Life insurance is a contractual agreement between the insurance company and the insured to provide certain benefits to the insured on his/her survival till the maturity of the plan or to the heirs of the insured in the event of the death of the insured. The benefits offered by the insurance companies differ for various plans. Let’s take a look at the benefits that are guaranteed by the insurance companies to the insured or his/her heirs.
Term plans: These are pure protection plans and the benefits are provided only to the heirs of the insured on the death of the insured. These plans offer no survival benefits to the insured in case he/she survives the policy term.
Unit-Linked Insurance Plans (ULIPs): A ULIP plan offers protection and also serves as an investment. The plan offers a minimum death benefit, but since it also has an investment component, the death benefit may be higher than the minimum death benefit offered by the policy. This is because a specific portion of the premium paid by the insured is allocated to investments in equities and equity-related instruments. Some ULIPs also offer survival benefits to the insured, The amount of survival or death benefit depends on the returns generated by the investments made by the insurance company.
Traditional plans: In the case of a traditional plan, the insurance company guarantees payment of the sum assured to the insured on maturity or, in the event of his/her death, to the heirs. The insurance company declares bonus on these plans from time to time which gets added to the fund corpus and becomes payable along with the sum assured on the maturity of the policy or death of the insured.