Term Plan
Term life insurance provides coverage at a fixed rate of payments for a limited period of time, the relevant term. After that period expires, coverage at the previous rate of premiums is no longer guaranteed and the client must either forgo coverage or potentially obtain further coverage with dif-ferent payments or conditions. If the life insured dies during the term, the death benefit will be paid to the beneficiary. Term insurance is typically the least expensive way to purchase a substantial death benefit on a cover-age amount per premium dollar basis over a specific period of time.
Why Should You Buy Term Insurance?
There are various reasons to buy a term plan. However, here are the key and basic reasons that you must buy term insurance:
- The Dependency of your Family:
You can use the term insurance money to meet the monthly expenses of your dependents and family when you’re not around. Moreover, it fulfils vi-tal life goals such as education and marriage of your child. - Protection of the Assets:
A term plan allows you to take loans for assets such as a car or a house. Nevertheless, if you’re not around, your dependents and family might be burdened with the repayment of loans. In such circumstances, your family can utilize the term insurance pay-out in paying off the outstanding debts. - Risks Related to Lifestyle:
Present-day lifestyle problems often lead to various ailments and diseas-es. Some term insurance Plan do not just safeguard your dependents and loved ones after the demise of the policyholder but also offer critical illness protection for a lifetime. This key feature pays on the diagnosis of some critical illnesses such as heart attack or cancer.
Types of Term Plans
Level Term Plans
Level term plans are the most basic and common form of term in-surance available in the country. Under such a plan, the sum as-sured of your policy (life cover) and the premium will remain the same during the entire tenure of the policy. The premium of such a plan is usually determined on the basis of your age, gender, health and lifestyle habits. Almost all life insurance companies offer level term plans for their customers.
Decreasing Term Plans
In the case of decreasing term plans, the cover provided under the policy keeps decreasing every year at a predetermined rate. How-ever, it is important to note that the premium paid by the policy-holder remains the same during the entire policy term. The reason such a policy is in the market is that often people’s needs for high levels of life insurance decreases with age, as liabilities such as home loan, car loan or other personal loans decrease or have been paid off. Another important advantage of such a policy is that you will be paying a lesser premium as compared to other term in-surance policies.
Term plans with riders
While not exactly a different type of term policy, often insurers will offer you rider options such as accidental death cover, critical ill-ness cover, waiver of premium benefit and disability benefit rider, amongst several others to help you customize your term life insur-ance policy. Such riders can be purchased with your policy by pay-ing a nominal fee and enable you to customize your term plan as per your needs. There are several types of riders available to you which essentially just help you add new benefits to an existing in-surance policy. Riders enable you to increase protection and have a customized insurance plan without having to switch policies or buy another one.
Increasing Term Plans
As clearly indicated by their name, such plans work in the opposite way of decreasing term plans. In the case of such plans, the cover provided under the policy keeps increasing every year at a prede-termined rate. Just as in the case of decreasing term plans, the premium paid by the policyholder, however, continues to be the same during the entire policy term. Due to the increasing value of the sum assured, typically such plans demand a higher premium than other term plans on the market. The reason such plans are offered to customers in the market is to take into account the rising costs of inflation. Due to rising prices, often the coverage you started with may not be adequate in keep-ing up with living expenses. Hence, in order to take into account the rising costs, insurers offer increasing term plans whereby, the insurance coverage rises at a predetermined rate every year.
TROP (Return of Premium) Plans
TROP plans are very different from other forms of term policies as they come with a maturity benefit, whereby, the total premium you have paid will be paid back to the policyholder at the end of the term of the policy, even if life assured survives. While most term plans do not offer a maturity benefit, TROP plans have been de-signed to cater to customers who believe term plans should offer the same. For instance, if you have been paying a premium of Rs. 15,000(excluding taxes) for 25 years for a cover of Rs. 40 lakh, your insurer will pay you Rs. 3.75 lakhs at the end of-of the 25 years (in case the life assured survives the term). Due to the ma-turity benefit, such term plans usually have a higher premium as compared to other term plans.