Insurance. Which is the simplest of them all?
Term Life Insurance. There, you have your answer. A Term Life Insurance plan is the simplest type of Life Insurance available.
What is Term Life Insurance?
Put simply, Term Life Insurance is a contract between an insurance company and you for a specific duration of time. In a Term Life Insurance policy, as long as you pay the policy premiums, the insurance company gives you a life cover. If you do not survive the term of the policy, your dependents will get a lump sum amount paid to them.
If you survive the policy term of the policy, you do not get any pay out on maturity of the policy.
Types of Term Life Insurance
There are four types of Term Life Insurance based on the pay out that your nominee will receive.
- Lump sum Pay Out
In a lump sum pay out, your nominee gets paid the complete death benefit amount. Now, insurance companies offer various plans which offer constant cover throughout the term. This means that the cover chosen at the beginning of the term remains the same right until the end.
You can choose a decreasing cover, where the cover reduces over time. This cover is usually taken against some specific liabilities like a Home Loan.
You could also choose an increasing cover, where the life cover increases by 5-10% during the term and can go up to 50%, taking inflation into consideration.
Additional Reading: What to consider before you start repaying your Home Loan
- Monthly Income Pay Out
In a monthly income pay out, your nominee gets a monthly income for a pre-fixed term of 10 years or 15 years, or until 60 years of age. Here again, there are plans which offer customers the option to choose a fixed monthly income or increasing monthly income during the term.
- Lump sum and Monthly Income Pay Out
There are some plans, where you can have best of both worlds i.e. a plans which offer both lump sum & income benefits to your family after you.
- Return of Premium Term Insurance
Most Term Insurance policies do not provide benefits on maturity. But some insurance companies have introduced a Return of Premium Term Insurance policy. If you survive until the maturity of the policy, all your premiums are returned to you. This type of Term Insurance comes at a higher premium.
So if you are the breadwinner of the family or if you have some financial liabilities, choosing a Term Life Insurance plan would be a good idea. You could ensure the safety of your dependents and enjoy the tax benefits of getting a Life Insurance plan too.
Additional Reading: 5 Questions You Need to Ask About Term Plans