Life insurance is now a primary need for people in advanced countries and it has been now becoming a new life style there. People in such countries are aware of the importance of this insurance in which it protects themselves as well as protect their income. And todays, life insurance becomes more familiar in developing countries. And as this, all insurance companies compete to provide the best services to both the existing customers as well prospective customers. Besides, they keep innovating their products to meet the customers's needs.
A decade ago or so, all insurance companies provide the customers with traditional products that is called term life insurance. And since then, some companies have been innovating their products into the more beneficial ones: unit-linked insurance.
Traditional insurance consists of three types: term-life insurance, whole-life insurance, and endowment insurance.
a. Term life insurance
This type of insurance provides the customers a life protection in a certain period of time. This kind of insurance requires the customers to pay a lower rate with higher cover. In case the customer gets incidence where they got into fatal accident (disabled) or pass away, the company pays all the cover put on the policy either to customer or the beneficiary. But, in case, the contract of the term life ends while there is no incidence or claim during until the contract ends, there is no premium return to the customers. The premium of this kind of insurance is usually paid annually.
b. Whole life insurance
This kind of insurance is the opposite type of term life insurance. In this type of insurance, you need to pay higher than the term life but the company will pay you back some or the whole premium paid in case you as the customer do not claim anything during the period of protection. This kind of insurance take longer than the term life insurance.
c. Endowment insurance
Endowment insurance is more popular than the first two kinds o insurance. The customers will not only get the returning premium paid at the end of the contract, they will also receive some amount of money before the contract ends. Education insurance is included in this kind of traditional insurance.
Unit-link insurance or is commonly called as unit-linked insurance plan (ULIP) is a product offered by insurance companies that unlike a pure insurance policy gives investors the benefits of both insurance and investment under a single integrated plan. This kind of insurance product was firstly introduced in India in 1971 by Unit Trust of India.
A unit-linked insurance plan is basically a combination of insurance as well as investment. A part of the premium paid is utilized to provide insurance cover to the policy holder while the remaining portion is invested in various equity and debt schemes.
The money collected by the insurance provider is utilized to form a pool of fund that is used to invest in various markets instruments (cash, managed, and equity funds) in varying proportions just the way it is done for mutual funds. Policy holders have the option of selecting the type of funds based on their investment need and appetite.
Just the way it is for mutual funds, ULIP policy holders are also allotted units and each unit has a net asset value (NAV) that is declared on a daily basis. The NAV is the value based on which the net rate of returns on ULIPs are determined. The NAV varies from one ULIP to another based on market conditions and the fund’s performance.
Both the traditional and unit-link insurances have their own advantages and disadvantages. Just be wise in terms of choosing the suitable one for your needs as well as your financial condition. In case you need a certain short period of time protection, it would be wise for you to choose the term-life insurance. In fact, if you need longer protection as well as need to prepare the future financial planning, you'd better to choose the second one, unit-link insurance.
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