Uncertainty is another name for life. No one knows what might happen at the very next moment in our daily schedule. Anyone can face any accident or injury at any given time, and the uncertainty is unimaginable. But scarier are the consequences of these accidents. Every person has their own family to take care of. Even the slightest injury can completely disrupt the financial stability of the family.
For minor injuries, the matter is not serious. But for life-threatening accidents or diseases, you must be prepared for all possible outcomes. Not everyone is blessed enough to come out alive and healthy from accidents or diseases, so having a backup plan for your family is crucial, and this backup plan is commonly known as life insurance.
These days, almost everyone has a life insurance policy, as they should. As the name implies, life insurance is a policy that ensures to take care of the troubles our families will face after our deaths. The sole reason for having life insurance is for the financial stability of your family, but there are other reasons as well. It is imperative to know all the life insurance types to choose that policy that fits in the budget and will support your family well after your death. Life insurance can cover up the final expenses like medical bills of a deceased person, or life insurance can act as a salary that can be used to pay the family expenses like any debt or college fees.
The above reasons solely show the importance and significance of life insurance for a person and their family members. The loss of a family member cannot be compensated in any way, but life insurance can give small financial support to the disheartened members to help them in financial ways.
Knowing the types of life insurance policies is as important as having a life insurance policy itself.
Before discussing the types of life insurance policies, you must know some of the terms commonly used in life insurance.
- A beneficiary is a single or more than one person who is nominated by the policyholder. He/She/They receive the policy benefits after the death of the policyholder.
- The death benefit is the amount given to the beneficiary after the death of the policyholder.
- Premium is the group of regular payments that are made to the insurance company.
- Cash value is a savings account that is included in the permanent life insurance policies. This account is tax-deferred.
- An index is a group of investments like bonds.
Broadly speaking, there are eight types of life insurance policies from which someone can choose, namely Term life insurance, Whole life insurance, Universal life insurance, Indexed universal life insurance, Variable life insurance, variable universal life insurance, Final expense insurance, and Group life insurance. We shall discuss these eight in detail.
1. Term Life Insurance
It is the simplest and most accessible life insurance policy out of the eight types. After this policy expires, it exists for several years. If the policyholder passes away before the stipulated time is up, the death benefit is given to the beneficiary. The death benefit can be paid as a lump sum, monthly or annually. The premium price is also less, so it is affordable for middle-class people easily.
2. Whole Life Insurance
This life insurance policy does not expire, unlike Life term insurance. It provides a death benefit and a cash value, which acquires interest at a fixed rate. There is a guaranteed rate of return as a fixed portion of the premium goes into the cash value each month. This cash value can be withdrawn and can also be used for a loan. This type is more complex than term life insurance policies because of the cash value component. People having long-term dependencies like differently-abled adults can opt for this policy.
3. Universal Life Insurance
In this policy, the premium given to the company goes towards cash value and the death benefit, but the policyholder can change the premium and death benefit amounts at will, which is not possible in Whole life insurance. One can also use the cash value to pay the premium if the cash value is enough. But the interest rate of cash value should be considered before taking any such steps as the interest rate depends on the trends of the stock market.
4. Indexed Universal Life Insurance(UIL)
Indexed universal life insurance policy has a minimum guaranteed interest rate on the cash value, but this interest rate is variable. The cash value of Indexed universal life insurance is based on an index that is chosen by the policyholder. This index is used to set the interest rate of cash value for the policy.
5. Variable Life Insurance
This life insurance policy is a risky option for those who do not know much about the stock market. The money invested in the cash value goes through a series of sub-accounts similar to mutual fund accounts. It is risky as the money invested is indirectly affected by the trends in the stock market, and there are not many options to choose from. A person with good knowledge of the stock market can choose this life insurance policy.
6. Variable Universal Life Insurance
The risks involved in this policy are similar to the risks involved in Variable life insurance. The only difference here is that the policyholder can adjust the death benefit and premium amount and invest in the cash value.
7. Final Expense Insurance
This policy covers all the expenses connected to death, like medical care, funeral, or cremation. Aged people with no insurance policy or adults with ageing parents can choose this insurance solely to pay the expenses after their death. It is of two types-
- Simplified issue life insurance: One can skip the medical exam but need to fill a health questionnaire. Those who are not able to fill the application may not qualify.
- Guaranteed issue life insurance: The insurer will cover the person in need as long the premiums are paid, and the application is filled.
8. Group Life Insurance
This life insurance is an employee benefit that is provided by some employers. However, one should be cautious while accepting this. If the employer offers this without any extra cost, it is a useful asset. But this policy is not enough to ensure your family. The coverage is usually low, and hence it can cover only one person.
Before opting for life insurance, it is extremely crucial that you understand the terms and conditions of the policy that you wish to take up. Canara HSBC Oriental Bank of Commerce Life Insurance offers many great life insurance plans that can fit your requirements just right.
Reply