Disadvantages Of Life Insurance

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Life Insurance – a Risk Cover or an Investment Tool

Life insurance policies are products which cover the risk of death. A person particularly the earning member runs the risk of losing his/her life and thereby leaving the family with troubles of future earnings. Under life insurance the amount of benefit to the insured is fixed and therefore they act as life assurance contracts. Regular premiums are paid by the insured during the tenure of the contract and in return the insurance company covers the risk of death. In the event of unfortunate death, the family or legal heirs of the insured are paid the death benefit amount. This is the traditional way the life insurance works but today the insurance companies have a variety of products which suit even when the insured survives and thus gets survival benefits.

In a term insurance the
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On the other hand the whole life insurance covers the risk of death during the whole life of the insured provided the premiums are paid. Endowment policies are most popular in India among individuals and they cover both the death and survival benefit. The family member or the nominee of the insured gets the death benefit if the insured dies during the tenure of the policy while the insured gets the survival benefit if he survives the term of the policy. Thus these kinds of policies provide dual benefit. Some of the endowment policies may also pay a share in the profits of the insurer which is called as bonus. Bonuses are an attraction of savings oriented insurance policies and are paid at regular intervals during the tenure of the policy or at the end of the policy term. Unit Linked Insurance Policies (ULIP) are a recent innovation where a part of the premium is used to cover life while the balance are invested in units of investment funds after deducting costs and expenses of the insurance. The investment options are given to the insured and the options include debt funds, large cap funds,

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