We cannot control the uncertainties of life, but we can cover the risks surrounding us. Life insurance is the cover for the risks that we run during our lives. It protects us from the contingencies that could affect us in a big way. There are two kinds of life insurance policies namely the term life policy and permanent life policy.
Term Life Policy
Term life insurance policy covers risk only during the selected term period. Under Term Life contract the insurance company pays a specific lump sum to the designated beneficiary in case of the death of the insured. These policies are usually for 5, 10, 15, 20, 25, 30 or 35 years. Term life insurance is very popular in advance countries but is not so in India. However, after the entry of the private operators and aggressive marketing by some players this product is becoming popular. The premium on such policies is comparatively lower when compared to the whole life insurance policies, mainly because these policies do not carry the cash value. The drawback of the policies are, if one survives the period of the policy, the insured does not get any return at the end of the policy. The premium on such policies becomes expensive with age mainly because the risk of death of is higher with age. Once over 60 years, these policies become difficult to afford. If the premium is not paid within the grace period, the policy could lapse without acquiring any paid-up value. These policies help fetch tax saving benefits.
Permanent Life Insurance
Whole life policy is effective until the policyholder is alive. Risk is covered for the entire life of the policyholder, therefore are known as whole life policies. In Permanent Life contract, a portion of the money paid as premiums is invested in a fund that earns interest on a tax-deferred basis. Over a period of time, these investments are supposed to accumulate increased cash values which you will be able to get back either during the period of the policy or at the end of the policy or at intervals, depending on the policies. Your need for life insurance can change over a different stages of life. You should consider your circumstances and the standard of living you wish to maintain for your dependents. Your life insurance premium is based on the type of insurance you buy and your chance of death while the policy is in effect. This type of policy not only provides security to your dependents by paying a death benefit upon death, but also enables you to use some part of the money when alive or at the end of the policy. The premiums of such policies can be expensive and when premiums not paid on time can lapse the policy. So to get the full fledged benefits paying the premiums on time and having a nominee is important. These policies have can help you fetch some tax saving benefits.