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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.
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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.
| Policy Year |
How will the Sum Assured increase? |
Sum Assured |
| Year 1 |
- |
40 Lakhs |
| Year 2 |
40 Lakhs + 10% of 40 Lakhs |
44 Lakhs |
| Year 3 |
44 Lakhs + 10% of 40 Lakhs |
48 Lakhs |
| Year 4 |
48 Lakhs + 10% of 40 Lakhs |
52 Lakhs |
| Year 5 |
52 Lakhs + 10% of 40 Lakhs |
56 Lakhs |
| Year 6 |
56 Lakhs + 10% of 40 Lakhs |
60 Lakhs |
| Year 7 |
60 Lakhs + 10% of 40 Lakhs |
64 Lakhs |
| Year 8 |
64 Lakhs + 10% of 40 Lakhs |
68 Lakhs |
| Year 9 |
68 Lakhs + 10% of 40 Lakhs |
72 Lakhs |
| Year 10 |
72 Lakhs + 10% of 40 Lakhs |
76 Lakhs |
| Year 11 |
76 Lakhs + 10% of 40 Lakhs |
80 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.
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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 -
| Year |
How Will The Sum Assured Decrease? |
Sum Assured |
| Year 1 to Year 5 |
- |
50 Lakhs |
| Year 6 to Year 10 |
50 lakhs - 10% of 50 lakhs |
45 Lakhs |
| Year 11 to Year 15 |
45 Lakhs - 10% of 50 lakhs |
40 Lakhs |
| Year 16 to Year 20 |
40 Lakhs - 10% of 50 lakhs |
35 Lakhs |
| Year 21 to Year 25 |
35 Lakhs - 10% of 50 lakhs |
30 Lakhs |
| Year 26 to Year 60 |
30 Lakhs - 10% of 50 lakhs |
25 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.
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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 -
- 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.
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.
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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
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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.
