words there is no return of the premium paid to the insured person.
In case of Endowment Policy, similar to term insurance, the insured person pays a regular insurance premium for the duration of the insurance policy. During this duration, the insured person is covered if a death event occurs, whereby the sum assured amount is paid by the insurance company to the nominee or the legal heir of the insured person. However, if no such event arises, the insured person is paid the sum assured after the expiry of the policy tenure.
A ULIP policy offers similar benefits as of an Endowment, except it gives an option to invest the insurance premiums in stock markets and aim to generate higher return and hence a higher maturity payout.
Considering there is a maze of several types of insurance products available through scores of insurance companies, we assist our clients to obtain the right product to suit their requirements. For more details, please read our blog note Term Insurance – First Step Towards Financial Planning