TomorrowMakers ™

Term Insurance for Dummies

17 June 2015
Term Insurance plans are pure protection plans which provide life cover at a nominal cost. These plans are the simplest type of life insurance plans.
 
 

‘Term Insurance’ is something that you hear often when you are looking to buy insurance. Your advisor would have mentioned it multiple times, and a casual Internet search brings it up in loud colors. What is it, really?

What is Term Insurance?

Term insurance is the simplest form of life insurance. It is a contract between you and the insurance provider for a specified term (duration), which states that as long as you pay the premiums, the company offers you a life cover. In case you do not survive the specific -duration or ‘term’ of the contract, your dependants receive a lump sum amount. However, in case you survive the policy term, you do not receive any maturity benefits.

What are the different kinds of Term Insurance?

Broadly speaking, there are four kinds of term insurance.

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  • Level Term Insurance
    Here, the policyholder pays a fixed premium throughout the term specified. The premium to be paid and the coverage are decided at the time of buying the policy and do not change.
     
  • Decreasing Term Insurance
    The decreasing term insurance policy gives you a cover that decreases over time. The idea behind this is that your needs are different at different stages of life. When you are young, you might need a cover that can insure your children’s education, cover your home loans and other expenses. When you are older, the education expenses, home and car loans and other debts might be paid off, and you will only need a cover that helps your partner during retirement. The premium remains constant throughout the term.
     
  • Increasing Term Insurance
    The increasing term insurance policy offers a cover that increases over the span of the term, with a constant premium. Inflation can cause the value of money to drop. In such a scenario, the cover you fixed many years ago might not be sufficient when your dependants eventually need it.
     
  • Return of Premium Term Insurance
    Traditionally, term insurance policies do not offer maturity benefits. However, some insurance companies now offer ‘Return of Premium Term Insurance’ plans where all your premiums are returned in case you survive till the end of the policy period. These policies tend to have higher premiums as compared to a level term policy for the same term.

In case you are the major earning member in your family or have some financial liabilities, opting for a term plan can be the smartest thing to do. This is the most cost effective way to safeguard your dependents and get some tax benefits too.The benefits can vary as per the provisions of the Income Tax Act. Consult your tax advisor for guidance.

Term plans can now be bought online, within a few clicks!

 

 

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