Every individual's food choice differs depending on their body and health conditions. Take milk, for example. Today, there are a variety of milk variants available in the market other than normal A1 milk - like soy milk, almond milk, oat milk, coconut milk, etc. These varieties are specifically curated for vegans, allergic people, lactose intolerants, etc - so as to ensure there is always something for everyone.
Likewise, there are many term insurance variants available today, making the process of picking one even more complex. All of these variants are different, possess their own unique features, and are tailored to meet your specific requirements. Honestly, there is no best plan. Your requirements and needs determine what plan is right for you.
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In order to help you make a well-informed decision, we have compiled a list of term plans -
Types of Term Insurance Policies
Regular Term Insurance
If you buy a regular term insurance plan, you must pay the premiums until the end of the policy term. This means that the premium payment term under this plan is equal to the policy duration you choose.
Example: Megha, a 30-year-old, buys a regular term plan with a sum assured of Rs 1 crore for a policy duration of 40 years. Let’s assume she needs to pay an annual premium of Rs 10,000 every year. Therefore, she must pay Rs. 10,000 as premiums every year for the next 40 years.
Single Pay Term Insurance
Under this type, you need to pay the premium in a single go when you are buying the policy. Premiums are paid only once, so you don't have to worry about payment due dates or policy termination because you missed out on payments. You and your family will then be able to enjoy life insurance coverage for the chosen tenure. These policies cost much more than other types of term insurance plans.
Example:Sonal purchases single-pay term insurance with a sum assured of Rs 90 Lakhs for a policy duration of 35 years. She chooses to pay the entire premium in one go as a lump sum. She and her family can then enjoy term coverage for the rest of the policy period.
Limited Pay Term Insurance
By choosing this type, you can relieve yourself of the premium payment liability early. In contrast to the policy tenure you choose, you only need to pay premiums for a limited period of time. Limited Pay Term Insurance is a good option if you are uncertain about your income or unsure about your financial capability to pay premiums for the full policy duration.
In this case, this option allows you to pay your premiums in larger instalments and enjoy coverage throughout the remaining period of your policy.
Example: Bharat, a 35-year-old, buys a limited pay term insurance with a sum assured of Rs 80 lakhs. He chooses a policy term of 35 years, and a premium payment term of 15 years. He’ll have to pay off all the premium payments under his policy in the next 15 years. He will be covered under the term plan for the rest of the policy period.
Whole Life Term Insurance
As the name suggests, a whole life term insurance policy covers you for practically your entire life - up to 99/100 years of your age. You can consider investing in this plan if you want to leave a financial legacy for your loved ones.
Since the probability that you’ll survive that long is less, such plans are an excellent way of ensuring the financial security of your family.
Example: Karan buys a whole life term plan up to the age of 99 years with a sum assured of Rs 1 crore. He passes away at the age of 70 due to a heart attack. In this case, a claim amount of Rs. 1 crore will be paid to his family by the insurance company.
Level Term Insurance
The sum assured under a Level Term Insurance Plan remains the same throughout the policy period. The amount will neither increase nor decrease.
Example: Priya, 30, purchases a level term insurance plan with a sum assured of Rs 75 lakhs. The policy duration is 45 years. The sum assured under her level term plan will remain the same throughout the policy period. In case she passes away during the policy period, her family will be entitled to receive a claim amount of Rs. 75 lakhs.
Increasing Term Insurance
Growing older also means having more financial responsibilities. You’ll get married, have children, save up for their education, buy a house, etc. All these events may wipe out your savings - if you don't have a proper financial plan in place. An increasing term insurance policy is the best way to keep up with your increasing obligations and ever-rising inflation.
The sum assured of this policy will increase gradually during the policy period. However, while the increase in coverage amount will stop on touching the maximum limit specified by the insurance company, the plan will stay in effect till the end of the policy period.
Example: Lalit, 35, buys an increasing term plan with a sum assured of Rs. 40 lakhs for a 20-year policy duration. His policy sum assured will increase by 10% every year until a maximum increase of two times his base sum assured, according to the terms and conditions. The cover will increase from the second policy year onwards. Below is a table showing how his coverage will increase.
|How will the Sum Assured increase?
|40 Lakhs + 10% of 40 Lakhs
|44 Lakhs + 10% of 40 Lakhs
|48 Lakhs + 10% of 40 Lakhs
|52 Lakhs + 10% of 40 Lakhs
|56 Lakhs + 10% of 40 Lakhs
|60 Lakhs + 10% of 40 Lakhs
|64 Lakhs + 10% of 40 Lakhs
|68 Lakhs + 10% of 40 Lakhs
|72 Lakhs + 10% of 40 Lakhs
|76 Lakhs + 10% of 40 Lakhs
From the table, it is evident that from the 12th policy year onward, there will be no further increase in the sum assured. This is because the maximum increase allowed is only twice the sum assured.
If Lalit passes away in the middle of the policy term, the sum assured applicable in that year will be paid to his nominee. So, if he passes away in the 7th policy year, the insurer will pay 64 lakhs to his nominee. And in case he passes away in the 19th policy year, his nominee will receive Rs. 80 lakhs.
