Life Insurance definition, types
Life assurance is one of the most popular types of insurance. Let's read in detail about life insurance along with different types.
Meaning of life insurance
Life insurance can be defined as a protection (in terms of monetary stability) in case of death of person having insurance. Such person is called as insured. It aims to reimburse the loss of income due to the death of insured. It works as an investment plan also as the insured is sure to receive the amount paid to the insurance company (known as premium) whether after his death or during his survival after the expiry of policy term period, whichever is earlier. That's why life insurance is also called as life assurance. Types of Life Assurance
It has two main types:
- Term life insurance
- Permanent life insurance
These categories can further be categorized into different types of insurance policies. Let's read and understand about them in detail. Term Life insurance policy
Under this type of policy, the insurer has pays premium for a certain time period like 5/ 10/ 15/ 20/ 25 years. In case of his death within such time period, the insurance company will pay the insured lump sum amount to the family or nominees of insured. But if he survives more than such predetermined time period, then he or his family does not get any benefit. That's why; this type is not suitable for investment purposes. However, the amount of premium is very low and it is the cheapest form of life insurance.Whole life insurance
As the name clarifies, it is a policy for whole life. Insured has to pay the premium as long as he survives and the benefit will be provided after his death. He has to pay a fixed premium amount throughout his life. It provides death benefit to the family or nominees of the person and no other benefit is provided to him. This type of policy is not much popular in India and many insurance companies themselves suggest avoiding it.Endowment policy
Endowment policy is a combination of savings + investment + insurance and is very popular in the nation. The insured has to pay a predetermined amount of premium for a certain time period. The benefit will be compensated to him on the maturity of the policy or on his death before the expiry of such certain time period, whichever is earlier. Thus, if a person has taken an endowment policy for 20 years in 2001, then he will get the maturity value in 2021 if he survives till then or to his nominees in case of his death before 2021. The maturity value of mostly includes certain additional benefits like bonus, marriage or education endowment plans, etc. However, the cost of this policy is higher than as others but worth its value.Money back policy
It is quite similar to endowment policy with a difference that you don't have to wait till the expiry of said term period. It provides you the benefit of receiving periodical payments (a portion of sum assured) within a specified time period. if insured dies before the expiry of policy period, then his nominees receive the amount of policy along with bonus. This policy is helpful in case of need of money at times of children marriage or education. Business life insurance
Although the nominee receive monetary benefit from the company but what about the business which the policy holder was doing during his survival? How long can a business give returns without its rider? Business life insurance protects from the business from financial crises which arises due to the death of the businessman. It helps in running business and provides due payments or incentives to employees.Children's Life Insurance
As the name clarifies, it is the life insurance which parents or grandparents can take for their children or grand children. It works like an investment plan for the children when they grown older. Its better to take this plan as soon as possible as the premium for younger child is less than that of older child. In other words, premium for a child of 2 years will be less than that of a child of 5 years. Senior life insurance
As the name states, this policy is for seniors. Most of the individual reaching at the age of being a senior citizen has already taken some or another kind of policy but generally they have insufficient death benefit. That's why they are unable to meet their increased medical expenses or other expenses like funeral expenses. It also helps its survivors by providing them financial aid. This type has many sub categories like term life insurance, guaranteed accepted, whole life insurance for seniors and single pay insurance.