Term insurance can be defined as a type of insurance that is
availed for a certain period of time or a fixed term (number of years). The
basic differentiating feature of term insurance is that unlike other types of
life insurance policies, a term insurance policy is less expensive since it
does not have any cash value. The policy comes useful only if the policyholder
dies within the timeframe during which the term insurance policy is in force.
Term insurance policies are offered by almost all major
insurance providers and these come for various terms like 10 years, 20 years,
30 years etc. The most significant point about term insurance policies is that
most of these policies have a built-in feature to get converted to permanent
life insurance policies irrespective of the state of health of the term
insurance policyholder.
How does Term
Insurance Works?
What is Term
Insurance?
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.
How to choose the
best term insurance plans?
When it comes to choosing the ideal term insurance these are
the steps that you should follow.
Step 1: Calculate
how much you want the sum assured to be.
Step 2: Decide if
you wish to take a policy with return of premium or not.
Step 3: Choose an
insurer that will offer you the sum assured you want.
Step 4: See the
premium that each insurer will offer for the chosen amount.
Step 5: Check the
claims settlement ratio of the insurer. This is a step that many people tend to
ignore but is absolutely critical to getting the right insurance policy. This
is information that tell you the percentage of the claims that the insurer has
honoured vs the number of claims they received in a given year.
Step 6: Compare
the information you have gathered and choose the plan that suits
Features &
Benefits of Term Insurance:
The features and benefits that are offered by term insurance
plans can differ from one insurer to another. They can also differ from one
type of plan to another but there are some features of benefits that remain the
same no matter who offers the policy. These are:
·
Regular term plans and TROPs offer very high sum
assured for a very reasonable premium.
·
There is no limit on the maximum sum assured as
it is something that will depend on the insurer’s willingness to underwrite
really large sums.
·
The policies offer premium payment options of
single pay, regular pay and limited payment.
·
The payment of premiums, in case of limited and
regular pay plans, can be monthly, quarterly, semi-annual and annual. However,
in the case of monthly payments, the insurers may require you to pay the
premium for the first 3 months as a lump sum.
·
They come with a tenure than can be as high as
20 years or more, depending on the insurer.
·
With a return of premium policy, some insurers
will offer 105% of the premiums paid as the maturity benefit.
·
A lot of these plans can be bought online too,
which negates the tedious task of meeting an agent and fixing meetings.
·
The benefits received from term insurance plans
can be covered under Section 10(10D) of the IT Act will also be eligible for
tax benefits.
·
Some insurers also offer rebates if
policyholders opt to go in for high sum assured.
·
Many of the insurance providers offer lower
premium rates for those who maintain a healthy lifestyle.
Source: https://www.bankbazaar.com/insurance/term-insurance.html
