Home EDUCATION Read on to know the different ‘whats’ and ‘hows’ of term insurance

Read on to know the different ‘whats’ and ‘hows’ of term insurance

by Rohan Mathew
Read on to know the different 'whats' and 'hows' of term insurance

Life is filled with uncertainties, and there’s always a risk of leaving everything behind forever. If you’re the only income provider of your family and you have an untimely death, unfortunately, your family will lose their primary source of income, and will struggle to fulfill their day-to-day requirements. 

In worst cases, this can even lead to your dependents and loved ones suffering through a financial crisis. Although you may have some savings already, with the growing changes in lifestyle and ever-expanding inflation, it won’t be sufficient enough to meet your family’s financial needs. 

That’s where financial investments come into play. By understanding what is term life insurance and investing your capital in a term life insurance policy, you can offer financial security to your family that allows them to deal with the ups and downs of your life after your death.

What is a Term Insurance Plan? 

Term insurance is an investment plan offered to individuals for getting cover for their life. Under this policy, a specific assured sum and tenure are determined, along with the amount of premium that you need to pay. You can calculate your estimated premiums using an online term insurance calculator. 

If you face death during the term of your plan, the nominee you selected while signing up for the plan will be paid a lump sum benefit known as total sum assured. This amount can help your family deal with their daily expenses and pay your remaining liabilities. 

Term Insurance – How Does it Work?

As you make up your mind to purchase a term insurance plan, you need to decide the preferences in your access such as the coverage amount and the policy term. When this process is done, the insurer will determine your premium payment amount based on a variety of factors. 

After inquiring about various things related to you such as age, health, habits, and profession, the insurance provider will quote a premium amount that will remain the same throughout the term of your insurance policy. 

If you want to gain an estimated amount of premiums that you’ll likely pay, you can use a term insurance calculator tool online. You can either pay the premiums at once or at regular intervals for a fixed time. Moreover, you can also decide the way you want to receive your coverage amount. 

After successfully purchasing the policy, if you die due to unlikely circumstances, the coverage amount will be paid to your added beneficiary by the insurance company. On the other hand, if you manage to survive till the term’s end, you’re not likely to receive any benefits. 

However, with the help of additional riders like survival benefits, you will be eligible to gain a lump sum at the end of the policy tenure. Once the policy’s timeline is finished, you can also choose to renew it as per your preferences. 

Features of Term Insurance Plans 

Several things make term life insurance plans better and unique than other financial investment plans available in the market. Here’s a list of some of the key features offered by term life insurance plans: 

  • These plans require lesser premiums as compared to other policies because it covers only death risk
  • As there’s no capping on the coverage amount, you can make it as higher as you need as per your requirements to reinforce your financial security 
  • There are no bonuses involved in this plan and in the event of death, you only receive the guaranteed sum assured in the contract 
  • Term plans don’t provide any surrender or paid-up value. Not paying the premiums will only lead the policy to collapse and you won’t be able to enjoy any benefits 
  • These plans offer a wide range of riders that help you enhance and extend the scope of your policy’s coverage 
  • In this plan, the coverage period can get as high as 30-35 years 

With the above features in your insurance plan, you can certainly prepare better for the financial security of your family in the future in your absence. You can build a large corpus of money that your family can use to survive. 

Different Types of Term Insurance Plans 

There are several different variations of term insurance available in the market, each with a unique set of features and benefits. To help you get a clear idea about the differences, here’s a list of some of the major types of term plans available: 

  • Increasing Term Plans 

In this type of term plan, the predetermined sum assured increases each year with a fixed amount of money. If the policyholder passes away due to unprecedented circumstances, the assured sum will be paid to the nominee in the same year of death. 

Generally, the corpus increases by five percent every year, and if you purchase a cover of Rs. 10 Lakhs, you’ll find that it will increase to Rs. 10.5 Lakhs in the next year and continue to grow until the death of the policyholder. 

  • Decreasing Term Plan 

As the name suggests, this plan is exactly the opposite of what you’ve been promised in an increasing term insurance plan. It reduces your assured sum by a specified percentage every year. This plan is also generally provided as loan redemption plans. 

In these types of plans, the assured sum decreases every year until it equates to the reducing balance of your outstanding loan. The primary goal of this plan is to help you pay off your outstanding loan in the event of your death. 

The Takeaway 

Although life insurance ensures a specific amount of money is given to your nominee in the event of your death, term life insurance allows you to do the same with a time-capping during which the policy is active. With this policy, you can easily protect your family and loved ones financially, and leave them with a larger amount of money by paying lower premiums, in the event of an untimely death.

Whether you’re the only earning member of your family or not, it’s always suggested to purchase term life insurance to actively prepare for the unfortunate times and take care of your family even when you’re no longer with them. 

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