There is no debate over the fact that a life insurance policy is the best tool to remain financially secure that comes with a life cover. But when asked about the other benefits, some might not exactly know them. This lack of knowledge of the benefits is why people still hesitate to purchase a life insurance policy. The understanding would be much deeper if people knew about the policy and the types of life insurance policies available for different requirements. Here, you will know everything about the types of life insurance and their part in financially securing you.
Life Insurance Policy
A life insurance policy is a basic risk investment tool through which the insurer provides a life cover to the life insured for a fixed duration. The life cover is a monetary benefit that the nominee gets in case of the sad demise of the life insurance. There may or may not be extra benefits other than this life cover in the form of mortality benefits. These benefits depend solely on the types of life insurance.
How Does a Life Insurance Policy Ensure Financial Security?
Purchasing a life insurance policy will be beneficial to the life insured and the family or dependents. They have several other advantages, which make them the best investment tool. Below are the five main tips on how a life insurance policy ensures financial security.
Life cover is the main purpose of a life insurance policy not seen in most investment plans. This is the basic feature of life insurance and is seen in all types of life insurance policies.
Tax savings is also another advantage seen in every type of life insurance. As life insurance is a long-term investment, the Income Tax Act of 1961 allows a maximum deduction of INR 1,50,000 for premium payments. Over the years, these tax savings can save you a lot of money and help indirectly reduce the premium amount.
A money-back policy is a feature that some life insurance policies have. Through this, the life insured will get back the entire invested money at policy maturity in case of survival at the term-end. This feature makes life insurance an excellent long-term savings plan.
Interest on Investment
Apart from the return of invested capital, some insurance policies also have an interest rate on the accumulated funds. So, at maturity, the policyholder will get the entire premium back and an added interest. These plans with interest on investment are great investment plans, especially in ULIP plans where the interest rates are much higher.
Several insurance policies are also useful as emergency funds. They either give a partial withdrawal facility for a very nominal added interest rate or help you take loans with the policy as collateral. In both methods, there are no adverse effects on the existing policy. Thus, you get financial security and liquidity from the same insurance plan.
Different Types of Life Insurance Policies
The only benefit that all life insurance policies have apart from the mortality cover is the tax savings. The benefits of the life insurance policy differ with the type of the policy. Given below are the major types of life insurance policies and their specific benefits.
• Term Or Standard Life Insurance – Life Cover and Tax Savings
• Life Insurance – Life Cover, Tax Savings, and Moneyback Policy
• Universal Life Insurance – Life Cover, Tax Savings, Moneyback Policy, and Interest on Investment
• Group Life Insurance – Life Cover, Tax Savings, Moneyback Policy, Interest on Investment, and Group Policies
• Unit-Linked Insurance Plans – Life Cover, Tax Savings, Moneyback Policy, Higher Interests from Investment in Bonds
Each of these plans can have more and varied benefits based on the insurance company. So, it is good to know what the benefits of a plan are from the insurer itself.
Now you must have a clear idea of the different types of life insurance policies and their role in helping you secure your future financially. To further increase your yields and benefits from life insurance, it would be best to invest in a reliable insurance company.