Term insurance is a policy or agreement between policyholder & the insurer, in which the insurer provides a lump-sum payment, known as a death benefit, to beneficiaries upon the insured's death.
Term insurance can be chosen based on our own needs and goals. Term policies generally provide protection for a set period of time, while permanent insurance, provides lifetime coverage.
The financial cover gained against loss of life from the insurance makes sure your family can support itself in your absence. It can also prove advantageous in meeting several financial goals of the policyholder and his family.
This plan is ideal for you if you want to Cover your life and thereby financially protect your family in case of adversity. Also ideal to make provisions for the repayment of your financial liabilities or debt in the eventuality of you not being around.
In the event of death of the life insured during the term, the beneficiary would receive the Sum Assured as a lump sum. It is a non-participating plan with no maturity benefits payable.
Because term life insurance is a pure death benefit, its primary use is to provide coverage of financial responsibilities for the insured or his beneficiaries. Such responsibilities may include, but are not limited to, consumer debt, dependent care, university education for dependents and mortgages.
Much more common than annual renewable term insurance is guaranteed level premium term life insurance, where the premium is guaranteed to be the same for a given period of years. The most common terms are 10, 15, 20, and 30 years
Thus, the longer the term the premium is level for, the higher the premium, because the older, more expensive to insure years are averaged into the premium. Term Life policy may extend a fixed number of years or to a specified age, such as convertible to age 65.
As the name suggests, you pay the premium once and for all convenient.
You can avail the cover till the specified term ends. A great way to spend your windfall gain or bonus.
Let's say you are 30 and are looking at a 15-year term policy. You want your young wife and child to get Rs 25 lakh should anything happen to you. You will have to pay a one-time premium of the insurance term.
These are plain vanilla insurance policies. If you don't want to make a huge one-time payment, go for this option.
You will have to pay the premium every year till the end of the insurance term.
This policy operates in a similar vein to the term insurance policy with a psychological difference. Should you survive the term, you get all the premiums you paid. It could be with or without interest.
At least you know one thing: if you survive, no money is lost. But here is the catch. You pay a heavy premium every year. Much more than the regular premium policies.
Once again, let's take the same example as above for a 20-year policy. Insurance company premium will ask you to fork out Rs 20,850 every year for 20 years. After 20 years, Rs 4, 17,000 (Rs 20,850 x 20 years) will be returned to you.
There are some variants to this, like some insurance Term Plan, which offers term insurance to non-smokers.
This policy is targeted at those who have taken home loans.
The insurance amount is equivalent to the outstanding loan amount. It progressively decreases, in the same proportion, as the loan amount is paid back.
The premium here works just like the Equated Monthly Installment of the home loan. The EMI is an unequal combination of interest payment and principal repayment. But it stays constant through the repayment period.
Similarly, the premium will be a fixed amount to be paid every year but it is calculated in the same way.
This policy reassures the insured that, in an eventuality like death, his/her family will not be burdened with the repayment of heavy debt.