Decreasing Term Insurance
If you have loans/ liabilities and pass away before settling them, the burden of repayment will fall on your family’s shoulders. If you want to avoid this problem, you should consider a decreasing term plan. Under the policy, your sum assured decreases by a certain percentage every 5 years
As you repay your loan periodically, the cover amount will decrease gradually. And, in the event you pass away, the insurer will pay the claim amount to your family. They can use this money to repay the loan/liability.
Age can also be a factor when it comes to decreasing term insurance. In general, as you age, your liabilities decrease, and thus, your need for a higher sum assured decreases. For instance, say you have a dependent spouse and child. You have also taken a home loan of Rs 40 Lakhs. So, it can be safe to surmise that your responsibilities are large right now and hence, you will need a cover that’s enough to accommodate the same. But, as your home loan gets paid and your kids grow older and start earning, your financial liabilities will reduce and you won’t need as big a cover.
Example: Rakesh buys a decreasing term insurance plan with a sum assured of Rs. 50 lakhs and a policy duration of 60 years. As per the policy terms and conditions, the sum assured will keep decreasing at the rate of 10% every 5 years - until it reaches a maximum of 50% of the original base cover.
Let’s see how the cover amount decreases gradually -
|How Will The Sum Assured Decrease?
|Year 1 to Year 5
|Year 6 to Year 10
|50 lakhs - 10% of 50 lakhs
|Year 11 to Year 15
|45 Lakhs - 10% of 50 lakhs
|Year 16 to Year 20
|40 Lakhs - 10% of 50 lakhs
|Year 21 to Year 25
|35 Lakhs - 10% of 50 lakhs
|Year 26 to Year 60
|30 Lakhs - 10% of 50 lakhs
So, this is how the sum assured under Rakesh’s policy will decrease. In case Rakesh passes away in the middle of the policy term, the sum assured applicable in that year will be paid to the nominee. For instance, if he passes away in the 12th policy year, the insurer will pay Rs 40 lakhs to his nominee.
Joint Life Term Insurance
A joint life term insurance policy covers both you and your spouse. If you are buying a Joint Life Term Insurance Plan, you will be the ‘primary life assured' and your spouse will be the ‘secondary life assured’ under the plan.
Joint Life Term Plans can either have a shared sum assured or a separate sum assured. Here's how the plan works in both cases.
Separate Sum Assured
In a joint life term plan, where the cover amount is separate for you and your spouse, the cover amount for the secondary life assured, your spouse can either be -
In case primary life assured passes away, unexpectedly, during the policy period, their cover amount will be paid to the secondary life assured. And, in case the secondary life assured also passes away while the policy is still in effect, the secondary life assured’s cover amount shall be paid to the nominee
Example: Tilak and Ayesha buy a joint life term insurance policy with a 40-year policy duration. Tilak's cover amount is Rs. 70 lakhs and Ayesh's cover amount is Rs 35 lakhs. Tilak passes away in the 10th year of the policy. In this case, Ayesha will receive 70 lakhs from the insurer.
During the 15th policy year, Ayesha passes away in an accident. Thus, a payout of Rs. 35 lakhs will be made to the nominee, and the policy will be terminated.
Shared Sum Assured
If the sum assured under the joint life term insurance is the same for both you and your spouse, the insurance company will pay the claim amount on a first-death basis. Once the payout is made, the policy will expire.
Example: Mihir and Divya buy a joint life term policy with a sum assured of Rs. 50 lakhs, for a policy duration of 20 years. The claim will be paid on a first-death basis. The policy will terminate after that. In the 10th policy year, Mihir passes away due to an accident. Divya will receive the claim amount of Rs. 50 lakhs, and then, the policy will expire.
- The same as your cover amount, or
- 50% of your, i.e., the primary life assured’s cover amount, or
- 25% of your, i.e., the primary life assured’s cover amount.
- Term Return of Premium (TROP) Plan
The term insurance policies we discussed above generally don't pay out anything if you survive the policy period. They offer only a fixed sum of money(death benefit) if you pass away during the policy period. Not everybody likes the thought of paying premiums for years and not getting anything back at the end. To address this concern, insurers came up with something called a term return of premium plan.
Term return of premium plan offers a death benefit and a maturity benefit.
- If you pass away during the policy period, your family will receive the claim amount.
- If you outlive the policy period, the insurer will return back your paid premiums (minus tax).
Example: Nagma takes a TROP plan with a sum assured of Rs 75 lakhs with a policy duration of 40 years. Let’s assume that an annual premium of Rs. 60,000 must be paid for 40 years (exclusive of taxes). In the event that she passes away during the policy period, the insurer will make a payment of Rs. 75 lakhs to her nominee.
In any case, if she survives the policy's term, she will receive her premiums back.
Thus, maturity benefit
= 60,000 x 40
= Rs. 24,00,000
Group Term Insurance
Under group term insurance, a group of people is covered under a single policy. Most companies, banks, and other institutions offer group term insurance plans as a benefit to their employees, customers, account holders, and members.
As a general rule, the insurer offers only one master policy to the master policyholder, such as an employer, bank, or organisation. The master policyholder pays the premiums to the insurer and issues the cover to all the members of the group.
If an employee/member passes away during the policy term, their nominee will receive the death benefit, which is a fixed amount of money.
Best Term Life Insurance Plans
So, these are the basic types of term insurance policies available in the market today. Choose a policy that meets all your and your family's requirements, and at the same time, fits your budget. This will ensure that you don’t end up shelling out money for a plan that falls short of your expectations.