Details about the returns that your insurance policies offer
Life insurance policies offer financial security during uncertain times. However, while buying insurance policies, people usually first demand to know the returns which you could get out of your insurance plans. This is because you are investing your hard-earned money in buying an insurance plan, and expecting a return out of it is justified. But this shouldn’t be the scenario; as mentioned above, life insurance acts as a financial shield and compensates for financial loss when required. And thus, expecting returns should not be the primary purpose of the insurance policies.
But, the tale doesn’t end right here. There are a few insurance plans which promise returns. To learn about them, first, let’s understand the fundamental forms of insurance policies. Insurance policies are usually of two types – Life insurance and General insurance.
Life Insurance: Life insurance plans provide financial security and some form of return based on the type of the plan. There are savings plans and money-back plans which intend to create wealth. Life insurance plans guarantee life cover as well as promise you return together. The plans which offer returns include
- Endowment plans
- Money-back plans
- Whole life plans
- Unit-linked Insurance Plans (ULIPs)
General Insurance Plans: General insurance plans are indemnity plans. They atone for the loss you go through due to a protected contingency. For example, health plans pay for the medical expenses incurred in case you are hospitalized. Fire coverage plans pay for the monetary loss suffered because of damages as a result of fires and many others. General insurance policies do not offer any returns. These plans absolutely pay for the financial loss and don’t provide any return if there’s no contingency at the end of the tenure.
As you are now aware of the 4 predominant kinds of insurance policies that offer returns, let’s see the promised returns beneath these plans.
Returns Offered by Life Insurance Policies in India
Now let’s dig deeper into these returns to have a clear understanding of the same.
A bonus is defined as a percent of the sum assured and is added to the policy’s benefits. Whole life plans, Money-back plans and endowment plans receive guaranteed bonus participation. When the insurance provider earns a profit in a financial year, most of the profits earned are distributed amongst policyholders in the shape of a bonus. The announcement might be based on simple interest or compound interest. The rate is not fixed and depends on the company’s earnings. Although the bonus is introduced each year, the insurance company makes a profit. While the policy benefits are paid on death or maturity, an interim bonus and/or a terminal bonus may also be paid. Bonus declarations assist in growing the coverage advantages and offer a return on your investments.
2. Market-Linked Returns
Only ULIPs provide market-linked returns. These kind of returns are not available in conventional whole life, endowment or money-back plans. Under ULIPs, the premiums paid are invested in the market and grow as in step with market returns. ULIPs are, consequently, investment-oriented plans whose foremost purpose is to yield returns. You can get inflation-adjusted returns if you select ULIPs for investments.
3. Guaranteed Additions
Whole Life, Endowment plans and money-back plans promise another kind of return that guarantees additions. These additions have a set price and are delivered for a selected period. Guaranteed additions are probably allowed even though the policy is non-participating; it no longer earns a bonus.
4. Loyalty Additions
Loyalty additions might be presented if the policyholder maintains the policy for a longer tenure of 10 or 15 years. These additions, too, have a fixed rate and do not require policy to be participating in nature.
The bottom line is if you are trying to avail returns out of your insurance policies, select ULIPs or endowment and money-back plans. However, you can also look into term insurance with a return of premium. Though traditional term plans don’t provide returns, it gives financial safety to your family in case of your untimely loss of life. But suppose you are looking for term plans with maturity benefits. In that case, you should consider term insurance with return of premium wherein all the premiums are returned if you outlive the policy term.
Therefore, make your insurance plans earn returns for you; however, don’t forget that they are normally designed to provide financial security. So, first, plan your budget with the help of various general and life insurance plans and then search for returns. To know and understand more about the same concept, you can visit iiflinsurance.com.