What is Term Insurance?

Imagine a situation where you have to pay a nominal amount as a premium and you get to walk away with life insurance cover that can ensure that your family is well taken care of in case the worst should happen. This is going to be a policy where there are no strings attached and the insurance cover will not depend on the performance of the markets. The insurance cover will also not require you to pay premiums that can burn holes in your pocket, thus making it a very affordable policy. The premiums that you pay will also be eligible for tax benefits. This, in a nutshell, is what a term insurance policy is all about.

A term insurance plan is a plan that is sometimes referred to as the most basic form of life insurance. Under such plans, applicants enter into a contract with an insurer that states that the insurer will provide life insurance cover for a fixed period of time to the insured and the insured will pay a premium for such facility. In case the insured dies while the policy is still in effect, the beneficiaries of the insured are paid the sum assured. However, if the insured person survives the policy then, in most cases, no maturity benefits are paid.

How does Term Insurance Works?

A term insurance policy can be considered one of the most traditional forms of insurance. To understand how it works, you can look at it in these three situations:

Buying the policy: To be able to buy a term insurance policy you don’t need to put aside tens of thousands of rupees every year. Many of the insurance policies can offer you a sum assured of up to Rs. 1 crore for a premium that could be as little as about Rs. 10,000 per annum (These are indicative figures. The actual premiums may differ depending on the sum assured and the insurance providers).

Keeping the policy: Just like any other insurance policy, you pay the premium towards these policies at a frequency chosen by you. These premiums can be paid every month, every quarter, every 6 months or once a year. They can also be paid as a lump sum instead of being paid at regular intervals.

Redeeming the benefits: Term insurance plans don’t typically come with any maturity benefits, except for term insurance with. Their main objective is to provide life insurance cover and that is exactly what they do. In case the policy holder passes away, the person who is named as the beneficiary of the policy will receive the sum assured.

The way it works is also one reason why you will notice that a lot of the time insurers refer to these plans as pure protection plans. There are no frills attached to the plan. You pay the premium and you get a fixed sum if case something happens to you.

Why should you buy Term Plans?

It can be argued that term insurance plans do get overlooked when compared to other types of life insurance policies. This could happen as a result of the assumption that term insurance plans don’t offer as much in terms of returns as compared to other plans but these policies can be used to form a great safety net. They are also very affordable which makes them easier to take and offers higher sum assured for lower payments.