Term Insurance is generally recommended to be the first step in financial planning for every earning individual. It is one of the simplest and cheapest forms of Life Insurance. A simple Term Insurance plan costs as low as Rs. 13/- per day for a cover of Rs. 1 crore.
These plans are purely designed to pay for an unforeseen, but significant event, like sudden death due to an accident, which might occur in the future and can have a significant impact on your family’s financial future. With no substantial savings and investment element attached to it, the premiums are comparatively low and the premium goes for covering the risk of life.
Buying a term plan is the first step towards building a solid financial plan. We have compiled a list of frequently asked questions to help you understand all about Term Insurance plans in detail.
Additional Reading: Buying Your First Life Insurance Plan? Here Are Few Things To Keep In Mind
What is a Term Insurance plan?
A Term Insurance is nothing but a type of life cover that provides coverage for a defined period of time, and if the insured expires during the term of the policy then the death benefit is payable to the assigned nominee. The amount of coverage is fixed and so is the tenure of the policy.
What are the different types of Term Insurance plans available in the market?
There are various types of Term Insurance cover available in the market that you can choose from according to your needs and requirement. Given the multiple options, each one of the option has its share of pros and cons. So, it’s important to assess your needs and pick one that’s perfect for you. Let’s explore each one of them.
Pure Term Plan: This is a type of Life Insurance which provides coverage for a certain period of time. If the policyholder dies during the policy tenure, a fixed sum assured is paid out. However, if the policyholder survives the term, the insured gets nothing in that case.
Usually, most insurance companies offer term plan for a maximum tenure of up to 75 years. However, there are other companies in the market who have increased the coverage to even 85-100 years.
Recently, HDFC Life introduced a whole Life Insurance feature in one of its term plans called HDFC Life Click 2 Protect 3D Plus. It offers life-long protection to make sure you are protected until the end.
Decreasing Sum Term Plan: These plans are generally used for mortgage or big-ticket loan protection such as a Home Loan. The sum assured in this plan is linked to the mortgage. So, as the sum assured goes down each year, the outstanding loan amount decreases proportionately while the premiums remain constant.
The decreasing Term Insurance plan is made keeping in mind the fact that a person’s needs for high levels of insurance comes down with age as his liabilities decreases.
It is advisable to take this cover to make sure your dependents are not burdened with debt after your demise.
Increasing Sum Assured: As the name suggests, in such policies, the sum assured increases at a defined rate while the premium remains constant.
The policy is based on the rising inflation to maintain the cover that one needs with passing time. The premiums are on the higher side as the insurer puts more money at risk every year.
Return of Premium: Why most people hesitate to opt for Life Insurance is because of the mindset that after paying premiums for many years, you don’t get back anything in case you survive the policy term.
A ‘rate of premium’ policy is designed for such people. These are term plans in which the policyholder gets the premium collected over the years at the end of the term, but if he dies during the tenure of the policy, the nominee gets the sum assured.
However, you might need to shell out a little more for such policies as the premier is higher than normal term plans.
Additional Reading: Term Life Insurance: Return Of Premium Plans
These plans come with twin benefits of a term plan along with a savings plan. This basically gives you an option to convert your basic term plan into an investment-cum-insurance plan later.
So, if you choose to cover your insurance needs during your initial years of work and you think you have enough savings, you can switch to a different plan where a part of your money will get invested. Do keep in mind that your premium might change at the time of conversion of the policy.
Apart from different term plans available in the market, you also get an option to choose how the proceeds on your death would work for your financial dependents. Insurers provide you with a choice to receive the insurance proceeds all at once in a lump sum, or to get the proceeds in a series of smaller payments. It’s best to assess all your needs before taking your pick.
Can one customise Term Insurance Plan?
Life Insurance plans primarily act as an income-replacement tool and provide protection in case of an unexpected and early death of the earning member of the family. However, you might face other unforeseen risks like disability for which your term plan doesn’t provide you with any protection.
That’s when riders of Life Insurance plan come in handy. These riders provide a financial cover over and above the basic sum assured and helps you customise your policy according to your needs. Let’s look at each one of them one-by-one.
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Terminal illness cover: It is generally offered as an inbuilt benefit in case the policyholder is diagnosed with a terminal illness. In such a case, a guaranteed percentage of the sum assured is paid out. Once paid, the death benefit gets reduced by the same amount.
