Term insurance is the most cost-effective and straightforward type of life insurance policy. Before purchasing a policy, it is critical for the applicant to understand the many types of term insurance plans available so that he or she may make an informed selection.
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Are you considering purchasing term insurance? Because the financial future of your loved ones is at stake, you should think carefully about the type of plan you’re taking up. Term insurance is meant to give financial security for a specific time period. The insurance company will pay the death benefits to the nominees you’ve named in the policy if you, the life assured, die within the policy term. Term insurance provides a variety of advantages and should be included in everyone’s insurance portfolio.
There are four primary categories of Term insurance
Level Term Insurance:
In India, level term insurance is the most popular option. For the duration of the policy, the sum guaranteed and premiums due remain unchanged. So, whatever rates you and the insurance company agree on when you acquire the coverage will remain the same for the following ten or twenty years (depending on the policy period you have selected). When purchasing a level term life insurance plan, the younger you are, the lower your premiums will be. All life insurance companies offer this form of coverage.
Increasing Term insurance:
During the policy’s duration, the death benefits of an increasing term insurance plan grow on a regular basis, usually every year. The premiums on the policy remain unchanged. Some plans impose a cap on how much an amount promised can grow. The plan will remain functional even if the rise in coverage amount stops when it reaches the maximum. These kinds of strategies are made to help people deal with the consequences of inflation and/or changing circumstances. Increased term insurance plans are usually more expensive than standard term plans.
Decreasing Term Insurance:
Every year, the amount assured due decreases until the policy pays out or the coverage period expires. In the event of diminishing term insurance, premiums stay constant. These policies are typically used to protect against a specific debt that shrinks over time. When the policy period ends, the sum insured is usually reduced to zero. Compared to other forms of term insurance, decreasing term insurance policies have cheaper premiums.
Term Insurance with Return of Premium (TROP):
If you choose a return of premium term plan, the insurance provider will refund all of your premiums paid throughout the course of the policy’s duration. This will only apply if you live to the end of the insurance period. Mr. X, for example, obtains a TROP with a sum insured of Rs. 50 lakhs for a period of 20 years. He is obligated to pay Rs. 5,000 in premiums each year. Mr. X’s beneficiaries would receive the sum insured amount of Rs. 50 lakhs if he dies within the next 20 years. If he lives longer than the policy period, the insurance firm will refund all of his premiums, up to Rs. 1 lakh (Rs. 5,000 x 20).
Finding the Right Plan
Once you’ve determined what form of term insurance would best fit your needs, make a list of the insurance companies that provide that coverage. Take into account a company’s claim settlement percentage, reputation, and client reviews. When comparing the plans of different companies, look at their features, perks, and fees to see how they differ. Choose a coverage that suits all of your insurance needs while remaining within your budget.
Consider these factors before purchasing term insurance
Individuals should examine the following aspects while choosing a term insurance plan:
Selecting an insurance provider:
It is recommended that people get plans from reputable insurance providers. The first technique to figure this out is to look at the claim settlement ratio. In addition, candidates are encouraged to consider the following factors: solvency ratio, corporate governance record, assets under management, and occurrences of infractions (of IRDAI norms).
Only add riders to your Term Insurance Plan if they are required:
A variety of riders are available on the market. Accidental death rider, permanent and partial disability rider and critical sickness rider are only a few of them. For an additional fee, they give further protection. Riders should only be purchased if the policyholder believes they are essential. If the individual travels frequently for business, obtaining an accidental death rider is a sensible decision. A permanent and partial disability rider, on the other hand, would be ideal if the job required a lot of physical labor.
Know the correct amount of coverage:
Purchasing a term insurance policy is a wise decision since it provides reasonable financial coverage for the life assured’s loved ones. The amount of coverage required is determined by the individual’s personal and financial situation. The majority of people are recommended to have insurance coverage equal to 10 to 15 times their annual salary. Experts recommend that it be 15 to 20 times their annual salary, as this amount will be sufficient to replace the policyholder’s income as well as pay their dependents’ needs.
Disclose details of any existing policies:
Before purchasing a new term insurance plan, it is critical that an individual reveal all facts relevant to any existing insurance policy. The applicant must tell the new provider the name of the insurance company, the amount insured, and the policy number. It has been noted that many people fail to provide this information in the proposal form merely because going through their old records to get the information is time-consuming. However, there have been cases when concealing such crucial information resulted in the new insurance company rejecting the claim.
Single premium or regular premium policy:
Single-premium insurance may be the most convenient alternative, but it might be costly unless the customer has spare cash. Regular premiums provide a higher tax advantage to the policyholder. Both means of premium payment are eligible for tax advantages under Section 80C of the Income Tax Act of 1961. It is important to remember, however, that the benefits may only be claimed in the year in which the premium is paid. As a result, in the case of single premium insurance, the policyholder can only claim a tax deduction once, in the year in which the premium is paid. Regular pay insurance allows the policyholder to claim a tax deduction every year, throughout the duration of the premium payment period.
Policy duration:
The main goal of purchasing a term insurance policy is to ensure that an individual’s loved ones are financially secure in the event that the individual passes away. Age, when the individual expects to retire, and financial responsibilities are all considerations that go into establishing the insurance term. It is advisable to take out term insurance when you are young since you will pay lower rates for a longer period of time. It’s also important to consider when the person envisions himself or herself achieving life’s big financial objectives, such as kid schooling, marriage, and so on.
