Term life insurance is the simplest and least expensive type of insurance, as it pays benefits only upon the policy holder's death. Experts recommend that people who choose term insurance make sure that their policies are convertible, so that they can switch to a cash-value plan later if needed. They also should purchase a guaranteed renewable policy, so that their coverage cannot be terminated if they have any kind of health problems. Term insurance typically suitable for younger people with children and limited funds who are not covered through an employer. This type of policy enables such a person's heirs to cover mortgage and college costs, estate taxes, and funeral expenses on his or her death. It is a pure risk cover for a particular period of time. This means that the sum assured is payable only if the policyholder dies within the policy term. For example, if a person buys Rs 2 lakh policy for 15-years, his family is entitled to the money if he dies within that 15-year period.
If he survives the 15-year period, he is not entitled to any payment; the insurance company keeps the whole premium paid during the 15-year period. So, there is no aspect of savings or investment in such a policy. It is a 100% risk cover. It purely means that a person pays a certain premium to protect his family against his sudden death. He forfeits the amount if he lives longer than the period of the policy. This clarifies why the Term Insurance Policy comes at the lowest cost.
Types of Term Insurance
Term insurance can be further classified into the following categories :
- Level Term
- Increasing and Decreasing Term
- Renewable Term
- Convertible Term
- Group Term
In this type of term insurance everything will be levied at a consistent level right from the premium of payments to the period for which it is payable.
Increasing and Decreasing Term Insurance
In this type of policy the insured has the option of changing the policy amount. The insured can either choose to increase the amount or to decrease it. However in any case the insurance premiums remain consistent over the whole term.
Whereby if an insured does not die during the term for which the insurance is taken he has the alternative to renew it after that period. It needs to be understood that he will be required to pay a higher amount of premiums on such renewals. Even after the renewals the insurance amount will be paid to the dependents of the insured after his death.
Convertible Term Insurance
In this kind of policies the insured has the option of converting the term insurance into other policies. This will be of help the insured to make use of the time advantages of these types of insurance and thereby get free of the limitations by converting it into a suitable and preferred policy. This is advised for those who require permanent protection after a point of time.
Group Term Insurance
The term group insurance is not only applicable to term insurance but to other forms also. Group insurance is usually taken by an employer. The premiums are collected from the monthly salary of the employee and deposited in the insurance company. However unlike in other insurance group term insurance is taken only for specific period periods; the premiums will still be lower.
Advantages of Term Life Insurance
Term Life Insurance has the following advantages
- Helps to Settle Loans
- Flexible Duration
- Less expensive
- Suitable for Satisfying Particular Requirements
1. Helps to Settle Loans
Loans are generally repayable over a period of years. When an insured takes a loan for car or house or other movable and immovable properties he is under the responsibility to repay it over a period of time. During such circumstances an insured can take a term loan in order to ensure that his dependents have sufficient cash to repay them in the event of his unexpected death in that period.
2. Flexible Duration
This is the only type of life insurance policy whereby an insured can insure his life for a period small duration like one year. This type of lenience will help the insured to properly plan and assign the sum required to make the payments. In the absence of such flexibility the insured will be enforced to oblige with the time limits set by the company for the respective policy.
3. Less expensive
Even though term insurance premiums increase over a period of time they are still considered inexpensive when compared with other kinds of policy. Cheap term life insurance does not mean that the consumer will lose quality or benefits. This can help the customer even to save money in the initial stages which he/she normally pays in other policies. On the contrary when the premiums are increased the insured will be able to make use of the cash mounted up to pay the remaining premiums. In the meantime the earlier deposits would have earned interest as well. Therefore the customer will be able to obtain cheap life insurance quotes.
4. Suitable for Satisfying Particular Requirements
Term insurance is not only useful for settling loans but also for others particular requirements. Suppose a person wants to build a house or fund his child's education in an expensive university he can place targets and invest in a term insurance for that particular period. This will help him to meet critical events which would have otherwise been very difficult.
Some of the disadvantages of term life insurance are as follows :
1. Premiums Increase with Age
Term insurance policies require the insured to pay a lower amount in the beginning; as a person gets older he needs to pay a higher amount of premium. This will show to be a difficult task if the person is not able to allocate funds regularly. In addition the insured may have more commitments and some of them might be unexpected. Therefore the concept of cheap term life insurance seems to be a myth when a person is not able to meet the policy demands at this stage.
2. Temporary Protection
An insured may not be able to enjoy permanent protection dissimilar to a permanent life insurance policy. The insurance policy covers risks of death only during the specific term. This places the insured in a disadvantage because if he is not able to renew the policy and pay higher premiums he will lose the protection thereafter. The insurance company will not refund the money if the insurer does not die in that particular period.
This type of insurance is observed to be the best especially when it is not possible to spend a huge amount as premium but at the same time the customer is badly in need of insurance. There is no precise time for term insurance; it can be for a period of 1, 5, 10 or 15 and even 30 years. The insured has to choose that particular time which is convenient for him.