These plans are generally considered in the market to be the most affordable life insurance coverage. If you were to pass away, they protect your family when they would be most vulnerable. The sum assured generally stays the same. Such plans do not have an investment component, so you are not exposed to investment returns (or investment losses) if the policy expires before the insured event occurs.
Term insurance plans can be assigned as mortgage protection insurance.
Traditional Life Insurance policies include an investment component, which may allow you to achieve financial objectives while at the same time protecting you. While the premiums for Traditional Life Insurance policies are higher than Term Life Insurance, these plans potentially build up a cash value that you can withdraw or borrow against. Your accumulated cash value (if any) usually depends on how long you hold the policy. However, the exact calculation is set by the terms of the policy you purchase.
Some common types of Traditional Life Insurance are Whole of Life, Universal Life and Annuity policies. Depending on your exact protection and investment objectives, you can pick the type of policy that is right for you.
If your motivation for getting life insurance is geared more towards investment, then Investment-Linked Plans (ILP) may be what you are looking for. These policies combine investment and protection, to help you achieve your financial goals while providing cover at the same time. Premiums are used to buy
- Life insurance protection and
- Investment units in professionally managed investment-linked funds, which may be managed by the insurer or external fund managers.
Policies do not provide guaranteed cash values because the value of ILPs depends on the price and performance of the underlying fund units and in some cases, the value could be zero. Fees and expenses for ILPs are paid out of the premium or the sale of purchased units.