Types of Term Insurance Plans

June 21st, 2018 | by admin
Types of Term Insurance Plans

A term insurance are the most basic life insurance plans to secure the financial needs of your family in case of any unforeseen circumstances. The most basic term insurance plan provides the benefits to the family and dependents in case of an unfortunate death of the policy holder. However, there are certain other benefits the policy holder can avail during the term period and in case of survival. But before you start your own research on finding the best term insurance plan for yourself and your family, let us take a tour of the various term insurance plans that are available in the insurance market.

  1. Level Term Plans: This the most basic term insurance plan. The sum assured remains consistent throughout the tenure of the policy and the benefits are passed on to the dependents or the nominee upon the death of the policy holder. This is one of the most common term insurance plans purchased and is provided by all insurance companies.
  2. Return of Premium Term Insurance Plans: As the name suggest, this is a type of term insurance plan that returns the premium paid over the term period to the policy holder upon survival of the policy holder at the end of the term period. Over the years people considered buying term insurance a waste of money since the benefits were availed only upon the death of the policy holder. In case where the policy holder lives and survives the term period, no money was paid out in a basic or level term plan. However, with the introduction of return of premium term insurance plan, the premium amount paid throughout the term period is paid out to the policy holder making it one of the newest term insurance plans that has a significant number of takers. The premium for such a plan is considerably higher than that paid in a level term plan.
  3. Increasing Term Plan: These term insurance plans are offered by certain insurance companies keeping in mind the inflation and rise in prices which may lead the policy holder be underinsured. In this type of term insurance plan, the sum insured amount increases every year at a fixed rate with the premium paid remaining constant. The hind side of these types of term insurance plans are that the premiums are higher that other term insurance plans and could come with limitations to riders. However, with the insurance company taking care of you not being underinsured, paying a little higher premium compared to other term insurance plans would not hurt much.
  4. Decreasing Term Plan: As the name suggests, this is stark opposite to the increasing term insurance plans. With the term period nearing an end, the sum insured decreases as well with premium paid remaining constant. So why should someone even opt for it? And even if someone does, under what circumstances? The answer is, these are usually bought as a protection against big loans and mortgages. The reason behind having decreasing term plans are that an individual’s liabilities like housing loan or vehicle loan decrease or cease to exist over the term period. The plus side of the plan is not just a protection against mortgage, but the premiums paid are way lesser than other term plans.
  5. Term Insurance Plans with Riders: The best part of buying a term insurance plan is not just benefits on unfortunate death of the policy holder but the riders that one can opt for which caters to the financial needs of the policy holder and the dependents in case of any unfortunate circumstance not limited to death. Riders are available to be added on to the existing term insurance plan to cover any critical illness, accidental disability- permanent and temporary and waiver of premiums in case of loss of income due to certain unfortunate events.

Best Plan to Pick in Term Insurance

Since term insurance plans are bought to secure the financial needs of your dependents in your unfortunate demise, there are various parameters that need to be considered while buying one. Thus, there is no specific term plan that is best unanimously. Certain term plan which is beneficial for one may not be as much beneficial for another. However, with few tips, one can successfully pick the best term insurance plan.

  1. Do not buy a term insurance plan looking at the lowest premium. In fact the premium should be last parameter that you should be looking at while purchasing a term insurance plan. While this may let you pay low premium and save on tax, but it might not provide adequate insurance to your dependents during claims. The tenure of the plan, your age and sum assured along with the rise in prices should be considered while buying a term insurance plan.
  2. Once you have efficiently decided the sum to be insured, look for your need to add on a rider. There could be situations where you meet with an unforeseen accident leading to disablement which may lead to loss of income. Consider the financial needs of your family under such circumstances. Should a rider be bought with additional premium to safeguard your family during such situation? Consider your other investments and financial status and decide if your term insurance plan needs a rider too.
  3. Consider the type of plan you would opt for. A basic term insurance plan, an increasing term plan or a return on premium plan.
  4. Finally do your own research on the insurer. Consider the claim settlement ratio, solvency ratio, the financial background of the insurer and the market reputation before finalising the term insurance plan from the insurer.

Benefits of Buying the Right Term Insurance Plan

  1. Adequate financial support to the family.
  2. Financial support does not only mean meeting their daily lifestyle needs but also repay any ongoing loans and debts. Your term insurance plan should be chosen in a way that it allows your family to pay off any debts that are still open in your absence.
  3. Avail a better tax benefit.
  4. Support during unforeseen situation not limited to death which include circumstances like disability, loss of income or any critical illness.

A term insurance should be chosen with adequate research done on the part of the policy holder. As the needs of every individual vary, so do term insurance plans. It is never advisable to choose a term insurance plan by just seeing the lowest premium rates but keep in mind the other factors that might affect the financial situation of your family upon your demise.

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