Types of Term Insurance: Know the Features and Benefits

2022-08-01

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A term insurance plan is an integral part of the financial portfolio. However, there is no “one size fits all” plan, which is the reason there are different types of term insurance plans. People generally buy protection plan to help their dependants cope up with the financial shock they may face if something happens to the sole earning member of the family.

With changing times and needs, a single plan cannot be suitable for everyone. Hence, there are different types of term plan that may be considered while planning your finances.

Let us delve deeper and understand this in detail.

1. Level Term Plans

The basic and the simple form of term life insurance is termed as a level term plan. In this type of plan, the sum assured chosen at the inception of the policy remains same throughout the policy term. The death benefit is paid to the nominees or beneficiaries in case something happens to the policyholder.

2. Increasing Term Insurance

This type of term plan has an option to increase the sum assured at specific milestones of life within the policy term. The rate of this increase in sum assured is predetermined. A term plan with increasing cover is a helpful in keeping up with the rising prices as it ensures that the family has enough funds to sustain considering the inflation. As the policyholder gets an option to increase the sum assured, the premium of this plan is a little more.

3. Decreasing Term Insurance

With such a plan, the sum assured decreases at a predetermined rate as the age of the policyholder increases. It works on the idea that as age increases, the liabilities might decrease and the need for a higher sum assured too might decrease. It is well suited for you if you have taken a loan or a mortgage and expect to pay it off in the near future.

4. Return of Premium Term Insurance

Term plan with return of premium is a popular type of plan that offers back all the premiums paid by the policyholder if they outlive the policy term. This option is valid only if you haven’t made any claim during the policy term.

5. Convertible Term Plans

A convertible term insurance plan is a policy that can be converted into another type of insurance plan at a later stage. If you expect your financial priorities to change in the coming years, you can opt for this type of term plan. For instance, if you currently do not have a need of a whole life cover, but expect that in future your needs may change, you can opt for a term plan that can be converted into a whole life plan.

A term insurance plan may come with riders as well and you may choose to add specific riders to your plan for enhancing the protection you are being offered. For example, Canara HSBC Life Insurance iSelect Smart360 Term Plan offers life cover till 99, return of premium option, child care benefit, critical illness cover against 40 listed illnesses, block your premium rate at inception which allows you to increase the base sum assured up to 100% in next 5 years, increasing cover option, steady income benefit, spouse cover, limited premium pay option along with tax benefits.

Choose a sum assured that will cover the financial needs of your family. You can use online term insurance calculator to determine the amount of coverage you need. Also, remember that the premium of a term insurance plan increases as you age. The sooner you buy, the lower you pay. As we age, we become susceptible to age-related illnesses. If you buy a term plan at the age of 40, you will be paying a higher premium; however, if you buy it early in the career, say, in your 20s, you have to pay a lower premium.

Be prepared for the contingencies by buying a term plan that will be helpful in the financial planning.

Questions that you need to ask while Buying the Best Term Insurance Plan?

Are you buying a term plan with return of premium?
Amount of premium you have to pay based on your age, habits, education, and monthly income
The total number of benefits covered in the term insurance plan. Do they include benefits that you care about the most?
How to save money on tax if you pay for the term life insurance plan?
Do they offer regular income options?
Can you change the coverage and premium in the future?
Does the claim consider valid if death occurs outside India?
Which kind of death is not covered by a term insurance plan?
Can NRIs take a term insurance plan? If yes, what are the conditions?
Does the term insurance plan have a cash value if you decide to cancel the term insurance policy?
11. Under what circumstances can a term insurance plan be cancelled?
12. Can I pay the premiums online or make electronic payments?
13. What will happen to the term life insurance plan if the life assured starts smoking after purchasing the policy?