Looking for an insurance policy? There are a lot of different kinds of insurance plans—and that’s a good thing (more options!) and a bad thing (all those policies are confusing!) Here’s a simple guide to understanding common insurance policies, so you will be able to find the best one to manage your funds and achieve your financial goals.
What’s the different between term and whole life insurance?
Term insurance is the most basic and cheapest form of insurance. It is renewed every year (or at the end of the given term) and can provide pretty extensive coverage at a very affordable rate. However, you have to make sure that your payments don’t lapse. Also, the premiums may increase.
Whole life insurance is a combination of a term policy with an investment component (like bonds). Your policy increases in cash value and you can earn dividends which you can borrow against. The whole life policy can also have additional protection benefits so that the insured can be covered against disability, critical or female illnesses and accidental death or dismemberment.
What’s the difference between endowment and retirement funds?
Endowment plans give you life insurance within a specific time. Upon maturity of the plan you will receive a sum. SO, endowment plans can act as an alternative savings plan. Some people time their endowment plan to mature at their retirement so that they can have a ‘nest egg.’
A retirement plan provides a guaranteed amount provided by the company every year or every other year after a specific period. This can be coupled with a variable life plan to serve as protection against death while saving for retirement. (Read our tips on protecting your retirement fund from inflation.)
What’s the difference between an income plan and health insurance?
Income plan lets you receive a percentage of your gross income if you are unable to work due to sickness or injury. This will allow you to have a ‘salary’ as if you’re still employed. You can use the money in any way you want.
Health insurance pays a specified amount solely for medical – related expenses or treatments. This is usually provided by companies to their employees as part of their benefits. HMOs are examples of health plans provided by the company but can also be purchased by individuals. Premium can vary depending on age, health and type of policy preferred.