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Nowadays, many people understand the importance of buying term insurance but get confused by the different types of term insurance. While some people prefer low premiums and thus opt to buy level-term plans, others choose the return of premium plan as it returns all the premiums paid at the end of the policy term. Before we look at the different types of term insurance, let us first understand what term insurance is.
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Term insurance plan are one of the most basic and traditional forms of life insurance. These are protection plans that are designed to protect the policyholder’s family against unforeseen circumstances by providing them with financial security in your absence.
A term insurance plan has a specific time period assigned to it, which is also known as the plan term. In case the policyholder/life insured dies during this plan term, his/her nominees are liable to be paid the sum assured by the insurance company.
The sum assured is the coverage amount agreed upon by the policyholder at the time of purchasing the policy, and this benefit is only payable in case of her/his death. In case the term plan completes the fixed term assigned to it and the life insured is still alive, the plan will attain maturity. Once the plan matures, no benefit is paid to the insured. This is the case with pure protection term insurance plans that come with death coverage.
Term Plans
Here is a list of the different types of term insurance based on their coverage and term insurance benefits:
This is the most basic and affordable type of term insurance where the sum assured is fixed throughout the policy tenure, and benefits will be paid to the nominee on the death of the life assured.
Unlike level term insurance, these plans come with maturity benefit wherein the total premium paid will be returned to the life insured if she/he survives the policy tenure.
These types of term insurance plans offer the option of exiting the plan early (before the maturity date) and receiving the premiums paid until that point back on the cancellation of the policy.
In these plans, the policyholder has the option to increase the sum assured on an annual basis during the policy tenure while maintaining the premium amount at the same value. Due to this reason, the premium for these plans is naturally on a bit higher side as compared to level term plans.
Unlike increasing term plans, the sum assured decreases every year in these plans to meet the decreasing insurance requirements of the life assured. These types of term insurance plans are best suited for people who have taken a huge home/personal loan or paying an EMI (Equated Monthly Installment).
In these types of term insurance plans, the sum assured keeps on decreasing at a fixed rate every year with the payment of EMIs. It also decreases the total loan amount.
These plans come with an option wherein the policyholder can convert these plans into any other type of plan at a future date. For instance, if you have bought a term insurance plan for 20 years, but after 5 years if you want to convert it into a whole life insurance plan, etc., you can do so without any hassle.
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Let us take a look at the various points you should consider before buying the best term insurance plan in India:
You need to ensure that the premiums of the term plan of your choice are suitable and fit within your budget, as a large term premium poses the risk of policy lapse.
You need to check the Claim Settlement Ratio (CSR) and the solvency ratio, as these represent the insurer's reliability.
The policy term should be enough to cover your financial dependants in your absence therefore, choose the policy term after careful consideration.
You should assess your and your family’s needs and use a human life value calculator to make sure that the sum assured is enough to support your dependents financially.
Make sure to add all the relevant riders, such as terminal and critical illness, to ensure comprehensive coverage within the same plan and at nominal premiums.
Having a good knowledge of term insurance and the different types of term insurance plans can help you make an informed decision about the most suitable plan. You can take a thorough look at the types of term insurance plans available in India and compare them based on their benefits to buy the best term insurance plan.
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
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