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Life Insurance - Picking the Right Traditional Life Insurance Plan

02 May 2012

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Due to the volatility in the stock market in recent months, insurance customers are looking for the safety of capital and guaranteed returns, rather than high risk and quick earnings through the equity markets. This explains why customers have switched their loyalties to traditional insurance plans lately. However, since the traditional plans are not as transparent as Ulips, it is important to keep a few things in mind before opting for the right traditional plan. To begin with, traditional plans are beneficial for customers with low risk appetite. They are recessionproof and not linked with the ups and downs of the market. It is a perfect solution for those who are mostly seeking insurance rather than investment, or looking to build a corpus for a future milestone in life. Depending on your financial objective, loan liability, and family responsibility, you must choose a suitable traditional plan. Traditional plans that one can avail of:TERM INSURANCE PLAN

A term plan is basically a pure protection plan. This type of insurance provides only death cover – that is, the insurer pays the sum insured to the family of the policyholder on his/her death. You have an option of taking a whole life insurance plan which would provide life cover throughout your life or a return of premium (ROP) where if you survive the entire policy tenure, the insurer returns part of the premium, or the entire premium on maturity, or according to the terms of the policy.

ENDOWMENT PLAN

An endowment plan serves as a savings plan. The insurer pays the sum insured if the person insured survives the entire policy term, facilitating building a financial corpus over the years.

REGULAR INCOME PLAN

This plan offers savings benefits as well as survival benefits which are received at regular intervals during the policy term. In terms of features, a plan of this type is similar to an endowment plan to some extent, since it offers the dual benefit of savings along with insurance. Some traditional policies, specifically endowment plans, participate in the performance of the company and work on a profit sharing model by means of bonus. These bonuses are announced every financial year by the insurer and are dependent on the company’s performance as well as performance of the invested fund for that particular year.

Thus, while considering a traditional plan, it is important to consider a financially strong insurer as well as compare past bonus rates announced by the insurer for various products. There are essentially three types of bonus that are offered. They are: One, reversionary bonus. It is the bonus offered by the company that is directly added to the sum assured. This type of bonus may be calculated on a simple or compounding basis. Two, terminal bonus. When the bonus is given to the customer upon maturity of the plan, it is known of as terminal bonus. Three, cash bonus. It is the bonus declared by a company and comes in the form of cash. Traditional plans can also act as collateral in times of emergency. You can take a loan up to 75-90% of the surrender value of your policy to facilitate an urgent need of funds. This loan is available at a lower rate of interest and is always better than surrendering the policy, since you continue to enjoy maturity or death benefits on the policy.

Some traditional plans also offer loyalty benefits for continuing the policy for the full term. These are payable at maturity. Finally, a traditional plan is one of those products that are best suited for people who are looking for a non market-linked product which offers the sole objective of financial security. Also, traditional plans are simple to manage since the only thing that needs attention is regular premium payment. There are no other worries attached to this insurance product, so you can safely choose to be traditional.

Source: ET by Rituraj Bhattacharya, Bajaj Allianz Life BACK

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