Traditional Plans

What Are Traditional Policies?
Traditional insurance policies invest largely in debt products. They characteristically do not invest in equity, unlike unit-linked insurance plans, and are less transparent than the latter. The cover that they provide is much more expensive than term plans. The cost of the cover, the mortality premium, does not vary much from one traditional policy to another. Endowment, money-back and whole-life plans form the basket of traditional policies.

Endowment
Here, a part of the premium is invested in instruments specified by the insurance regulator. The returns, declared every year as bonus, are reinvested as guaranteed additions. On maturity, the policyholder gets the sum assured (SA) plus the bonuses. Typically, the SA is guaranteed on maturity. On death, the SAa plus the bonuses accrued are paid to the nominee.

Money-back
In these policies, the returns on investments made in the form of premiums are periodically paid to the investor over the term of the policy. On death, while some polices pay the SA and bonus additions without deducting the payouts, others deduct the amount paid.

Whole-life
This plan gives cover for the entire life of the insured. Premium has to be paid for a specified term, often till the insured reaches the age of 80-100 years. Depending on the policy, it could run till you are anywhere between 80 years and 100 years old. On maturity, the insured can either terminate his policy and receive maturity benefits—SA and bonuses declared by the insurer—or continue the cover for the rest of his life without paying any premium. On death, the nominee gets the SA plus bonuses accrued. The wealth that this plan is primarily meant to create can be bequeathed by the insured to his heir. As the insurance risk is spread over a long term, whole-life plans are the second cheapest in the basket of insurance policies after term plans.