Term Plans Are Becoming Popular Again

Increasing awareness for insurance policies for protection has resulted in renewed interest in term insurance plans. Earlier term plans used to be the important part of the life insurance company’s business but as Unit-Linked Insurance Plan (ULIPs) became popular term plans lost its importance.

Term insurance policies are those policies in which benefit is provided only in the case of demise of the insured and if the insured survives the term then he has to forgo the premium.

Term policies are different from endowment policies as in endowment policies lump sum is given to the policyholder at the end of the policy term where in a term policy policyholder does not receives any capital. But premium rates of term policies are much lower than that of endowment plans as there is no guarantee of insured getting money back because there is no survival benefit as in a case of motor insurance where you dont get back your money at the end of the year if you dont meet any accident during the year!! Motor insurance is a type of pure protection product.

Increase in the sales of term policies is driven by two major factors. First major factor is the online term policies have witnessed a robust growth in the sales of term policies; the companies who were selling less than 100 term policies a month earlier now they have started to sale around 1,000 term policies per month through internet.

Second factor which has contributed to the increased sales of term policies is the group term policies through banks. Banks have begun to provide cover to their consumer loans and saving bank accounts.

Drop in the share of ULIPs in the portfolio of the companies from 80% to 50-60% as sales of ULIPs declined due to the lowered commission for the agents; it has helped other money back plans and term insurance.

However insurers says that ULIPS, term plans and endowment plans are different plans as ULIPs should be bought for investment purpose while term plans and endowment plans are meant for coverage; hence both segments should not influence each other.

Customer who need just coverage  than he should opt for Term Plan as they provide high coverage at lower costs and investor who want protection with flexibility in long term to meet their financial goals can buy ULIP.