what is term insurance? ULIP? endowment plans? mutual funds?

what is term insurance? ULIP? endowment plans? mutual funds?

Also a set of investors(individuals, companies etc) invest largely in a mutual fund organisation.

now plz answer this question?

What will the organisation do with that large money?
How this organisation will make profit?
How it benefits the investors and what will investors do after pooling their money into the organisation?
Whether they can withdraw the money at any time or they will have to wait?
Does everyone makes profit equally?
What are the risks involved?

what is term insurance? ULIP? endowment plans? mutual funds?
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4 Replies to “what is term insurance? ULIP? endowment plans? mutual funds?”

  1. Term life insurance is insurance that you purchase for a term (5 years, 10 years, etc), during which you are fully covered. However, at the end of the term you are no longer covered and you don’t receive any financial benefits.

  2. Term insurance – you make a monthly payment to insure your life, or someone you are financially dependant on for a set term of years. If you die during the term, your dependants get paid a sum of money. If you survive no one gets back anything.
    Endowment plans – savings plans for 10 years or longer. You pay a monthly amount. Part of the monthly payment is life insurance which pays out if you die within the term. if you survive you get back a cash sum at the end.
    ULIP = unit linked investment plan, a type of endowment.
    Mutual funds – investment funds used by Mutual companies to invest in.
    Organisations invest this money for individual investors. Organisations make profit from the life assurance premiums from people that don’t die and the charges they make on these plans. Investors benefit from pooling funds with other investors as large pooled sums of money have more ‘buying power’ when invested. For term insurance there is no money to withdraw. Foe endowments they can withdraw money at any time but there may be penalties and they usually don’t get back what they’ve paid in. They may also have to pay tax. No, they do not make profit equally. The risks are that they are investing in the stock market (indirectly) so know one knows whether their investment will go up or down. Hope this helps!

  3. Hi Deepak,

    Insurance is of two types – Life Insurance & General Insurance. Life Insurance has different types of products to offer like term plans, endowment plans, ULIPs and money back schemes.

    Term Plans are the purest form of life insurance that cover your risk of death. There are no additional frills to it. In the event of death, the nominees get the cover amount. If one survives the policy period, he doesn’t get any benefits. The only way to choose the right term plan is to go by the cheaper premium cycle.

    ULIPs are insurance plans that double up as mutual funds. The annual premium you pay on ULIPs is linked to the sum assured and the policy tenure. Though in the first year your premium amount is a bit large, as the years go by your premium amount tapers. This yearly premium in your policy period is invested in an investment of your choice, and you are allocated units, based on the net asset value of the plan you have opted for. Just like a mutual fund.

    You can switch from one investment option to another free once a year. For example, if you think that stocks are doing well you can opt for a growth plan,but later if you feel that stocks are being overvalued you can opt for an income plan.

    ULIPs are for individuals who understand investing ad the stock market but leave it to the experts to do the active money management.

    Endowment policies on the other hand offer some return on the premiums you have paid. While term plans cover just risk of death, endowment plans also offer some return on the premiums paid by you. Hence if you die during the policy term, your nominee will get the sum assured plus some returns. As much as this philosophy is very appealing it comes at a price, high premiums which drag down the returns form endowment plans to barely 4-6%.

    Endowment plan are available in two variants – profit plans & without profit plans. In the profit plans, the customer gets a part in he profits that the insurer is making through the premiums paid. Hence the premiums are high as compared to the without profit plan where although the premiums are cheaper, the customer will not get a part in the insurer’s profit pool.

    Mutual Funds are pools of money that are invested in high risk or low risk stocks. If the investment portfolio of a mutual fund is good, the fund yields good returns and the person who invests in this particular mutual fund gets guaranteed returns. Mutual funds are risk free / low risk investment tools, where the possibility of loss is very low. The mutual funds organizations make profits if they get additional returns on investment, as they only have to part with some amount that has been assured to the customer.

  4. Hi Deepak

    Term policy is insurance at its purest and simplest form. You pay premiums because there is a guarantee that if something happens to you, your family will be paid out the pre-decided amount, hence you have the peace of mind that even if you are not there, those loved ones you leave behind will not have to bear a financial loss.Term Insurance is protection against risk of life.

    There is no element of investment involved in Term Insurance. If any thing goes wrong the insured family gets the sum assured and if nothing goes wrong, the amount is treated as an expense. Since there is no value of your financial investment or a savings element involved, the premium accounts only for the risk cover costs (mortality costs) and hence is very low compared to other insurance products. No other insurance policy will offer you as much value for money as this.

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