With a plethora of features and benefits, the new-age term plans can be confusing even to those who are financially conscious, not to mention the lot that is unaware of the whole concept of term insurance.
This article acts as a guide to beginners who don’t have the least idea about term insurance plans. This article will help you get a glimpse of the term insurance market and understand all the bells and whistles that come with these plans.
 What is a term insurance plan?
A term insurance policy is a pure life insurance product that covers the death risk of the policyholder (the life assured). As a policyholder, you get to select the cover amount (the sum assured) and the term of the plan (the tenure of the plan).
Your premium amount will be then decided based on your age, sum assured chosen by you, health risks associated with you (depending upon your lifestyle habits) and term of the plan.
If the death of the policyholder occurs during the plan tenure, the insurance company will pay the sum assured to her/his nominees. In contrast to other life insurance avenues like ULIPs, cashback plans and endowment plans, there is no investment value or maturity benefit or in term insurance policies. In basic term insurance policies, the premium paid by you will be allocated only towards mortality charges.
Features of Term Insurance Plans:
Term insurance plans have the following features in common:
- Tenure–
Tenures in term insurance plans typically range from 10 – 40 years, depending upon the insurance seeker’s age. The entry age normally range from 18 to 65 years; whereas, the maturity age may go up to 80 years.
For instance, if you are 45 years old at the time of buying the policy, you may get a maximum coverage of 35 years which means till you reach 80 years of age. Therefore, it’s always better to go for the highest possible term tenure) to get coverage for the maximum possible age.
- Claim Settlement Ratio (CSR):
It is the number of claims that an insurance company has entertained in a financial year. For instance, if an insurance company has received 100 claims in a year and has settled 96 of those claims, its CSR will be 96%. While buying a term insurance plan, you must look at insurance provider which has the best CSR. The LIC term plan have the highest CSR approx. 98 %(in year 2016-17). LIC is the largest life insurance company with a huge customer base of more than 250 million people due to excellent service standards.
- Sum Assured & Premium–
With term insurance plans, you get high coverage at lower premium rates compared to other investment-linked life insurance policies. This is the Unique Selling Property (USP) of terminsurancepolicies. By providing substantial coverage at reasonable premium rates, term insurance plans ensure financial security at affordable rates.
Types of Term Insurance Plans –
Term plans are offered in following five variants:
a) Level term plans – These are also known as basic term insurance plans. In this plan, the insurer pays the sum assured on death of the policyholder during the term.
b) Increasing term plans – In these plans, the cover amount increases by a specified percentage every year.
c) Decreasing term plans – In these plans, the cover amount reduces by a specified percentage every year.
d) Return of premium plans: In these term insurance plans, the policyholders are liable to receive maturity benefit. If you are able to survive the tenure, the total premium paid by you would be returned on maturity.
e) Monthly income plans – In these term plans, the nominees of the policyholder will receive a part of death benefit in lump sum and the remaining amount as monthly income.
f) Riders – Riders are the optional add-ons that can be added to your term insurance to get enhanced protection. You will be required to pay an additional premium if you opt for riders. There are also some term plans that already have inbuilt riders. Some of the common riders that are available with most of the term insurance plans, bothoptional and inbuilt, include the following:
i. Critical illness rider:
It pays a lump sum benefit if you are diagnosed with any of the illnesses listed in the rider document.
ii. Accidental death or/and Disability rider:
It pays an additional cover benefit if the death of the policyholder occurs due to an accidental death or disability.
iii. Waiver of premium rider:
This rider waives off your remaining premium amount if you suffer from disability during the policy tenure. Some insurance providers also waive off the premiums in case you are diagnosed with any of the critical illnesses covered by the term insurance plan.
Points to Consider Before Buying a Term Insurance Plan:
Term insurance plans can be bought both in online or offline mode.
1. Online Mode– Online term insurance plans are sold directly by the insurer and are, thus, low-priced. You can also purchase them through financial aggregators such as terminsuranceplans.org where you have the option to compare different plans and make an informed decision.
- Offline Mode– Offline term insurance plans are sold by brokers & agents. These plans may have slightly higher premium rates as compared to the online mode, due to commission paid to the agents & brokers.
Final Thoughts:
A term insurance plan helps in case of the insurance holder’s premature death and work as an income replacement tool to ensure her/his family’s financial security. The thumb rule for buying term insurance is whether you have dependents to take care of in your absence. And, if you do, you can cover their long-term finances even in your absence. The benefit amount will pay a substantial corpus to your dependents to help them meet their long-term financial obligations, such as completing children’s education, paying of EMIs or rents and meeting day-to-day expenses.
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