Traditional insurance plans..

Traditional insurance plans

One way to prepare for life’s unexpected events is to purchase a life insurance plan. An insurance plan ensures that your family gets financial support in case of an unfortunate event. Many people wait for the right time to buy a life insurance plan. You should know that now is the right time to buy.

What are traditional insurance plans?

Conventional insurance plans offer you life cover with guaranteed returns. On the other hand, non-traditional insurance schemes like Unit-Linked Insurance Schemes (ULIPs) have higher investment yields and lower insurance yields. Compensation here is usually higher but not guaranteed.

Here are the differences between the two types of plans

Feature Traditional Plan Non-Traditional Plan
Investment Assets Although you know how much money is used for which purpose you don’t have information on the asset allocation You have an option to choose the funds in which you want to invest depending on your risk appetite
Portfolio Tracking Since the returns are guaranteed and the premium is fixed, traditional plans do not have a portfolio tracking feature You can track your investment portfolio on a day to day basis
Withdrawal Withdrawal is not allowed. You can surrender your policy but there will be charges Partial withdrawals are available after the lock-in period. Alternatively, you can also surrender the policy
Switching Since you have no control over asset allocation, switching option is not applicable You have the option to switch funds as and when your life situation and needs change. Most plans offer you a range of options like equity, debt, bonds, balanced funds, etc
Maturity Amount The amount is fixed, you receive an additional bonus which is not fixed The returns vary but in most cases are higher
Risk These are a low-risk investment option These are medium to high-risk investment options depending on the funds you chose to invest
Life Cover Yes Yes, but not too high

5 Benefits of Traditional Insurance Plans

Traditional plans offer you multiple benefits if you plan to buy one. Below are some of the advantages of traditional insurance plans

1. Maturity benefit

At the time of maturity, you get a lump sum based on the amount you have paid as premium (except for term insurance plans).

2. Death benefits

If the policyholder dies, the beneficiary gets the basic sum assured along with the bonus, if any. The amount received can be used to pay off any unpaid debts and liabilities. It can also be used by beneficiaries to continue managing their lifestyle expenses.

3. Income tax benefit

The premium you pay for traditional plans is eligible for tax deduction every year as per income tax laws in India.

4. Risk free

Your compensation is risk-free, and you know how much and when you will receive it. It helps you plan your future better.

5. Additional Covers

Traditional insurance plans come with inbuilt riders like accidental death benefit. With some plans, you have the option to add multiple riders to augment your existing insurance plan.

Who should buy a traditional insurance plan?

There are many life insurance plans in the market as different people have different financial needs and requirements. A traditional insurance plan is best for you if:

You have low risk appetite: Traditional insurance plans are risk-free and ideal for you if you want safe and guaranteed income.

You are looking for regular income: These schemes are an excellent source of regular income and provide financial stability. For example, a money-back plan gives you regular income at fixed intervals to help you achieve different goals.

Looking to protect your family’s future: If you want to protect your family’s future, in all life situations, you should buy a traditional insurance plan with high death benefits.

Different types of conventional schemes

The best money back plan helps you achieve both your medium and long term goals. It also gives you life cover. Here are some features of the best money-back policies:

Endowment Schemes

This is an insurance plan that offers you a combination of savings and insurance. In this plan, a portion of your premium goes towards life cover. The remaining amount is invested for good returns. If the policyholder outlives the policy term, he gets the maturity benefit. In case of death of the policyholder, the nominee gets the death benefit.

This plan also offers regular bonuses which add to your corpus. The bonus amount is paid to you on maturity or as a death benefit to your nominee, along with the sum assured. Since endowment plan has zero risk, returns are low.

Money-back insurance scheme

This is a unique insurance plan that gives you a percentage of the sum assured as a survival benefit over time. You can use the regular payments you receive to meet your short-term goals. If the policyholder dies, the nominee receives the sum assured (in addition to the periodic payouts received by the policyholder).

For example, if you buy a 20-year money-back policy with a sum assured of Rs 10 lakh. You will receive 20% of sum assured every five years. So, you will receive in 5th policy year, 10th policy year, 15th policy year and rest on maturity with bonus if any.

Term Life Insurance Plan

This is the simplest form of life insurance plans and is very easy to understand. These are very affordable plans and should be considered by everyone. With a term insurance plan, you get death risk cover for a specific period. The tenure can be 10 years or 30 years. In an unfortunate event during the policy term, the nominee gets the death benefit. It is a pure risk cover plan, and hence the premium you need to pay is less.

You also have the option to add riders to the plan and expand your coverage. The death benefit is paid to the beneficiary as a monthly payment, a lump sum or a combination of both. If the insured lives till the policy term, there are no payouts or maturity benefits.

Whole life insurance plan

Whole life insurance gives you lifetime life cover (up to the age of 100 in some policies). In case of death of the policyholder, the nominee gets the death benefit along with the bonus, if any. If the insured lives to the age of 100, he gets a matured endowment coverage from the insurance company.

How to buy the best traditional insurance plan

There are different types of traditional insurance plans, and they differ in terms of the benefits they provide you.

Generally, a traditional insurance plan works as follows:

1.Select the type of traditional life insurance plan you want to buy.

2. If given the option, select the type of insurance coverage you want.

3. Select the riders you want to add if allowed.

4. Select if you want to cover your spouse in the plan.

5. Select the policy term and calculate the premium you need to pay.

6. You start paying the premium as mentioned in the policy. The following conditions may occur during the policy tenure:
a. You live till the policy term: In this case, you will get maturity benefit along with bonus (except term life insurance). b. In case of money back policy, you also get regular payout.
c. Death of policyholder: Nominee gets the sum assured along with bonus if any.

Leave a Reply

Your email address will not be published. Required fields are marked *