The flexibility available with life insurance makes it a very suitable savings and investment instrument. In this manner, you get the combined benefit of protection, saving and investment to meet your different financial needs and also go for wealth creation. Predominantly, policies that offer savings and investment options are termed as endowment plans and Ulips. A very popular variant of the endowment plan is the money back policy, in which policyholders get monies at periodic intervals.

Endowment policies

These are life insurance plans that are designed to pay a lump sum after a specific number of years—which could be due to the policyholder’s demise or the policy maturity. Typically, endowment plans are for the long-term–10, 15, and 20-year tenures. Such long duration policies can be best used to meet goals like children’s education or marriage or even one’s own retirement corpus. These policies work well to address the lump sum needs of people. Moreover, endowment plans may also provide yearly bonus, so when the policy matures, the sum assured and the bonus are paid out. Ideally, these are suitable to risk-averse people and can help in creating moderate and tax efficient wealth in the long run.

Money-back policies

A variant of endowment plans, the money back plan helps you build wealth and distribute it within the policy tenure. So it provides life coverage during the term of the policy and the maturity benefits are paid in instalments by way of survival benefits in every 5-year intervals. So, in case of a 20-year old money back plan, you, the policyholder, may receive about 25 per cent of the probable maturity benefits on three occasions with the fourth being the maturity date, when you will receive the remaining sum and any bonuses accrued.

ULIPs

These are insurance policies which provide you with the opportunity of wealth creation while providing the security of a life cover. In ULIPs, a part of your premium is dedicated towards your life cover and the rest is assigned to a common pool of money, called fund, which invests in equity, debt, or both. As these are market linked products, the growth in value of investment in these plans depends on how the fund performs. However, the various fund options available with Ulips allow a policyholder the benefit of moving within the fund options to maximise their potential to build wealth.

olmdesk@outlookindia.com