Complete guide to individual term life insurance plans
Individual Term Life Insurance Plans are increasingly becoming the need of the hour. More and more people are waking up to the importance of such plans and are including one in their portfolios. Sahil too was looking for a term insurance plan to invest in but he was short on knowledge. Though he knew that an individual term life insurance plan would provide financial security for his family, he didn’t know how the plan worked and which one to choose. The market was flooded with term plan options which increased his confusion.
What about you? Do you have a complete knowledge of individual Term Life Insurance Plans?
Since individual Term Life Insurance Plans are so important, they warrant a complete understanding on your part before you buy one. So, let’s unravel them–
What is an individual term life insurance plan?
A term plan is a life insurance plan which promises to pay a benefit (the Sum Assured) in case of death of the insured (the individual whose life risk was covered by the plan). Term plans have certain salient features, which distinguish them from other plans of insurance. Here are such features:
• The plan benefits
Term plans, usually, pay only the death benefit. When you buy the plan, you choose the specified coverage tenure. If during this tenure, you suffer pre-mature death, your family would be paid the Sum Assured. However, if you survive the chosen plan tenure, a term plan, usually, pays no benefit.
• The coverage and its premium
Term plans are unique in respect of the coverage granted by them. These plans allow you to avail of a higher coverage amount at a very lower premium. Since term plans usually pay a death benefit, only the risk premium is required to be paid. This risk premium is low, thereby resulting in very low premiums.
• The plan tenure
Term plans cover death risk only during a specified tenure. Thus, the tenure of term plans is usually high so that you can avail coverage for the maximum possible duration. Term plans are usually offered for up to 30 years or 35 years
• Plan variants
Individual Term Life Insurance Plans come in four different variants apart from the basic plan to suit varied needs. Let us see what these variants are:
Increasing term insurance plans – in these plans, the Sum Assured increases every year by a pre-determined rate mentioned at the start of the policy. When the insured dies, the Sum Assured in the year of death is paid to the nominee and the plan terminates. Increasing term plans are good for you if you foresee an increase in responsibilities and financial obligations in future years.
Decreasing term insurance plans – these plans are a complete opposite of increasing term plans. Under these plans, the Sum Assured decreases every year by a specified amount or percentage which is mentioned at the time of buying the policy. Upon death, the Sum Assured in the year of death is paid and the plan terminates. Decreasing term insurance plans are usually offered as mortgage redemption plans. The decreasing amount of the Sum Assured represents the decreasing liability as the repayments are made. On death, the burden of the outstanding liability is settled by the benefit paid by the plan.
Return of premium plans – by now you must know that term insurance plans usually pay only a death benefit. This is, however, not the case in return of premium plans. Under these plans, if the insured survives the plan tenure, the premiums paid are returned back. So, this plan also has a maturity benefit, unlike other types of term plans.
Monthly income plans – these are relatively newer types of term insurance plans offered by insurance companies. Under these plans, the death benefit is not paid at once in a lump sum. It is, usually, paid partly in lump sum and partly in monthly instalments. The monthly instalments are calculated as a percentage of the Sum Assured and are paid for a specified duration after the death of the insured. Thus, the family is ensured a regular stream of income even in the absence of the bread-winner besides a lump sum benefit.
Importance of Individual Term Life Insurance Plans
The main importance of these plans lies in the fact that they provide financial security. By enabling a higher Sum Assured, you can ensure that your family would be financially protected even when you are not around them. They can, thus, meet their financial obligations through the benefit paid by a term plan. Moreover, decreasing term plans also help take care of outstanding liabilities and prevent their burden from falling on your family when you are gone.
All in all, Individual Term Life Insurance Plans are a quintessential requirement. So, know all about such plans and then ensure to include one in your financial portfolio.