Traditional insurance –now becoming obsolete

Defining Traditional Products

If one has to define traditional insurance plans then you need to include terms like fixed income returns, tax benefits, safety benefits and risk cover. The insurance as an industry started off with such plans that are now known as traditional Insurance plans and was devised at a time when people by and large played safe and took minimum risks with their money. Even today you find a few people with an extremely low risk appetite and hence the plan continues.

Insurance and investment

The traditional insurance policy plans are well defined and provide both the sum assured and a guaranteed bonus at maturity. With a minimum possible risk in high risk equity these plans have almost no downside probability. The few that opt for such policies have tax planning at the back of their mind. The primary downside is that premature withdrawal is generally not allowed in the case of traditional plans.

These plans also come with money back and since they offer very low sum assured at high premiums and this is one great disadvantage because one has to pay quite high premiums to get higher sum assured. The crux of the policy is if the insurer dies before the term ends then his or her beneficiary will get the sum assured and bonuses as defined by the policy. On the other hand if the insurer survives, he or she will get sum assured and loyalty addition and other bonuses as agreed in the policy.

Estate tax repeal

Beyond a doubt the traditional policy plans help in providing affordable protection that can take effective care of all sorts of financial storms or emergency needs, such as disability, retirement and even death. However such plans only provide a temporary solution for financial needs planning. They do not stand up to escalating costs, inflation and fails miserably when it comes to the perspective of offering a permanent solution for an aging population. The impact of some of the recently enacted federal tax legislation on the life insurance industry is only too obvious. The estate tax repeal is sure to end the sales of traditional life insurance products.