If you are in the market for a life insurance plan, it is quite unlikely that you have not come across the option of term insurance. Whether you are keen on term insurance or still browsing for the right plan, it may be necessary for you to know that the plans aren’t all the same when it comes to features and benefits.
If you were to dive slightly deeper, you would notice there are various types of term insurance plans.
Let’s dive into the basics of term insurance and understand the various types of term insurance policies available in the market, so you may choose the one that suits you best.
Basics of Term Insurance
Term life insurance plans are a form of life cover providing coverage for a specific period, as may be evident from the use of the phrase “term”.
- If the policyholder passes away during the policy term, their beneficiaries receive a death benefit.
- Unlike other life insurance policies, the basic form of term insurance does not offer a maturity benefit if the policyholder survives the term.
- It is one of the most cost-effective types of life insurance available, making it a popular choice for those looking to ensure financial protection at a lower premium.
Types of Term Insurance
There are several types of term insurance plans, each designed to cater to different financial needs. Here's an overview of the most common options.
1. Level Term Insurance
It is the simplest form of term insurance. The sum assured remains constant throughout the policy term, and the premiums are fixed for the entire duration. This plan is ideal for individuals seeking straightforward coverage.
This plan is best suited for individuals with steady financial needs who want consistent coverage.
2. Increasing Term Insurance
In an increasing term insurance plan, the sum assured increases at regular intervals while the premium may either remain the same or increase marginally. This type of policy is designed to combat inflation and ensure that the death benefit keeps pace with rising living costs.
This plan is best suited for those who want protection against inflation and have long-term financial commitments such as children's education or retirement planning.
3. Decreasing Term Insurance
It offers a coverage amount that reduces over time, typically aligned with a decreasing liability, such as a home loan. As your financial obligations decrease, so does the coverage, which makes the policy more affordable.
Decreasing term insurance is best suited for individuals with large debts, such as a mortgage, who want to ensure that their liabilities are covered without paying for unnecessary coverage later in life.
4. Return of Premium Term Insurance
Also known as TROP, Term insurance with a return of premium option is a type of term insurance that offers maturity benefit. With this type of plan, if the policyholder survives the policy term, the insurer returns the premiums paid over the term minus any charges. However, the premiums for these policies tend to be higher than regular term insurance.
This plan is best suited for those who want some maturity return with their policy if they outlive the policy term.
Here’s a quick comparison of the different types of term insurance.
Type of Term Insurance
|
Sum Assured
|
Premium
|
Best Suited For
|
Level Term Insurance
| Constant
| Fixed
| Individuals with steady financial needs
|
Increasing Term Insurance
| Increases
| May increase
| Protection against inflation
|
Decreasing Term Insurance
| Decreases
| Lower
| People with reducing liabilities (e.g., home loan)
|
Return of Premium
| Constant
| Higher
| Risk-averse individuals seeking premium refund
|
Benefits of Term Insurance
Known for its simplicity and affordability, term insurance also offers several specific advantages. Here are some term insurance benefits to consider.
Term insurance premiums are generally lower than those of other life insurance policies, making the various types of these plans rather accessible to a wider demographic.
The coverage duration of term plans can be selected by the policyholder. You can choose the policy term based on your financial needs and available options, whether it is 10, 20, or even 30 years.
Riders, such as accidental death benefits or critical illness cover, allow for customisation to your policy based on your needs and budget. Check for available rider options when buying the policy.
Choosing the Right Term Plan
Here are some key factors to consider when selecting the right term insurance plan for your needs.
Determine your long-term financial commitments, such as children's education, a home loan, or retirement planning. This will help you select from the available options. For example, an increasing term insurance plan is likely a better choice for people who are looking to support the higher education of their kids or offer financial support to their spouse in the later years. However, if you are buying this loan to cover a liability, you may find that a decreasing term insurance plan is a more suitable option.
If your life cover needs are rather long-term, opt for a policy that either offers an increasing cover or allows for incremental increases in coverage. Increasing term insurance can help protect your loved ones from the eroding effect of inflation.
The right policy duration depends mainly on the purpose of buying this policy. If this is a primary life cover that you expect will support your family in their times of need, a longer duration may be suitable. However, if you expect your dependents to take care of themselves in a few years, a shorter duration should be more effective.
Use a Term Insurance Calculator
Before purchasing a plan, it is advisable to estimate the required coverage using a term insurance calculator. These calculators consider factors such as age, income, liabilities, and existing savings to suggest the appropriate sum assured and premium amount.
Consider a plan fitting within your budget without compromising on essential coverage. Term insurance calculators can assist in determining the premium you’re likely to pay for different types of policies.
Getting insurance, especially buying life insurance plans, is one of the most important financial decisions you may take in your life. You may be paying the premium amount out of your pocket, but the security offered is meant to ensure your loved ones don’t have to suffer.
Of the options available, term insurance is a cost-effective choice that can be chosen by virtually everyone who seeks coverage. Knowing the types of term insurance is important in making an informed choice. You can easily browse the life insurance provider website or get in touch with a customer service representative to learn more about them.
Disclaimers:
Disclaimers: IndiaFirst Life Insurance Company Limited, IRDAI Regn No.143, CIN: U66010MH2008PLC183679, Address: 12th & 13th floor, North Tower, Building 4, Nesco IT Park, Nesco Centre, Western Express Highway, Goregaon (East), Mumbai – 400 063. Toll free No – 18002098700. Email id: customer.first@indiafirstlife.com, Website: www.indiafirstlife.com. Fax No.: +912268570600. IndiaFirst Life Insurance Company Limited is only the name of the Life Insurance Company and ________________ UIN ____________ is only the name of the Life Insurance Product and does not in any way indicate the quality of the contract, its future prospects, or returns. For more details on risk factors and terms and conditions, please read the sales brochure carefully before concluding the sale. Trade logo displayed above belongs to our promoter M/s Bank of Baroda and is used by IndiaFirst Life Insurance Co. Ltd under License. Advt.
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