Critical illness cover: This is a rider that provides additional sum assured, apart from the sum assured for the policy. This amount is paid if the policyholder is diagnosed with a critical illness specified by the insurer. It typically covers heart attack, stroke, cancer, kidney failure, paralysis and certain other illnesses.
Permanent disability: In this rider, total sum assured is paid in the event of the permanent disability of the policyholder due to an accident.
Waiver of premium: In this benefit, the future premium payments are waived off under certain conditions such as accident or disability. Waiver of premium rider makes sure that your policy remains active even if you are unable to pay your premiums.
Accidental death: This rider provides extra payment in addition to the sum assured in case of death due to an accident. This rider is best suited to those who wish to leave their families a substantial sum of money in case of a sudden accidental death.
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These riders are an excellent way to get an additional safety net with a minimal cost. But, understand all the terms and conditions before you opt for them.
Life Insurance cannot keep one alive forever, but it can certainly help one give financial protection to one’s family as well as meet one’s financial goals. It acts as a safety net and helps the family of the insured to maintain their standard of living and pay for important milestones after them.
How is Term Life Insurance different from other insurance plans?
A Term Insurance is a plain vanilla term plan which is designed purely to safeguard your family’s financial protection in case of your sudden demise.
Let’s check out the difference between a Term Insurance and other insurance plans:
Other Regular Insurance Plans
|This is a pure Life Insurance plan||Other insurance plans are generally Life Insurance plans which also includes savings or investment benefits.|
Benefits during the term of the plan
|It provides the death benefit to the beneficiary only when the policyholder dies during the specified term. No money back in case the policyholder is alive at the end of the policy term||Other plans provide the death benefit (but the amount of cover is less in comparison to term plan) along with savings in case the policyholder is alive|
|The policyholder does not get any maturity benefits. The annual premium paid is just used for covering the risk. No benefits are paid on survival to the end of the term of the policy.||Most of the other plans provide some return on the investment (not guaranteed in most of the policy type) in the form of money back, retirement benefits, child education etc.|
Cost of acquisition
|This is the least expensive plan that provides the maximum coverage to the beneficiary i.e. less premium with maximum benefits in case of death.||As these insurance plans come with investment benefits, the policyholder has to shell out an extra premium to cover the extra cost of investment. And on the other hand, the life cover provided in such policies is also extremely less in comparison to the term plans.|
Additional Reading: The Definitive Guide To Buying Term Life Insurance
There are different types of insurance products available in the market. Apart from plans of pure protection, there are plans with in-built benefits too. So, it’s important to explore different Life Insurance plans before zeroing in on one.
If you are looking to buy a Term Insurance plan, it’s time to ditch that insurance agent and buy it online. Here’s why:
Cost: A lot of online term plans are a lot cheaper than their offline counterparts. As there is no intermediary involved in the whole process, you deal directly with the company and hence, can save a lot of money.
Flexibility and convenience: Online platforms are far more flexible and convenient in choosing the required plan. You don’t require to travel or carry a pile of physical documents to an office or be kept on hold on the phone. It saves a lot of time.
No miss-selling: Unlike various insurance agents who might wrongly influence you into getting a particular insurance product, online platforms let you make an informed choice by providing you with a list of different Life Insurance plans. You can simply compare quotes from all leading brands and find the best deal.
Moreover, you can also check the reviews and feedback before buying a term plan from existing customers.
Who should buy a Term Insurance Plan?
If you’re earning and have dependents, a Term Insurance is an absolute necessity. Here are situations where a Term Insurance Plan plays an important role:
- Tight on your budget? A term plan is the cheapest form of Life Insurance that will safeguard your family from any financial perils in your absence.
- Have you taken a big-ticket loan like a Home Loan or Car Loan? A term plan will make sure that that your family isn’t burdened with debt after your demise.
- A term plan is extremely crucial to cover the risk of business loss due to the untimely death of key persons involved in managing a business
- A Term Insurance is a must when you go through different stages of life- when you become a parent, your parents retire etc. Also, don’t forget to assess your insurance needs from time to time to make sure that you are adequately insured.
Buying a Term Life Insurance policy to protect one’s financial dreams is a smart decision. As Kim Hubbard rightly said, “Fun is like Life Insurance; the older you get, the more it costs”. It’s never too late – protect your family now. Go ahead and explore your options right away!
Oh, still have doubts about various Term Insurance plans? No, problem! Ask our experts right away.
Additional Reading: Best Term Insurance Plans of 2017