How To Choose The Correct Life Insurance Policy
Choosing the correct life insurance policy does need due diligence. What may seem like a mammoth task, can be simplified by asking yourself- What are the goals that you want to achieve in life?
What are your priorities- get more cash value to secure the future of the dependent family in the worst-case scenario of your passing away, child education insurance, marriage, buying a house, car, holiday abroad every year, supporting parents, retirement planning?
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The next step is to understand the various policies available. Broadly, various policies can be categorized as:
Term insurance is purely a life insurance cover to provide for the dependant family members in case of an untimely death or critical illness of the earner. It pays out only on the death or illness of the policy owner.
If the insured survives the policy term, the insurance elapses and you get nothing. The premium in this type of policy is the lowest than other insurance policies.
Endowment plans are those that combine investments and insurance cover. Depending on the terms of the policy payments are made both if death occurs or on the maturity of the plan. Premiums paid are invested by insurance companies generally in safe bonds.
Unit linked insurance plan (ULIP) is a dynamic life insurance product offering both risk cover and investment options. It differs from endowment plans because here you choose how to invest your money.
One portion of the money is set aside for mortality risk cover and the remainder is invested in debt-equity markets according to your preference.
Pension plans and annuities to secure post-retirement life. They do not provide life insurance cover but guarantee a source of income either for life or for a stipulated period after you stop working.