Traditional Life Insurance Plan

We often read and hear term ‘traditional life insurance plan’. I don’t know how many of us know about this term. But my personal survey among my friends shows they don’t know exact meaning of this widely used term.

There are main two type of life insurance available in the market, one is ULIP (Unit Linked Life Insurance Plan) and the other is ‘Traditional Life Insurance plan’. ULIP is directly linked with stock market and it is more transparent than traditional life plan. But due to high charges and much volatility in stock market now ULIP has become less attractive. However too much miss selling of ULIP products is equally responsible for this. Now for safety of capital and and guaranteed return insurance customers now looking for traditional policy.

Traditional plan gives a low return than ULIP but due to safety of capital people tend towards these plans. These products  are recession proof and not linked with the ups and downs of the stock market. It is suitable for those who seek insurance rather than investment. Depending on your financial objective, loan liability and family responsibility you can choose a suitable traditional plan. Keep in mind there are many other investment avenue which can also fulfil of your financial objective in much better way than these traditional plan. We can divide traditional plan into two types:

Term Insurance Plan or Pure Insurance Plan:

It is pure protection plan. This type of provides only death cover- that is, the insurer pays the sum insured to the nominee on account of the policy holder’s death. Some policy offer the return of premium (ROP) where if you survive the entire policy tenure, the insurer return the part of the premium or entire premium according to the terms of the policy. Each earning person who have dependant must purchase this. Now a days online term plan is available with very dirt cheap rate. It should be part of in everyone’s portfolio.

Endowment Plan:

An endowment plan serves as saving plan with protection. The insurer pays the sum insured plus declared bonus during the policy tenure if the person insured survives the entire policy term and if the insured person die during the policy term then the nominee get sum insured and bonus if any. The insurance premium is too much high compare with term insurance plan premium.

 Money Back Policy:

This plan is very similar as endowment plan. The only difference is the insured get some survival benefits at regular interval during the policy term. Some policies participate in the company’s profit by means of bonus. There are main 3 type of bonus company offered. One is reversionary bonus, it is direct added to the sum assured. It is calculated by simple or compounded method depend on company’s term and condition. Two- terminal bonus, it is offered to the customer at the time of maturity of the plan. Three, cash bonus. It is the bonus decleared by a company and comes in the form of cash.

Traditional plans can also act as collateral in times of emergency. The company offer loan up to 75-90% of the surrender value of your policy to fulfil your emergency requirement.

Dear readers if you have some query about any financial product please feel free to ask. You are most welcome for your feedback and questions.

Regards,

Arvind Trivedi

Certified Financial Planner