1. Many Facets of Life Insurance
Insurance covers risk, life insurance covers the risk to life. Life insurance has become an
important tool of providing security to the family in case of premature death of the earning
member. It has come a long way from being a simple life insurance; from a protection to family
against the earning member’s death to investment and wealth generation. Know your purpose
of buying life insurance. It could be:
Lifetime income for dependents
Children’s education fund
Get added income along with insurance
Provide for the retirement years
Life insurance still remains risk cover first. It insures life. Other benefits are added to support
and cater various situations that one may face in life. It is as important to understand that in
most cases, insurance is a long term contract and the terms cannot be changed in between.
Each life insurance type has a specific purpose and we need to understand that and compare
with our needs before finalizing anything.
Let us study the insurance options available:
Term Insurance
Term insurance is a pure risk cover plan taken for a fixed duration to cover a specific risk. You
pay a specific premium for a specific sum assured for a given period. The policy ceases as soon
as the payment term is over. It is the cheapest life insurance one can get; maximum cover for
minimum possible premium. The reason for this is that there are no returns if the insured person
outlives the insurance term. The policy simply stops. Though there are options like term plan
with return of premium option the premium rises.
It is ideal for those who are sole earning members, have dependents and who want to cover the
dependents in case something happens to them. In case one has liabilities like home loans etc.
and also has dependents, term insurance becomes even more relevant.
Child Plans
Child plans make sure that the child’s financial requirements are met with effectively at their
crucial life stages. They work more like investment plans where you pay a specific premium
over a given period of time and get back a substantial corpus when the child reaches a certain
age. The duration of the policy depends on the child’s age.
Child plans usually come with payer benefit or waiver of premium attached. So, if case
something happens to the parent or the payer of the policy, it still remains in force and the child
gets the maturity amount as planned.
It is ideal for people with young children who wish to plan for their children’s higher education
and training needs. It can be planned as a means to be prepared for extra expenditures for
professional training. One can choose between a pure endowment child plan and child plan that
ensures periodic payments.
Investment plans

2. Investment plans combine the benefits of investment and wealth generation along with the
security of insurance. They can further be classified into Traditional plans like endowment and
money back plans or unit linked insurance plans commonly called ULIPS.
Endowment plans
Endowment plans are investment linked insurance plans. They have a fixed maturity date for a
fixed sum assured. The premium is calculated on the basis of maturity amount and duration of
the policy. Every parameter is specified in an endowment plan. Some plans have the option of
bonus payments. This depends upon the performance of the insurance company, calculated on
the sum assured. The amount is added to the maturity amount.
It is good option for those who anticipate major expenditure at a particular time. The insured
gets a lump sum amount on the maturity date that may become a good financial support.
Money Back Plans
Money back plan is also traditional investment linked insurance plan. It gives periodic payments
of fixed percentage of the sum assured to the insured person during the policy term. If the policy
holder survives the policy term he gets the maturity amount. If he/she dies during the term of the
policy, the nominees get total sum assured irrespective of the previous payments. Some money
back plans may also have the bonus option. The bonus is added to the final payment of the
maturity amount or the sum assured as the case maybe.
It is preferred by those doing life stage planning who may require financial assistance at regular
intervals over a period of time. The added advantage of getting full sum assured in case of an
eventuality without deducting any previous payments makes it even more attractive when
planning.
ULIPS
Unit linked insurance plans or ULIPs are market linked insurance plans. Here the investment or
the wealth generation part is linked to the market. While in the traditional plans the risk if any is
borne by the insurance company, in a ULIP the market linked risk is borne by the insured. If the
market is doing well, the policy may do much better than any traditional plan. If the market is
down, the returns may be lower.
It is a better option for those who can afford to take the market linked risks. Here the insured
have the option to choose the type of funds they wish to invest in based on their risk profiles.
These ULIPs are more flexible and transparent.
Pension Plans
Pension plans also called retirement plans or annuities are somewhat contrary to insurance yet
included in insurance plans. They do not cover the life of the insured in case of untimely death
but ensure income if one outlives the earning age. The annuity can be immediate or deferred
depending upon the stage at which the plan is taken. In a deferred annuity plan, a fixed
premium is to be paid to the insurance company during the decided accumulation phase. On
vesting up to a 1/3rd of the accumulated amount can be withdrawn and the rest (or even whole
of the amount) is used to purchase annuity. Immediate annuity allows purchasing immediate
annuities with a lump sum amount that can start paying regular pension immediately.
One must keep in mind the purpose of buying a plan. Make sure that you use the free look
period to read through the policy document and see if it fulfills your purpose of buying a
particular plan.