Life insurance investment: Understand traditional and non-traditional insurance plans

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Life insurers provide an array of plans for customers depending upon their specific requirements. These plans often vary a lot in terms of coverage offered, investment opportunities, policy term, benefits, etc. In the broad sense, life insurance policies can be categorised into traditional and non-traditional plans. Both are worthy investment tools depending upon what you intend to get back from your life insurance policy. Let’s take a look at how these two categories compare against each other.

Traditional life insurance

Traditional products are low-risk insurance covers that offer guaranteed maturity returns for policyholders. These policies typically invest in bonds and other low-risk investment instruments to provide guaranteed maturity proceeds for policyholders. Some of the examples of traditional life insurance products include endowment policies, whole life insurance policies, retirement plans, money back plans, etc. Even term plans can be considered as traditional life insurance product as it offers pure life insurance coverage. These are called traditional plans because they are the conventional forms of life insurance covers that have been in existence for a long time.

Traditional life insurance policies can be further divided into participating and non-participating life insurance covers. Participating policies carry a certain level of uncertainty due to the nature of their investments. However, the risk associated with these policies is lower than that of non-traditional plans like ULIPs. Non-participating plans, on the other hand, do not carry any kind of uncertainty. These policies offer guaranteed maturity proceeds along with additional bonuses and profits.

Non-traditional life insurance policies

One of the major aspects of non-traditional life insurance coverage is the combination of insurance and investment under one single policy. These policies offer both components and appeal to customers who have the appetite for high-risk coverage. These plans invest in the market and there is a certain level of uncertainty associated with them. Due to the high-risk nature of these plans, there is a potential to earn higher returns from these plans as well. ULIPs are the most common form of non-traditional policies, and they are relatively new compared to other types of life insurance products. Most of the top companies in the market provide ULIPs to customers who look for high-risk, high-return insurance plans.

Compared to other insurance products, ULIPs have various flexible options for policyholders. For instance, policyholders can decide what types of investments can be made with their fund based on the level of risk they are willing to take. This is not possible in other life insurance products available in the market. Insurance companies in the market offer different types of ULIPs based on the specific requirements of policyholders.

Traditional Vs non-traditional life insurance policies

The major difference between traditional and non-traditional life insurance policies are listed as follows:

Conclusion

Traditional and non-traditional life insurance covers serve very different purposes based on the requirements of a person. Even within traditional plans, policies differ a lot based on their types. For instance, the coverage offered under a term plan is extremely different from that of an endowment policy. While the risk is evident in ULIPs, there is also a potential to get high returns that is not seen in other insurance plans. One thing that is common to both types of plans is that they offer tax relief to policyholders under Section 80C of the Income Tax Act.