Term insurance plans are the most basic forms of life insurance policies. However, the simplicity of these plans does not detract from the effectiveness with which they can protect loved ones. Moreover, the cost-benefit ratio of these plans is so good that even those who criticize it cannot deny its importance. This is why it is so popular in India, especially for small families and new policyholders. In fact, India has experienced a insurance penetration rate of 4.2% over the past year because of the ease and affordability of purchasing life insurance policies.
Simply put, a term insurance plan provides a high sum insured at very low premium rates. The only insured risk in term insurance policies is the death of the insured and, unless otherwise stated, no benefit accrues when the insured survives the term insurance plan.
As simple and easy as the subject of term insurance is, there are bound to be questions. In this article, we answer some of the most frequently asked questions about term insurance plans.
How to buy the right term plan?
A term insurance plan should be purchased with the specific facts and circumstances of your life in mind. Your current life and lifestyle should be assessed to determine your future financial needs. Ideally, ask yourself three questions – Is the sum insured sufficient to cover all the financial liabilities that will arise in the future? The rule of thumb is to choose a high sum assured. Second, is the duration of the term insurance long enough? Next, ask yourself if the insurance company you focused on is trustworthy or not? The claims settlement ratio is a great way to make this decision. Make good use of the free search period also, before finalizing your decision.
What are the advantages of term plans?
Beyond the fact that a term insurance plan provides future financial security for your loved ones at very low premium rates, term plans have other benefits as well. For example, a term insurance plan provides for the payment of a lump sum or a fixed amount paid periodically to applicants so that their financial needs are taken care of even after the death of the insured. The assurance of this protection will provide peace of mind to the insured in their day. Plus, term plans are also a great way to pay off loans and mortgages. One can opt for plans with decreasing duration in which the sum insured is reduced by a fixed percentage each year, to repay loans after the death of the insured. This way, the family will not be burdened with the financial responsibility of paying off a loan or mortgage.
Are there different types of term plans?
Yes, there are different types of long term plans. They can be broadly categorized into four-tier plans, ascending plans, decreasing plans, and bonus return plans. Level term insurance plans are those where the sum insured remains the same for the life of the policy and is payable to the applicants upon the death of the insured. Increasing term plans are those where the sum assured increases by a specific percentage each year, without any increase in the premium paid. Decreasing term plans or mortgage buyout plans are those where the sum assured decreases annually by a fixed percentage. Return of premium plans are those where the premium paid is refunded to the insured at the plan’s maturity.
Can term plans be purchased online?
The good news is that a term insurance plan can be purchased online and offline. The only difference is that the former does not involve intermediaries in purchasing the policies, which makes the process more economical. Buying term insurance online is also secure, as technology has advanced enough to make online platforms safe and fraud-free.
Does the premium remain the same for everyone?
The premium paid is different for each insured and cannot be generalized. It depends on factors such as age, lifestyle, coverage, occupational hazards, length of plan, medical history, etc. If the insured’s lifestyle is unhealthy and includes activities such as smoking and drinking constantly, then the risk is higher and the premium paid is also higher. The sum insured (coverage) and the duration of the plan (term), if high, will result in an equally high premium. Similarly, if the insured suffers serious and regular occupational risks and if the medical history of the insured indicates a greater susceptibility to diseases, then the premium becomes high because the risk is high in these cases. In other words, the premium paid by different policyholders depends on the level of risk in their lives.
Finally, the “term” is the duration of the plan. Once the premium is set, based on the factors mentioned above, it does not change for the life of the policy. However, the sum insured may vary depending on the type of term plan chosen.
Author Bio: Vinod Gill is a content writer specializing in financial and banking topics. He is a digital marketing consultant, blogger and co-founder of Ecompany.fr
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