A Quick Overview Of Term Insurance Plans: Features & Types

Term insurance is a type of life insurance that provides coverage for a specific period of time, also known as the policy term. The coverage is provided in return for payment of a premium, which is usually paid on a monthly or yearly basis. If the insured person passes away during the policy term, his chosen beneficiaries receive a death benefit payout. Term insurance is a popular choice as a low-cost way to provide financial protection to the dependents in case of the policyholder's untimely death. In this article, we will discuss the key features, benefits, and types of term insurance plans available in the market.

Key Features of Term Insurance Plans

1.Policy Term: The policy term is the duration for which the policy is valid. Generally, term insurance policies are available for a period of 5, 10, 15, 20, 25, or 30 years. The policyholder can choose the term that best fits his needs and budget.

2.Premium Payments: The premium is the amount paid by the policyholder to the insurance company for coverage of the term insurance. The premium amount is based on the policy term, the sum assured, the age and health condition of the insured, and other relevant factors. Premiums can be paid on a monthly, quarterly, or yearly basis.

3.Death Benefit: The death benefit is the amount paid to the beneficiary if the policyholder passes away during the term of the policy. The death benefit is usually a tax-free lump sum amount paid to the beneficiary.

4.Renewability and Convertibility: Some term insurance policies are renewable and convertible. Renewable policies allow the policyholder to renew the sum assured at the end of the term without having to undergo a medical examination. Convertible policies allow the policyholder to convert their term insurance policy into a permanent life insurance policy.

5.Riders: Riders are additional features that can be added to the policy for an extra cost. Common riders include accidental death and dismemberment (AD&D) benefit, critical illness coverage, and disability benefit.

Benefits of Term Insurance Plans

1. Affordability: Term insurance plans are typically the most affordable type of life insurance that are available in the market. Since term insurance policies provide coverage for only a certain period of time, the premiums are usually lower than that of permanent life insurance policies.

2.Flexibility: Term insurance policies offer flexibility in terms of sum assured, policy term, and premium payment options. Policyholders can choose the coverage amount that suits their needs, as well as the policy term that aligns with their life goals.   

3.Financial Security: Term insurance provides financial stability to the policyholder's family in case of their untimely demise. The death benefit can be used to pay off debts, and cover living expenses and other financial obligations, ensuring that the policyholder's family is not loaded with financial burdens.

Who Should Consider Term Insurance Plans?

Term insurance plans are a great option for those who want affordable life insurance coverage for a specific period of time. Here are some people who may find term insurance plans particularly beneficial.

1. Young Families: Young families with children are often the most vulnerable ones. If the primary earning member were to pass away unexpectedly, the family's finances would be devastated. Term insurance plans can provide flexible coverage for the period when the children are still dependent on their parents.

2.People with Debt: People with outstanding loans and debts, such as a mortgage or a personal loan, should consider a term insurance plan. The death benefit from term insurance can help your family pay off your outstanding debts in case of your untimely demise.

3.Business Owners: Business owners should consider a term insurance plan to protect their business from financial losses in case of their untimely demise. The death benefit from the policy can help their business cover expenses and pay off outstanding debts.

Different types of term insurance plans

There are different types of term insurance plans available in the market. Let us have a closer look.

1. Level Term Insurance Plan

In a level-term insurance plan, the sum assured remains constant throughout the policy term. The premium amount for a level term insurance plan is higher in comparison to other types of term insurance plans, as the risk remains the same throughout the policy term.

2. Increasing Term Insurance Plan

In an increasing term insurance plan, the sum assured increases at a predetermined rate throughout the policy term. The premium amount for an increasing term insurance plan is lower in comparison to a level term insurance plan, as the risk increases with the sum assured.

3. Decreasing Term Insurance Plan

In a decreasing term insurance plan, the sum assured decreases at a predetermined rate throughout the policy term. This type of plan is ideal for individuals who have a decreasing financial liability, such as a mortgage or loan that has a fixed repayment schedule. The decreasing sum assured is designed to align with the decreasing financial liabilities of the policyholder.

4. Renewable Term Insurance Plan

A renewable term insurance plan allows the policyholder to renew the coverage of the policy at the end of the policy term without the need for a medical examination. This means that the policyholder can continue the coverage for another term without having to worry about his health condition.

5. Convertible Term Insurance Plan

A convertible term insurance plan allows the policyholder to convert the term insurance policy into a permanent life insurance policy at the end of the policy term. This means that the policyholder can extend the coverage and enjoy the benefits of a permanent life insurance policy without having to undergo a medical examination.

6. Group Term Insurance Plan

A group term insurance plan is specifically designed for employers to provide life insurance coverage to their employees as part of their employee benefits. The premium amount is usually lower compared to the individual term insurance plans, as the amount of risk is divided across a group of people.

7. Return of Premium Term Insurance Plan

A return of premium term insurance plan provides the policyholder with a refund of the premium paid at the end of the policy term if they survive the policy term. This type of plan is best suited to individuals who not only want the financial stability of a term insurance plan but also want to get back the premium amount when they outlive the policy term.

Conclusion

Overall, term insurance plans provide critical financial protection to policyholders and their loved ones in times of need. It is important to choose the right type of term insurance plan that meets your budget and requirements to ensure that you have adequate coverage in case of any unforeseen events.