The primary idea of life insurance is to make good the financial loss incurred due to the loss of life of the income earner of the family.
However, the products offered by the insurance companies are varied. Though a term plan is the purest form of life insurance and provides lumpsum payouts only in the event of the death of the policyholder, a life insurance plan, in addition to providing protection, offers investment options that can be judiciously used in achieving your money goals.
- Endowment plans help you to create funds for your future goals such as retirement, education and marriage of your children.
- Whole life plans offer a life-long, guaranteed income up to 100 years of age and an additional substantial lump sum benefit on maturity.
- Money-back plans offer periodic survival benefits to the policyholder and a lump sum payout at the end of the policy period.
- Annuity plans offer guaranteed pensions at a predetermined rate depending on the deferment period chosen.
An important benefit of a life insurance plan is that it can be pledged to avail loans in case of any emergency financial need. The procedure to avail of the loan is simple and typically, it offers substantially lower interest rates than a personal loan.
But before a person decides to avail loan certain points need to be kept in knowledge.
- Investors can get loans only if the premiums have been paid for a minimum of 2 or 3 years depending on the type of policy and insurer.
- The permissible loan amount varies with the insurer but mostly it is 80 to 90% of the surrender value of the policy.
- These loans should be considered only for emergency short-term needs and should be repaid on time so that the insurance cover is not affected.
Points to remember regarding repayment of the loan.
- The policyholder needs to pay off the loan within the policy term.
- The policyholder will have to continue paying the premiums for the policy as usual.
- The policyholder has the option to repay the principal along with interest or only the interest amount. In the second case, the principal amount will be deducted from the maturity or claim amount.
- If the policyholder dies during the period the pending amount will be deducted from the claim settlement amount.
Note: Term plans and most of the ULIP plans are not eligible for taking loans