Life insurance is an important aspect of financial planning that secures the financial future of a family when the earning member is not around. The family includes spouses and dependent children. Earlier there used to be very limited choices for life insurance plans. With the growth in the insurance industry and increased awareness, there are many types of life insurance plans available for the benefit of the family. There are a variety of family insurance plans available to fulfill different types of objectives like basic life coverage, saving and investment, children's education and marriage, retirement planning, etc.
Let's have a look at some of the most common types of family insurance plans and the benefits offered by each.
An individual invests toward many financial goals for the future of his family and works to achieve these goals throughout his life. Securing these investments is important in the event of an untimely death or disability. A life insurance plan does this for you and also helps you in achieving your goals. The best family life insurance is the one that fulfills your needs and provides sufficient coverage.
Here are some common types.
Term insurance is the most basic type of life insurance that covers death risk for a defined term at a very low cost. If the insured dies within the policy term, the insurer pays a specific amount called sum assured, as a death benefit, to the family. The policyholder decides the policy tenure. Sum assured and premium payment frequency for a term plan. These types of plans are pure risk cover plans and do not provide any maturity or survival benefits.
Benefits - A term plan offers high coverage at affordable premiums. Therefore, in the event of the untimely demise of the earning member, the dependent family receives a high amount of money as a death benefit for financial support. To supplement the coverage of a term plan, a policyholder can add riders like critical illness, accidental death and waiver of premium at an additional cost.
A unit link plan is a type of insurance in which a part of the premium is used as a risk cover, and the remainder is invested in the capital markets based on the risk appetite of the policyholder. So a ULIP provides the dual benefit of insurance and investment.
Benefits - ULIP provides a long-term goal-based investment option with market-linked inflation-adjusted returns. It lets you invest in equity, debt or hybrid funds as per your choice and risk appetite with full transparency.
Money-back life insurance pays a certain percentage of the sum assured periodically to the insured as a survival benefit, thus allowing the insured to fulfil short-term goals. It also pays the bonuses declared by the company. In case of the death of the insured, the entire sum assured is paid as a death benefit.
Benefit -It helps in meeting short-term financial goals.
An endowment plan is a type of life insurance that offers insurance coverage with a savings plan. In other words, it provides a maturity benefit if the insured survives the policy tenure. In case the insured dies within the policy term, the sum assured is paid along with any bonus to the nominee.
Benefit - It is a good saving option for people with low-risk appetites and also offers a return on maturity. Overall, it is a good option for long-term financial planning.
A retirement or pension plan helps you build a corpus for your retirement, along with providing a life cover. It allows you to have a steady flow of income once you retire or reach the vesting age. It helps you keep aside a sum for your retirement while you are still working. In case of the demise of the insured, the death benefit is paid to the nominee.
Benefit - The plan provides both life insurance coverage and retirement planning.
Joint life insurance is designed to provide life cover for family members. In this plan, a couple can take any type of life insurance plan jointly, ensuring that both partners are secure financially in case one of them dies suddenly. Some plans pay the entire sum assured when one of the two insured dies first, and the policy ends, while in some cases, a regular income is paid out for a given period in addition to the death benefit.
Benefit - It is a useful product for double-income families where the demise of one earning member can impact the financial health of the household.
A child insurance plan helps in building funds for your child’s future, such as education and marriage. These plans provide either a one-time payment or annual payouts once the child is 18 years. In case the insured dies during the policy term, the insurer pays the death benefit. Some plans waive off the future premiums continuing the plan till maturity.
Benefit - Secures a child’s future against any unforeseen event and lets you save money to meet the future life goals of the child.
When we talk about life insurance cover for family, insurable interest is an important aspect that we can not miss. Insurable interest exists when a beneficiary is financially dependent on the insured and suffers an emotional and financial loss in case of the death of the insured. Without an insurable interest, one cannot get life insurance. It ensures that a life insurance policy is never misused and the deserving beneficiary gets the benefit.
For example, Being an earning member of your family, you cannot purchase a life insurance plan for your parent and appoint yourself as a nominee. This is because you do not have an insurable interest, and if your parent dies, you do not suffer any financial loss.
Conclusion
There are different types of life insurance plans available in the market. The best plan for you is the one that satisfies your financial requirements and goals.
A family term insurance is a pure risk cover plan that offers high coverage at low premiums and does not provide any maturity benefits. Husband and wife can take joint term insurance that covers them together.
A family life insurance plan is a life risk cover plan that secures the financial future of a family in case the primary breadwinner of the family dies.
There is no restriction on the number of life insurance policies you can take, provided you meet certain terms and conditions.
An individual can take term insurance to financially secure his family in his absence.
Term insurance, retirement plans and whole life insurance are some of the best life insurance plans for parents based on their financial requirements.
