One of the most prudent life-saving investments that you can carry out is a term insurance policy. To put it simply, if you wish to safeguard your family in times of need, especially when you’re no longer by their side, a term life insurance plan is an ideal solution.
In this article, we will take a look at the different types of term insurance plans, and their pros and cons.
The different types of term insurance policies
A term life insurance policy will allow you to safeguard your family financially and never let them down in any way, even when you’re not physically with them. There are different types of term insurance policies to choose from.
Let’s take a look at every type of term insurance you can obtain based on your needs.
Level Term Plans
The simplest and the most basic form of term life insurance is known as a level term plan. In this particular type of plan, the sum that was assured during the inception of the policy remains the same throughout the policy tenure. The death benefit gets paid to the beneficiaries or nominees in the event of permanent disability or untimely demise of the policyholder.
Increasing Term Insurance
This is the type of term insurance plan that comes with an option to increase the sum assured during certain milestones of life, within the policy tenure. The rate at which the assured sum increases is predetermined.
Obtaining a term plan with an increasing cover is especially helpful when it comes to keeping up with the rising prices as it makes sure that the family has sufficient funds to sustain themselves, considering the inflation in today’s date.
Owing to the fact that the policyholder gets an option to increase the assured sum, the premium rate of this particular plan is slightly more when compared to a level term plan.
Decreasing Term Insurance
When you obtain such a plan, the assured sum decreases at a predetermined rate with the increase in the age of the policyholder. This plan works on the idea that as age increases, the liabilities seem to decrease, and the requirement for a higher assured sum, too, might decrease.
It is best suited for people who have taken out a mortgage or a loan, and expect to pay it off in the near future.
Return of Premium Term Insurance
A term plan with a return of premium is an extremely popular type of coverage that backs every premium paid by a policyholder if he/she outlives the policy tenure.
This particular option is valid only if he/she hasn’t made any claim during the term of the already existing policy.
No-Cost Term Insurance
This type of term insurance plan offers the option of exiting the plan early, which means before the date of maturity and receiving the premiums that have been paid, until that point in time, back on the cancellation of the policy.
Convertible Term Insurance
A convertible term insurance policy is a plan that can be converted into some other type of insurance plan at a later stage.
If you, as a policyholder, expect your financial priorities to alter in the upcoming years, you should definitely purchase this policy.
For instance, if you don’t have any whole-life coverage currently but expect that your needs might change in the future, you can purchase a term plan that can be converted into a whole-life plan.
Furthermore, a term insurance plan may come with certain riders as well, and you can also choose to incorporate specific riders into your existing plan to improve the protection that you’re being offered.
Pros of term insurance policy
The top 5 pros of a term insurance policy are as follows:
Affordable premiums
If you pay a modest premium of INR 460 per month for a term insurance policy, you may definitely get a high-value life cover. Premium payments can be made annually, monthly, or half-yearly. The earlier you buy a term insurance plan, the lower your premium rate is going to be.
Whole life cover
Term insurance policies cater to providing substantially longer coverage. Whole life insurance plans safeguard policyholders till the age of 99 years.
Payout of the insured sum
In case of the untimely death of the policyholder, the family members are going to receive the sum assured in the form of payout. This will ensure that the financial needs and household expenses are taken care of after the unfortunate demise of the insured person.
Coverage for terminal illnesses
Moreover, term insurance policies provide policyholders with lump sum payments in the event that a terminal condition, like AIDS, is diagnosed.
Critical illness coverage and accidental death benefit
If an optional critical illness coverage is included in your term insurance policy, you are going to get a lump sum payout upon treatment of any critical illness that’s covered in your plan.
Moreover, you can also add the accidental death benefit to your term insurance policy which will offer you timely protection against any unfortunate mishaps in the future.
Cons of term insurance policy
Some of the cons of a term life insurance policy are as follows:
No return on investment
A basic term insurance policy, unlike other investment plans, does not offer a return on investment over your lifetime. Offering financial support to your family after your demise might be the only advantage that you can expect to have.
No wealth creation
If you have a goal to build money by paying a premium for a term insurance plan, you are going to be utterly disappointed. This is one of the biggest disadvantages of term insurance policies.
Non-profit plans
Term insurance plans are essential non-profit plans. They might only require you to pay a certain premium amount till your term plan matures or you, as a policyholder, pass away.
The sum assured is then distributed to your family or your nominee or beneficiary.
Final Words
A term insurance policy comes with various benefits like low premium rates, whole-life coverage, and so on, but there are certain specific cons that you need to look out for as well. Based on your requirements and considering your future expectations, you should opt for the term insurance policy that caters to every need of yours and safeguards you and your family in uncertain times.