Everything You Need to know about traditional life insurance plan

Traditional life insurance plans are age old life insurance plans existing in market and most preferred life insurance plan segment in comparison to other life insurance plans. As the name rightly suggests, traditional life insurance has been in tradition since the life insurance startup in India. These plans provide the right set of benefit combination of both death benefit and maturity benefit.

Traditional life insurance is meant for individuals who need investment security along with the life security and this type of life insurance plan also helps to manage the interim financial expenses along with the assured life cover.

Types of Traditional life insurance plans that exists are:

Whole-life insurance plans:

  • This type of plan is meant to provide life cover till entire tenure of life, thus ensuring security of life irrespective of age restriction.

Money back plans:

  • This plan provides % of sum assured in regular intervals at pre-defined period, e.g at intervals of every 5 years, as per the respective policy schedules and differs as per plans offered by various life insurance companies.

Guaranteed return plans:

  • This plan assures guaranteed % of sum assured payable as maturity benefit at the end of the policy tenure incase the premiums are regularly paid till the maturity of the policy.

Income benefit plans:

  • This plan works almost on similar concept of the Money back plans however certain % of sum assured is paid as regular income at pre-defined intervals in monthly, quarterly or annual modes to add on as the secondary income source along with the respective current income source.

The most suitable and existing traditional plan is the Money back plan. We know that traditional life insurance plans provides assurance of maturity benefit however considering the fact that in case of any immediate emergency in our life, we fall short of finances especially if required in lumpsum, here Money back plan helps to cover the shortfall of suitable amount to a certain extent since certain % of sum assured is paid at interims which can saved or used at right time.

Traditional plans provide below benefits which helps us to assess the importance of traditional life insurance plans besides other plans:

  • Traditional plans provide the benefits in form of:
    • Survival benefit (%*sum assured as pre-defined in respective plans) would be paid in regular intervals.
    • Maturity benefit where the guaranteed % of sum assured amount (as a maturity amount) as pre-defined in policy schedule would be paid at the completion of policy period.
    • Death benefit wherein entire sum assured amount would be paid to the nominee in case of unfortunate demise of the life assured.
  • Bonus as declared by the respective life insurance companies which are accrued, and cumulative accrued bonus are payable to the policy holder along with the maturity benefit and terminal bonus are payable to the nominee along with the death benefit.
  • In case, the policy is surrendered post specified surrender period, then premium amount paid till the surrender period post deduction of certain charges (e.g policy administrative charges) would be paid the policy holder along with the interim bonus (differs as per plans available with various insurers)
  • Certain traditional plans also offer facility to avail loan against the policy and in case of any emergency, policy holder can avail loan from respective life insurance company post completion of specified policy period.

Considering the low risk factor, traditional plans are most preferred over the unit linked life insurance plans. If we need to plan investment along with the life cover, then traditional plan is the right plan type to proceed ahead.

We need to consider the fact that premiums for traditional life insurance plans are quite high in comparison to term life insurance plans since traditional life insurance plan provides assurance of both maturity benefit and death benefit.

Hence, we should try to plan combination of traditional life insurance plan along with the pure term life insurance plans to handle requirement of both fixed secured amount on maturity of plan by way of traditional life insurance plans and assure higher life coverage amount in case of death by paying lower premium amount through pure term life insurance plans.

Best of Luck on your purchase of Life Insurance Policy!