If you’re reading this article, chances are that you have decided to skip buying the age-old, traditional endowment insurance plans this year. You may have decided you’re going to buy a term insurance plan that would cover the financial interests of your dependents in the long run.
Many people – especially those with dependents – are slowly realising the need for a term insurance plan. The term insurance plan has evolved from plain vanilla insurance in order to accommodate the many needs of the smart customer. Many useful riders, add-ons and features have been added to term insurance plans, making them more attractive to customers.
But with the whole gamut of riders and features, confusions arise. In this article, we’ll take a deep dive into what term insurance plans are, what their features are, and how you can compare and buy a plan best suited to you.
Introduction To Term Insurance
A Term Insurance plan is a pure insurance product. It covers your death risk. It has no investment or maturity value. If the insured person dies during the policy term, his dependents are paid the sum assured. If the insured survives the policy term, there is no benefit provided, except in the case of premium return policies where the aggregate of all premiums paid is returned to the insured.
The insured person’s premiums are allocated only towards mortality charges since there is no investment attached with Term Insurance plans. This makes Term Insurance premiums cheaper than other Life Insurance options. For example, a salaried 30-year-old male, with no tobacco habit, can avail a term plan of Rs. 50 lakhs for 30 years, with premium costs starting from Rs. 4,200 per year.
Key Features Of The Term Plan
If you’re in the market for a term plan, here are some of the key features you should be aware of:
- Sum Assured: This is the amount that will be paid to your nominees upon your death.
- Entry Age: Term plans may typically be sold to persons aged between 18 and 65.
- Maturity Age: This is the age when the term policy expires. Most policies have this at 75 years, but some even go up to the age of 80.
- Tenure: This is the number of years for which a person can have a life cover. For example, a 50-year-old entering a term plan with a maturity age of 80 can have a maximum tenure of 30 years. Term plan tenures may typically range from 10 to 40 years. You must have the maximum possible tenure allowed for your age for the best possible life cover.
- Claim Settlement Ratio: You must aim to buy a term plan from an insurer with a high claim settlement ratio. This ratio implies the percentage of claims honoured by the insurer. For example, if the insurer has honoured 90 claims out of 100 in a year, its CSR is 90%. The higher the ratio, the better for you.
- Riders: These are added benefits to your term plan that improve the scope of the insurance coverage. For example, a term plan with an accidental death rider may pay Rs. 50 lakhs upon the death of the insured and an additional Rs. 25 lakhs if the death has been caused by an accident.
- Health Checks: If you are an applicant of a certain age or an applicant needing a high insurance cover, you may be asked by the insurer to undergo health tests. For example, an applicant over the age of 50 will have to undergo a comprehensive health test including blood and urine sample test, HIV test etc.
The Many Types of Term Plans
There are basically five varieties of term plans.
- Level term plans: A basic plan that pays the sum assured upon the insured’s death.
- Increasing or decreasing term plans: There is an increase or decrease in the sum assured as per a specified percentage every year.
- Return of premium plans: This is the only term plan that has a maturity benefit, in that the premiums paid are returned to the insured upon his survival.
- Monthly income plans: While most term plans pay a lump sum as death benefit, these plans pay the sum assured in monthly instalments.
The Most Common Riders & Add-ons
You can improve the scope of your Term Insurance plan by adding these features.
- Monthly income: Some term plans pay a monthly income for a fixed number of years to the insured’s nominees with the monthly income rider. The size of this income can be a small percentage of the sum assured. This income can be over and above the sum normally assured. Additionally, this rider also has an increasing income variant wherein the assured income increases at the end of every year for which the income is assured.
- Accidental death or/and Disability rider: This provides an additional sum assured if the insured’s death or disability is caused by an accident. Both temporary and permanent disabilities can be covered.
- Premium waiver: Some term plans waive your premiums under special circumstances such as disability, terminal illness, and critical illness.
Buying A Term Plan
There are broadly two ways of buying a term plan. Offline, you can walk into the nearest branch with your KYC documents and fill out the form to complete the purchase. You can also buy insurance through agents and brokers.
Online, you can buy directly from the insurer’s website or through an insurance aggregator. Buying through an aggregator allows you to compare various products across many features, thus helping you make an informed decision.
Any person with dependents should have a term insurance plan. In case of untimely death, the person’s dependents can have their income needs fulfilled by the insurance plan’s sum assured. Term plans are cheap if bought early in life. They are easy to buy online and assure peace of mind for the insured and their family.