Traditional like insurance plans are again taking lead in the market after agent commission on ULIP has reduced. This clearly indicates insurance industry works in the foots on insurance agents and these agents manipulates the market to maintain there commission. This is the reason now more and more people are buying traditional insurance plans rather than ULIPs. If you are planning to contact your insurance agent then beware he/ she may insist you to buy traditional insurance plan as this will give high insurance commission to the insurance agent. But it is always better to have some basic understanding of the product before investing. So here will see the negative side of the traditional plans to help you understand the product better before making your mind to invest into it.
Traditional Insurance Plan
Traditional insurance plans is one of the first life insurance product introduced in the market to mitigate the financial risk on untimely death of the policyholder. Traditional insurance plans are good for customers who are looking for insurance product rather than investment. Although traditional insurance products offers guaranteed returns with safety but returns from this type of plan are quite low as compare to equity as it involves no risk.
Drawbacks Of Traditional Insurance Plans
- Traditional insurance plans are less transparent as compare to other plans like ULIP etc.
- Traditional insurance plans are not flexible which means they invest money in pre decided parameters.Where policyholder don’t get chance to make choice weather to invest in equity or debt.
- Traditional insurance plans do not offer good returns in the longer run.
- Insurance cover under traditional insurance plans are quite small as compared to the premium paid.
- Traditional insurance plans attract many charges which are inherent in the policy premium and not transparent.to the policyholder like insurance cost, office expenses and commission charges etc.
- Default in payment of premium against traditional insurance plan will take away the risk cover.
- Traditional insurance plan impose heavy surrender charges if policy is terminated during the term.
- The traditional insurance plans are neither insurance plans and nor investment plans, as they offer very limited sum assured and do not offer good returns on investment.
In traditional insurance plan, insured do not participate in the decision on investing. Which means insurer decided how and where to invest the money received from the policyholder on his behalf. Traditional insurance plans have a set parameters for investment in which 85% of the money get invested into government and semi-government bonds and rest 15% get invested into equity market. The return on investment from this product ranges between 5 to 6% with zero market risk and sum assured and bonus declared are guaranteed.
Let have a look what all traditional plans are available in the market and how they are different from each other:-
Term Insurance Plan
Term insurance plans are pure insurance plans which provides covers only against the death of the insured. In simple words, the sum insured of the policy gets paid to the nominee of the policy on the death of policyholder. This type of life insurance policy is counted to be the best as it offers only insurance. Which means if insured survive at the end of the policy term nothing will be paid to insured. This is the cheapest form of life insurance which gives adequate cover at reasonable cost.
ALSO READ : What Is Term Plan? Tax Benefits, Riders And More
Whole Life Plan
Whole life insurance plans, as name suggest is an insurance plan which provides insurance covers for the whole life of the insured. This kind of policy gives life cover upto 80 to 100 years of the policyholder and at the end of the policy term insured gets a lump-sum amount as maturity benefit.
Endowment insurance plan serve the purpose of insurance to the insured during the term of the policy and offers guaranteed returns (money back) at the end of the policy term. Endowment plan is a combination of a term plan and an investment plan where nominee of the policy get sum insured in case of death of the insured else policyholder get a guaranteed amount at the end of the term of the policy.
ALSO READ : Whether Go With ULIP Or Endowment Plan
Money Back Plan:
Money back plans, as name suggest pays a fixed percentage of sum assured after set interval during the policy term and the balance is paid with bonus at the time of maturity. This kind of policy covers the insured during the policy term and pays death benefits to the nominee in case of death and also pays survival benefits in regular intervals to the policyholder.
This is another money back plan which offers fixed percentage of sum assured when child attains the age of 18 years. This type of plan mainly covers child education and the risk associated with the parents or guardians who are taking care of the children. This policy waive off the future premiums in case of death or disability of the parents or guardians and pays the sum assured to the child with bonus. This plan mainly targets the security of children education. These plans are costly as compare to other plans as it covers the risk associated with child as well as parents.
ALSO READ : The Importance Of Child Insurance Plans In India