What are the different types of life insurance available?
There are many different types of life insurance available:
Term life endowment
Max protection policy
Renewable term life
Convertible term life
Permanent non-par life
Cash value plan
Maximum investment plan
Return of premium policy
There’s no need to panic, life insurance products basically offer protection, which can be temporary or permanent. Life insurance can also offer structured savings and investment plans, which are optional. All policies involve you paying a premium and all will make a guaranteed payout to your beneficiaries when you are no longer with them. In addition they can be modified with a range of additional options to protect you and your loved ones from unforeseen circumstances.
The simplest and least expensive form of life insurance is temporary or term life insurance. This type of policy is purchased for specified periods of time, and is therefore used to protect your loved ones in times of higher financial commitment, such as paying a mortgage or when your children still depend on you financially. If something happens to you during that period your loved ones will receive a guaranteed amount, but if the policy isn’t used, no money is returned!
Permanent or whole life insurance gives your loved ones financial protection against your death throughout your entire life. It offers more protection and peace of mind because it doesn’t run out. Think of it as a pension plan for your spouse when you’re no longer around to take care of them. Just like term insurance, your loved ones will receive a guaranteed amount when you’re gone. In addition to protection, insurance policies can include a way for you to save every month through your premiums.
Endowment insurance offers financial protection for your loved ones for a specified period of time and pays out a guaranteed lump sum once your contract ends. For example if you are saving up for a college fund or putting money away for your retirement, you may want to look at en endowment policy. Endowment insurance policies can pay out the agreed amount when you reach 60 years of age. If you were to die before that, your loved ones would receive the full amount you were insured for. This way, no mater what happens to you, your savings are protected.
If you’re prepared to take some risk you can choose to invest some of your insurance premium with the view of benefiting from any stock market gains during the time your insured. This way, you can build some capital while protecting your loved ones in case something happens to you. Investment linked life insurance uses some of your premium to purchase units in funds. The value of your policy is therefore in part determined by the performance of these investments. If your investments work well, the value of your policy will increase, if not, the value will decrease. However the sums that your family receives in case of your death is not affected by the funds performance.
Whatever type of policy you choose, it is possible to purchase additional protection and flexibility in the form of riders, which improve the range of your coverage and protect your dependents against events not mentioned in the original policy. This additional protection can be added or cancelled at any time without affecting your life insurance policy. For example, a waiver of premium rider will continue to pay for your life insurance premium if you are suddenly unable to pay for the premium yourself in case of a disability. This means your loved ones are still protected!
As everyone has different needs and funds available, it is important to review all of your options and to make a decision based on what right for you and your loved ones.