Term Insurance Plans
What is a Term Insurance Plan?
A Term Insurance is an inexpensive form of life cover which can be availed by the beneficiary within a certain “Term” of years as defined by the insurance plan. If the person insured under the plan expires within the term, then the beneficiaries are paid the death benefits.
What are the benefits of buying a Term Plan?
Term Plans are usually much cheaper as compared to traditional life insurance or other coverage policies. For a relatively inexpensive premium, the beneficiaries of the insurance can avail a large death benefit payment in case the insured expires within the term. These days, many banks offer Term Plans which can be upgraded to full time life insurance plans without any additional charges.
What are the different types of Term Plans?
1. Basic Term Plan
This type of plan offers no maturity benefits. The plan term can range from 5-20 years. The premium payment frequency can be monthly, annually, semi-annually, quarterly or a lump sum amount. The coverage amount and all of the above vary as per the insurance agency.
2. Term Return of Premium (TROP) Plan
This plan is in practice no different from the regular plan, except the maturity benefit. Under the TROP plans, the entire premium amount, or a little more, is returned if the insured outlives the policy. Premiums for these plans are typically much higher than the Basic plan.
3. Group Term Plan
These are basic Term plans meant to insure groups of people against any untoward incident or happening. These are generally availed by companies for their employees. Insurers usually have a minimum number of people that can be covered under a group plan.
Why choose a Term Plan?
Term Plans are much more affordable than traditional life insurance plans or endowment schemes. The premiums are generally quite low and the cover amount is quite high in the event of the insured person’s death. It is a good option to provide a financial safety net for your loved ones in case of your death. With TROP plans, you can even get back the premium you invested and many Term plans offer the chance to be converted to a full insurance policy when you’re able. Further, Term Plan premiums are tax deductible under Section 80C of the IT code.
How to choose a Term Plan?
You should decide your Term Plan based on the following parameters:
- The amount of insurance cover you need for your dependents in case of your death. This amount will direct you to insurers who offer those cover amounts
- Premium amounts that different insurers offer for coverage amounts
- TROPs offered and options to convert to full time insurance plans
- Look for policies with level premium options – In these policies, your premium amount will not change over the term of your insurance
- Claims Settlement Ratio of the insurer – This will tell you the number of claims an insurer settled against claims received. This is a good indicator to choosing the right insurer for you
When is the right time to buy a Term Plan?
As a rule of thumb, you should look into Term Plans once you become a parent and define your term up to when your children graduate from college. You will not get any benefit from a Term Plan of 20 years that you buy in your twenties and have no dependants. Look to invest in a plan in your mid to late thirties for a 25-40 year term period.
How much cover should I buy?
There is no set plan to decide how much cover you may need. Factors you should consider are the number of beneficiaries who would need to be supported by your Term Plan coverage and any financially significant events in your future (marriages for example). Also, keep in mind that even modest inflation over time can significantly decrease the value of your coverage amount.
Should I buy the cheapest Term Plan available?
Choosing the right Term Plan for your needs depends on a number of factors as we have discussed earlier. Simply buying the cheapest Term Plan might not help you at all in terms of the coverage amount, term, ROP benefits or any other benefits that you can avail. You should compare Term Plan offerings across different insurers, look up their Claims settlement ratio and then decide what plan you want to take.
How can Term Plans help protect my family?
Term Insurance Plans offer the chance to ensure your family’s financial stability in the event of your death. The death coverage can be paid out as a lump sum amount, or as a monthly income payment ensuring long term financial security. The coverage amounts can be quite large with low premium payments paid out in small installments.
Frequently Asked Questions about Term Plans
Why are Term Plan premiums so low?
In Term Plans, there is no investment component. Premiums directly go to ensure the coverage and death benefits. In the basic Term Plans, there is no maturity benefit for your premiums. Hence, premiums for Term Plans tend to be low.
Is there eligibility criteria for these plans?
The eligibility can vary across insurers. Some a basic criteria can be a minimum insurer age of 18 and a maximum of 65. Some insurers might ask for a medical check up or have riders against people with certain diseases prior to signing the policy.
What are some exclusions to Term Plans?
Common Term Plan exclusions can be participating in illegal activities or life threatening activities such as extreme sports. There may be certain riders on coverage payment in case of suicides.
What are the benefits of a “healthy lifestyle”?
Insurers offers premium discounts or other benefits to policyholders who do not indulge in any unhealthy activities such as drinking or smoking.
What happens if I am late in paying my premiums?
Most insurers generally have a 15 or 30 day grace period where no penalties are levied in case of a missed premium payment.
What if I want to insure myself against a very high sum, such as 10 crores?
There is no upper limit to coverage in Term Plans. The coverage amount depends on the insurer. You should compare different insurers to know the upper coverage limit possible.
For a genuine and transparent advice on your Term Insurance Plans, call our advisors on 9948 661 204 and get a Free Consultation for the first time. Alternatively, submit our enquiry form and one of our Financial Advisors will get back to you at your convenience.
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