For every earning person, term insurance is the first step in financial planning as it is simplest and cheapest form of Life Insurance. A simple term insurance costs as low as Rs. 13 per day for a cover of Rs. 1 crore. These plans help to pay during unfortunate and unforeseen events like sudden death due to accident which can impact your family’s financial future. The premium is comparatively low as there is no saving or investment factor attached to it and covers the risk of life.
What is Term Insurance?
It is a type of life cover that offers coverage for a defined period of time, and if the policy holder dies during the term of the policy then the death benefits are provided to the assigned nominee. The amount of coverage and tenure of the policy are fixed. Term insurance plans provides coverage at a fixed rate which known as premium for a fixed period of time. This is the cheapest way to provide death benefits at young age. The most common duration for the policy is 10, 15, 20 and 30 years.
Different Types of Term Insurance Plans-
You can choose from a variety of term insurance covers available in the market according to your needs. Each option has its own advantages and disadvantages. Before choosing one, it is better to assess your needs first and then pick the one that suits you the best.
1. Pure Term Plan-
This plan provides coverage for a certain period of time. In case of sudden demise of policy holder during the policy term, a fixed sum assured is provided. If the policy holder survives the duration, he or she does not get anything.
Most companies offer the maximum tenure for term plan up to 75 years. There are companies who have increased the coverage to 85-100 years.
HDFC Life recently introduced a whole Life Insurance feature in its term plan called HDFC Life Click 2 Protect 3D plus. It makes sure that you are protected until the end with its life-long protection scheme.
2. Decreasing Sum Term Plan-
This plan is used for mortgage or big-ticket loan such as home loan protection. The sum assured is linked to the mortgage in this plan. As the sum assured decreases every year, the outstanding loan amount also decreases proportionately with constant premiums.
The decreasing Term Insurance plan understands the fact that a person’s needs for high levels of insurances declines with age as his liabilities decreases.
You can choose this plan to make sure that your dependents do not face the burden of debt after your demise.
3. Increasing Sum Assured Plan-
Under this, the sum assured increases at a particular rate while the premium remains same. This policy is based on the growing inflation to maintain the cover that is needed with passing time. You have to pay higher premiums as insurance company puts more money at risk every year.
4. Rate of Premium Plan-
Rate of premium policy is for those who do not take Life Insurance because they think that after paying premiums for many years, they do not get back anything in case they survive the policy term.
This is the plan in which the insured person gets the premium collected over the policy term at the end of the term. If the insured person dies during the policy tenure, the nominee/beneficiary gets the sum assured.
The premium is higher under this policy in comparison to normal term plans.
5. Convertible Plan-
This plan has dual benefits of a term plan along with a savings plan. Under this plan, you can convert your basic term plan into insurance cum investment plan later. So, you can cover your insurance needs during initial years of work and once you start to think that you have enough savings, you can then switch to a different plan where a part of your money will be invested.
At the time of conversion policy, your premium might change.
You can also choose how the proceeds on your death will work for your financial dependents. You can choose to receive the insurance proceeds in a lump sum way or to get the proceeds in a series of small payments.
The riders provide for financial cover and help a person to customize the policy according to their needs.
1. Terminal Illness Cover-
It is the inbuilt benefit offered in case the policy holder is diagnosed with a terminal illness. A guaranteed percentage of sum assured is paid out which is reduced from the death benefits.
2. Critical Illness Cover-
This provides additional sum assured. The amount is paid if the policy holder is diagnosed with a critical illness specified by the insurance company like heart attack, stroke, cancer and some other illnesses.
3. Permanent Disability-
The total sum assured is paid in the case of permanent disability of the policy holder due to an accident.
4. Accidental Death-
This provides extra payment along with sum assured in case of death of policy holder due to an accident.
5. Waiver of Premium-
Under this, the future premium payments are waived off in case of accident or disability. This makes sure that the policy remains active even when you cannot pay premiums.
A term insurance is a vanilla term plan which safeguards your family’s financial situation in case of your sudden demise. The riders provided are a great way to get an additional safety with minimal cost. But before choosing one, it is better to understand the terms and conditions carefully.