Traditional Life Insurance Plan

Traditional life insurance plans are the types of life insurance plans that have been serving the policyholders for a long period of time. These are proven financial instruments such as term insurance, Endowment Plans, Retirement Plans, etc.

Description

There are certain types of life insurance plans that are the oldest. These are conventional plans and are very popular among investors. Traditional life insurance plans come with multiple benefits like life coverage, fixed incomes, tax benefits2, additional bonuses, etc. 

Traditional life insurance plans can be further classified into two types, explained below:

Pure life protection: These life insurance plans are known to protect the life of the policyholder. In the case of the policyholder’s demise during the policy period, the policy pays a death benefit to the nominees. Generally, no maturity benefit is associated with these plans. Term life insurance and whole life insurance plans fall under this category. In case the life insured survives the policy term, no benefits are paid out. To extend the coverage period the policy has to be renewed.

A mix of life insurance and investing: These traditional life insurance plans come with a guaranteed1 return feature as maturity benefits. The insurance premium paid is divided into two parts, one is invested to gain returns and one part is consumed to protect the life. Plans like endowment plans and annuity plans come under this category and they are used to build wealth. In case of the life insured’s demise in the policy period, the death benefit is paid. And in case of outliving the policy period, the maturity benefit along with the applicable bonus is paid. 

Traditional life insurance plans are often associated with low risks. These are the best options for investors with moderate or low-risk tolerence. These are long-term contracts that offer life cover and income benefits according to the policy.

Example

Pranav purchased a traditional insurance plan (endowment plan) to save money for his future. He was 33 when he bought the plan. The policy term was 20 years under the plan, and the sum assured was Rs.7 lakhs. At the end of the policy term, Pranav received the sum assured along with the vested bonus. The total amount he received was Rs.33 lakhs, including guaranteed1 returns (with a rate of return of 8%) and a bonus.