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TERM INSURANCE

Term Life Insurance: A Brief Overview

Janhavi Shinde Janhavi Shinde 15 February 2017
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You might not feel the necessity to buy insurance, but what about your family? Can you say that your family won’t need it too? Buy term life insurance while you and your family lead a stress-free life.

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We have different ways to plan for different days.

There’s health insurance – so that there’s no financial stress in times of medical emergencies. There are retirement plans and mutual funds – so that there’s something saved up for the times we won’t be able to earn.

But to insure our family for days when we might not be around, there’s nothing better than a Term Life Insurance.

Did your investment advisor tell you to buy one too? Read on to know the basics of Term Life Insurance.

What is Term Life Insurance?

Term Life Insurance pays the beneficiary a lump sum amount during the policy term if any contingency happens. Such policies help you to secure your family future by opting for a higher sum insured at a relatively lower premium.

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Let’s explain it this way:

A term life plan is an insurance with a death benefit that is availed only for a certain fixed number of years. So if you purchase a term life insurance plan of Rs. 1 crore for 20 years, and nominate your wife as a ‘beneficiary’, your wife will receive the sum assured amount [of Rs. 1 crore] in case something unfortunate happens. This term insurance plan will ensure that your family is well taken care in unfortunate circumstances.

Sounds promising, right?

But what about the fixed period clause?

Here’s the answer:

Like the name suggests, it’s a ‘Term life insurance’ plan, which means it covers you for a certain term. In the above example, you took a policy for 20 years. This means that the insurance coverage is valid for 20 years only, provided you are paying an annual premium. After 20 years, if you still intend to cover your family under a death benefit plan, you’d have to buy a new term life insurance policy.

And no, you won’t be paid the sum assured or any benefit at the end of the term.

This is the reason why the premium for a term life insurance is much less than the premium for a regular life insurance plan.

What Makes Term Life Insurance Important?

Our friend Rahul had an untimely accidental death. He peacefully left the world, leaving behind his spouse, 2 beautiful kids and a few financial liabilities. But, one wise thing that he did was buying a term life insurance plan.

Let’s see the how the term plan coped up with Rahul’s family at this critical stage of life.

Family availed a lump-sum amount.

• The loans and liabilities of Rahul were taken care off after his death.

• Some funds were left for Rahul’s wife to fend for her two children while she planned her job.

• Provided additional sum insured due to accidental death.

However, there are also certain riders available which take care of your family if you survive some injuries during the accident or had to fight a critical illness. If such was the case, your family would have received the below mentioned compensation from the term plan that you invest in:

• Supplementary income in an event of loss of income due to accidental disability or illness.

• Lump-sum amount if diagnosed with a critical illness.

How Does It Work?

Term life insurance is one of the most traditional forms of insurance. To understand how it functions, read the below mentioned steps:

• Purchase a policy: You don’t have to keep thousands of rupees aside from your savings every year to invest in a good term plan. For instance, if you are a non-smoking 30-year-old woman, your annual premium would be somewhere close to Rs. 8,000 to Rs. 10,000 annually for a sum assured of up to Rs.1 crore. But, remember, the premium would differ basis different insurer and the type of plan.

• Pay premiums on time: You only need to make sure that you make the payments of the premium on time at a frequency chosen by you at the time of purchasing the policy. The premiums can be paid monthly, quarterly, half-yearly or annually.

• Reaping out the benefits: There are no maturity benefits of the term insurance plan except term plans with return of premium option. The main motive of term plans is to provide life cover. Only on death of the policyholder, a nominee or beneficiary of the policy receives the sum assured.

The simple funda of term insurance plans is that they are pure protection plans. You pay the premium regularly as per the frequency chosen and your family gets the sum assured in case something happens to you.

So, Which Term Life Insurance Plan Should You Go For?

