Term insurance plans are the most basic forms of life insurance policies. However, the simplicity of these plans in no way takes away from how effectively they can protect one's loved ones. Moreover, the cost to benefit ratio of these plans is so good that even those who criticize it, cannot deny its significance. This is why it is so popular in India, especially for small families and first-time policy holders. In fact, India witnessed an insurance penetration of 4.2% in the last financial year because of how easy and affordable it has become to purchase life insurance policies.
Simply put, a term insurance plan provides for a high sum assured at very low premium rates. The only risk that is insured in term insurance policies is the death of the insured, and unless specifically provided for otherwise, no benefit accrues when the insured outlives the term insurance plan.
As simple and easy as the subject of term insurance is, there are bound to be questions. In this article, we are answering some of the most commonly asked questions about term insurance plans.
How to buy the right term plan?
A term insurance plan should be bought keeping in mind the specific facts and circumstances of your life. Your current life and lifestyle should be assessed to determine future financial needs. Ideally, ask yourself three questions - Is the sum assured adequate to cover all the financial liabilities that will arise in the future? The thumb rule is to choose a high sum assured. Next, is the duration of the term insurance long enough? Then, ask yourself whether the insurance company you have zeroed in on is trustworthy or not? The claim settlement ratio is a great way to make this decision. Make good use of the free look period also, before you finalize your decision.
What are the benefits of term plans?
Over and above the fact that a term insurance plan provides future financial security to your loved ones at very low rates of premium, term plans also have other benefits. For instance, a term insurance plan provides for the payment of a lump sum amount or a fixed amount paid periodically to the nominees so their financial needs are taken care of even after the insured is no more. The assurance of this protection will offer peace of mind to the insured as they go about their day. Additionally, term plans are also a great way to repay loans and mortgages. One can opt for decreasing term plans in which the sum assured is reduced by a fixed percentage every year, to pay off loans after the demise of the insured. This way, the family will not be burdened with the financial liability of paying off a loan or mortgage.
Are there different kinds of term plans?
Yes, there are different kinds of term plans. They can be broadly classified into four - level plans, increasing plans, decreasing plans and return of premium plans. Level term insurance plans are those where the sum assured remains the same throughout the tenure of the policy and is payable to the nominees upon death of the insured. Increasing term plans are those where the sum assured increases by a specific percentage every year, without any increase in the premium paid. Decreasing term plans or mortgage redemption plans are those where the sum assured reduces by a fixed percentage annually. Return of premium plans are those where the premium paid is returned to the insured upon maturity of the plan.
Can term plans be purchased online?
The good news is a term insurance plan can be purchased both online and offline. The only difference is that the former does not involve middlemen in the purchase of the policies, making the process more economical. Online purchase of term insurances is secure as well, as technology has advanced enough to make online platforms safe and fraud-free.
Does the premium remain the same for everyone?
Premium paid is different for every policy holder and cannot be generalized. It depends upon factors like age, lifestyle, coverage, occupational hazards, term of the plan, medical history, etc. If the lifestyle of the insured is not healthy and includes activities like constant smoking and drinking, then the risk is higher, making the premium paid also higher. The sum assured (coverage) and duration of the plan (term), if high, will cause the premium to also be high. Similarly, if the insured experiences regular, serious occupational hazards and if the medical history of the insured points towards greater susceptibility to illnesses, then the premium becomes high as the risk is high in these cases. In other words, the premium paid by different policy holders depend on the level of risk in their life.
Lastly, the 'term' is the duration of the plan. Once the premium is fixed, depending on the above-mentioned factors, it does not change during the term of the policy. The sum assured however, can change depending on the type of term plan opted for.
Author Bio: Vinod Gill is a writer who specializes in writing content on Finance and Banking subjects. He is a Digital Marketing Consultant, Blogger, and Co-Founder of Ecompany.in
This is BW Partner content (HKSL Media), and is neither authored nor edited by BW editorial team. BW is not responsible for the content of the article.