Traditional Life Insurance Plans: Knowing How Money Back and Capital Life Plans Work

With a life insurance plan, the sum insured including the bonus is paid out when due, while with the money-back plan, part of the sum insured is paid out to the policyholder at regular intervals.

If you want to get life insurance that offers life insurance and will help you save money for your future goals with a steady return, then traditional life insurance will come in handy in this case. Traditional life insurance can be a capital life plan, a money back plan, or a full life plan. The premium is based on your age, the term of the policy up to which you want to be insured and the sum insured (life insurance sum).

In the event of death during the term of the contract, the sum insured is paid out to the nominee; if the term of the contract is survived, the policyholder receives the sum insured together with the premiums. Some plans offer guaranteed supplements instead of the bonus because the former is known and guaranteed to the policyholder, as opposed to a bonus that can vary each year depending on the insurer’s profit. It is important that bonuses or guaranteed surcharges are declared on an annual basis, but accrue within the policy and are only paid out in the event of death or due date.

If you invest in one of the traditional plans, your money will not be invested in the stock market. The volatility of the returns is therefore absent in these plans. You can expect your money to grow steadily and estimate the amount that you can expect when it matures. They are typically suitable for conservative investors who do not want to put money into equity even for their long-term goals.

With a capital life insurance plan, the sum insured including the bonus is paid out when due. With the money-back plans, part of the insured sum is paid out to the policyholders at regular intervals. For example, the maturity value in a ten year endowment insurance plan for an insured amount of Rs 1 lakh by paying an annual premium of approximately Rs 10,000, the maturity value after 10 years is approximately Rs 1.5 lakh. In a money-back plan, two payments of Rs 25,000 (from the sum insured) could be made every 3 years and Rs 50,000 settled along with the bonus when due.

Two important things to know about traditional plans before buying are – first, the return is around 5 percent and second, the liquidity is low. Traditional plans are not flexible and the duration stays the same until the due date. While partial withdrawals are not allowed in most cases, any early exit proves costly in traditional plans. If you’ve decided to buy traditional insurance, you should let it run until it matures. In this case, you must pay the premiums by the due date. If you decide to abandon the plan later, the surrender value will be too low and will harm you financially.

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