There are different types of term insurance plans. Before you finalize on a particular term plan, analyze and understand your needs. If need be, get in touch with an online broking portal like Coverfox.com for their unbiased advice. Mentioned below are the different types of Term Life Insurance plans:

1. Standard Life Term Insurance Plan:

The most common and regular type of term plans in India is the standard life term insurance plan. Here, the life cover and the premiums that you opt for remains unchanged or constant throughout the entire tenure of the policy. The most common terms available are 10, 15, 20

2. Decreasing Term Insurance:

Decreasing Term Insurance cover is designed in such a way that the cover & premium decreases over the tenure of the policy. Such plans are usually designed for banks & financial institutes who cover the risk against mortgage or liabilities or home loans. Here, in case any eventuality happens, the term plan ensures that the bank or financial institute gets back the money.

3. Increasing Term Insurance:

This plan is exactly opposite than the decreasing term insurance. Here, as your age increases, the life cover too increases. Inflation plays an important role in everyone’s life. This plan is designed keeping inflation in mind. The fear of remaining underinsured would ease by opting for the increasing term insurance plan. Your life cover increases at a predetermined rate in this plan.

4. Return of Premium Term Insurance:

In this type of term insurance, the insurance company pays back the premium paid by you at the end of the policy period, only if you survive. For example, if you pay Rs.5, 000 p.a. for 25 years for a cover of Rs.50 lakhs, you would get an amount of Rs.1, 25,000 (exclusive of service tax) only if you survive the policy period. The drawback of such type of policies is that their premiums are quite higher than the normal term plans.

On What Basis Should You Choose A Term Insurance Plan?

As we just saw, there are different types of term insurance plans with different terms and conditions, different features and sum assured costs. Choosing the right plan as per your requirement and budget is, however, a challenge. Keep the below points in mind before you finalize on a term life insurance plan.

• Premium: Any term plan can have a tenure up to 20 years. The premiums for these policies have to be made as per the frequency is chosen by you. It may be monthly, half-yearly or annually. The amount, therefore, becomes a significant factor. It is advisable to opt for a plan with lower premium for a reasonably good life cover.

• Rising Cost: It is good to opt for insurance companies that offer plans with increasing cover by at least 5% annually. This is because inflation hits everyone. You can’t afford to be underinsured. So it’s advisable to opt for a plan for a higher cover taking into consideration the rising cost over the years.

• Riders: Insurance companies offering additional riders along with the basic term plans are always considered good. This is because you don’t have to additionally spend apart from your basic cover to buy riders that are considered as secured. So, opt for term plans that also has riders included. Riders always enhance your coverage.

• Claim settlement ratio: Claim settlement ratio is nothing but an ability and efficiency of an insurance company to settle claims. This is the most important factor to judge an insurance company while you juggle one to opt for. Greater, the better.

• Reputation: It is recommended to check the reliability of an insurance company you wish to opt for. This is because term life insurance is a long-term investment. You should not fall in a situation when the insurance company suddenly shuts down or meet with any financial crunches. Therefore, it is good to check the stability and reputation of the insurance company you wish to choose.

List of Pure Term Insurance Plans Available in India

• ICICI Prudential’s iProtect Online Term Plan

• Bajaj Allianz Life Insurance’s iSecure Online Term Plan

• SBI Life Insurance’s eShield Online Term Plan

• Kotak Life Insurance’s Preferred e-Term Plan

• Max Life Insurance’s Online Term Plan

• Aegon Religare’s iTerm Plan

So folks, what are you waiting for? When you don’t want to compromise with your loved ones, why leave the opportunity to remain financially stable? While you peacefully leave the world, let your loved ones live their lives peacefully with your memories. To get the most affordable, reliable, tailor-made quotes and top-notch after-sales services, you can simply visit www.coverfox.com and take a significant step towards the long-term financial planning for your future.

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Janhavi Shinde
Written by Janhavi Shinde
Right from being a Flight Attendant to a Banker and now to a Content Writer, she has tasted success in all the fields. The kinda girl who loves pets and knows how to manage difficult people and events.