Term Insurance is the simplest and least expensive type of insurance. It pays benefits only upon the policy holder's death. Age is very important factor in determining the premium of a term policy. For example; with Annual Renewable Term Insurance, the policy holder pays a low premium in the beginning, which increases annually as he or she gets older.
Term Insurance typically suitable for younger people with children and limited funds who are not covered through an employer. This type of policy helps such a person's heirs to cover all the expenses such as 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 a policy of Rs. 2, 00,000 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, these policies are not meant for savings or investment. It is a 100 per cent risk cover. It purely means that a person pays a certain premium to protect his family against his sudden death. He sacrifices the amount if he lives longer than the period of the policy. But it is a very effective way of covering your life with a cheaper premium.
Two important things to remember while purchasing a Term Insurance
1. Always select Guaranteed Renewable Policy
You should always prefer a guaranteed renewable policy, so that your coverage cannot be terminated if you have any kind of health problems in future. If you are purchasing a guaranteed renewable policy company has the responsibility to renew the policy after the predetermined term even if you are suffering from some health problems.
2. Choose only convertible Policy
It is very important to remember that while choosing the term insurance you should make sure that the policies are convertible, so that you can switch to other plans later if needed. If you do not prefer the convertible policy, till the end of the policy term you should have to continue with the same Term plan, you won’t be having the option to switch to another plan.
Types of Term Insurance
There are different types of term insurance you can choose from. It can be classified into the following categories :
- Level Term
- Increasing and Decreasing Term
- Renewable Term
- Convertible Term
- Group Term
1. Level Term
In level term insurance, the premium amount is set for a definite number of years, and then it increases at the end of each time period. In this type of term insurance everything will be charged at a consistent level right from the premium to the period for which it is payable.
2. Increasing and Decreasing Term Insurance
In this type of policy you have the option of changing the policy amount. You can either choose to increase the amount or to decrease it. However in any case the insurance premiums remain consistent over the whole term.
3. Renewable Term
In Renewable Term 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 you 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.
4. Convertible Term Insurance
In this kind of policies you have the option of converting the term insurance into other policies. This will be helping you 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.
5. 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 periods; the premiums will still be lower.
Advantages of Term Life Insurance
Following are the advantages that you can receive from a Term Insurance Policy :
1. Helps to Settle Loans
Loans are generally repayable over a period of years. When you take a loan for car or house or other movable and immovable properties you are under the responsibility to repay it over a period of time. During such circumstances you can take a term loan in order to ensure that your dependents have sufficient cash to repay them in the event of your unexpected death in that period.
2. Flexible Duration
This is the only type of life insurance policy whereby you can insure your life for a period of small duration like one year. This type of facilities will help you to properly plan and assign the sum required to make the payments. In the absence of such flexibility you 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 insurance does not mean that the consumer will lose quality or benefits. This can help you even to save money in the initial stages which you normally pay in other policies. On the contrary when the premiums are increased you 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 other particular requirements. Suppose you want to build a house or fund your child's education in an expensive university you can place targets and invest in a term insurance for that particular period. This will help you to meet critical events which would have otherwise been very difficult.