Everything you wanted to know about individual term life insurance

Does a term insurance plan confuse you?

My friends Amit was. Amit was looking for a term insurance plan and went online to find a plan for his requirements. The various alternatives confused him and he couldn’t buy the plan. The reason was his lack of knowledge regarding the tenets of a term insurance plan. Due to this lack of knowledge he was apprehensive of the plan features and benefits. Do you have a complete understanding of individual term life insurance plans?

Though some of you do know about a term insurance plan, most of you might not. So, here’s a complete guide to individual term life insurance plan outlining every detail which you should know:

  • The coverage

A term insurance plan offers you high coverage levels which would optimally secure your and your family’s financial future. You can choose a high level of coverage easily through a term insurance plan.

  • The premium

If you are wondering about the incidence of a high premium outgo by selecting a higher cover, relax. Individual term life insurance plans have the lowest premium among all other life insurance plans. as term plans only cover the risk of death, the premium consists of only the mortality premium and is, thereby, low.

  • The tenure

Term insurance plans allow you to take the policy for a longer tenure to ensure that the coverage runs for the maximum possible time. You can choose a term as high as 30-40 years when you buy a term insurance plan.

  • The types of plans available.

Individual term life insurance plans are available in five different types depending on the benefit payable under the plan. Here are the types of term plans available in the market today:

  • Level term plan – this is the most basic type of term plan available. You pay a fixed amount of premium throughout the plan tenure and the chosen Sum Assured is paid on death during the plan term.
  • Increasing term plan – in these types of term plans, the Sum Assured increases every year by a fixed percentage which is stated at the beginning of the plan tenure. When you die, the enhanced Sum Assured as in the year of death is paid.
  • Decreasing term plan – these plans are opposite of increasing term plans. Here the Sum Assured decreases by a fixed rate every year. On death, the decreased Sum Assured as in that year is paid. These plans are usually bought along with loans and the decreasing coverage denotes the decreasing liability.
  • Term plans with return of premium (TROP) – unlike traditional term plans where there is no maturity benefit, TROP returns the premiums you have paid during the plan tenure when the plan matures. So, you get either the Sum Assured in case of death or the return of your premiums in case of maturity.
  • Monthly income plans – these term plans offer you the Sum Assured in case of death. However, the Sum Assured is paid partly as monthly incomes and partly as lump sum so that your family also stands to get a regular monthly income rather than only the lump sum benefit.

You can choose any plan based on your requirements.

  • Option of adding riders

You can add optional riders to your individual term life insurance plan if you wish to increase the scope of coverage. Riders are like additional protection clauses which pay you an additional Sum Assured when the insured event occurs. The following riders are popularly found in most term plans:

  • Accidental death and disability benefit rider – this rider pays an additional benefit if you face an accidental death or permanent disability.
  • Critical/Terminal illness rider – a list of critical illnesses are covered under this rider. When you are diagnosed with any illness, an additional rider benefit is paid.
  • Waiver of premium rider – this rider waives off your future premiums if you are permanently disabled following an accident.

You can choose one or more riders to attach to your basic term plan. Every rider requires an additional premium payment which is a fraction of the cost of the basic premium you pay. Moreover, riders have no maturity benefit. The benefit is payable only if the contingency covered by the rider comes to pass.

  • The plan benefits

Term plans usually pay the Sum Assured in case of death during the plan tenure. Only return of premium plans have a maturity benefit. Moreover, some plans also have inbuilt rider benefits where riders come pre-attached with the coverage features.

Now you know everything there is to know about term insurance plans. These plans are cheap, provide the highest coverage and essentially provide financial security. Amit was educated, what about you?

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