Insurance life policy type
A life insurance policy is a security for your dependents after your death. With the help of this policy your dependents can continue their expenses even if their main source of income is absent. The life insurance policies are basically of two types term and permanent life insurance.
Before you opt to take a life insurance policy it is advised that you should know about the different policies that are available and what are their features so that you can decide in a better manner as to which would be the best for you.
How are insurance policies classified?
Insurance policies come under different categories. Some of the factors that classify them include number of years, premium amount, benefits covered and other regulations, which govern the policy.
The life insurance policies given by different companies vary as per the offers available with them. However, the difference between the policies offered is minimal.Moreover none of the policies differ from the norms established by the principles of the life insurance contract.
The major classes of the life insurance policies include permanent and term insurance. These will be discussed in detail so that it becomes easy for you to understand them.
Term life insurance
With this type of life insurance policy the client pays a fixed amount of money for a pre-determined period of time. The premium related to these policies does not cost much and the time period for paying these premiums usually gets over during the lifetime of the policyholder.
Once the policy expires the insured person can renew the policy but would have to pay the premiums at the revised rates. This is one of the major drawbacks associated with this life insurance policy. However, this type is still the most recommended for salaried people. The term life insurance policy can be classified into the following types:
- Group Term Life Insurance: This type of insurance is provided by, the employer for his employees.The employer can opt to pay the premium from his fund or can deduct the amount from the salary of the employees individually. This type of policy has a number of benefits but it does not guarantee to fulfill your insurance needs.
- Level Term Life Insurance: With this type of policy you are required to select a period for paying your premiums and you pay your premiums towards the policy over this time period. Once the time period is over the policy matures. Once that you have selected a term 5, 10 or 15 years you cannot cancel it. This insurance policy is best suited for people who are unable to make long-term financial plans.
- Increasing or Decreasing Term: In this term life insurance policy the coverage keeps increasing or decreasing throughout the term. However, the premiums remain the same.
- Renewable Term:With this term the policyholder can renew the policy at the end of the term without providing any evidence of insurability.
- Convertible Term: With this the policyholder can convert a term policy into a permanent policy.
Permanent Life Insurance
The permanent life insurance policy is an expensive policy. This type of policy cannot be stopped in between till you make your payment towards the premiums on time and unless you wish to end the policy.In this type of life insurance policy the premiums are paid or an indefinite period of time regardless of the fact that the amount exceeds the money that would be distributed among your dependents in case of death.
This surplus amount that you pay as premium is deposited in another account by the company through which, you have taken the policy. If the company gets benefits then you are likely to get higher returns. Over the time some part of the profit is given to you at regular intervals. You can have two options with this money.You can either opt to raise loans with them or you can opt to deposit back in the account and let it accumulate.
If you decide to end the policy then you would be paid the surrender value if the insurer would like to have the profits made from the investment then there is no need to pay income tax on that amount. Besides there is also a possibility that when you wish to withdraw certain amount of money in a given limit you would not have to pay income tax on that amount. However, if you deposit the money in the bank you would have to pay income tax on it irrespective whether you would be using it or not.
The different types of permanent life insurance policies include:
- Traditional Whole Life : This policy remains in force during the insured's entire lifetime, provided premiums are paid as specified in the policy.
- Universal life insurance: This policy provides flexible premiums, flexible face amounts, and unbundled pricing factors.
- Variable life insurance:This is a type of whole life insurance under which the death benefit and the cash value of the policy varies according to the investment performance of a separate account fund.
- Variable universal life insurance :This is a form of whole life insurance that combines the premium and death benefit flexibility of universal life insurance with the investment flexibility and risk of variable life insurance.
- Last survivor life insurance: This type covers two persons and provides for payment of the proceeds when both insured have died.
- Single-premium whole life insurance : This type of policy is purchased with a single, lump-sum premium.
Taking a permanent life insurance policy is not advisable for people whose aim is just to make investments and save tax. In such a case it is advised to invest in cheaper investments and use other types of financial tools because life insurance policies do not aim at saving tax and making investments. These are securities for your dependents and loved ones.
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