A Term Insurance Plan is an agreement entered between the insured and insurance provider, where in an event of an unfortunate demise of the insured, the nominee receives a certain amount of money called “Death Benefit” from the insurance company. Also, in case a policyholder survives throughout the policy tenure, no amount is received on maturity. But in case of Term insurance with Return of Premium Plan, the policyholder receives the benefits even if he survives the tenure. The different term plans are bifurcated depending on the rate of premium, sum assured, maturity benefit received, etc. After understanding what is term insurance, let us now go through the different kinds of term insurance plans.
Different Types of Term Insurance Plans
Before you buy term insurance, get yourself aware with its different types, which are as mentioned below:
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Level Term Plans
Under this plan, the policyholder is required to pay a certain fixed amount of premium during the policy tenure. It is considered to be a basic term insurance plan, which guarantees a fixed amount of death benefit under its own terms and conditions. The policy tenure can range from 5 years and can even go up to 10 to 30 years, which will depend on the needs of the policyholder.
Level-Term plans are the most cost-effective plans amongst all plans, under which the nominees of the policyholder receive the death benefit if the policyholder dies during the policy tenure.
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Increasing term Insurance
Under this plan, the amount of sum assured increases by a certain amount or percentage on an annual basis taking inflation and some other factors into consideration. It could be a simple or compounded rate of interest which will remain the same throughout the tenure of the policy. Some of the increasing term plans also have a specified maximum limit to the increasing rate, which when reached will stop, even if the policy is in continuation.
The premium amount in this case is higher as compared to that of level term plan or decreasing term plan. The death benefit payout is generally paid either in a lump sum payment or on a monthly or annual basis.
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Decreasing Term Insurance
Under this plan, the amount of sum assured decreases by a certain amount or percentage on an annual basis. Here, the death benefit gets reduced every year, but the premium amount remains the same. The premium amount in this plan is on the lower side, if compared with other plans.
In the maturity year, the sum assured is nil, and upon death of insured the nominees of the policyholder will get the applicable amount of sum assured towards that year. This plan is suitable, where the family members of the insured do not require much financial support with the passage of time.
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Term Insurance with Return of Premium
The main difference between the normal term plan and term insurance plan with return of premium is the payout of TROP. Here, the insured will receive a return on premium at the end of policy tenure, in case they survive the policy tenure.
In case the insured dies before the end of policy tenure, his/ her nominees will receive dual benefit, i.e., death benefit and return of premium payout. This ROP benefit acts as a maturity benefit which is exempt from tax.
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Convertible Term Plans
Under this plan, a term policy can be changed either into life or universal policy without undergoing the health qualification done once again. It basically acts as a basic term plan having additional conversion features inbuilt. It allows the insured to convert his/ her plan that was meant to provide coverage for a specific number of years to coverage of life. This benefit can be availed till the time insured pays the premium amount.
This plan allows the conversion of a term life plan to regular life or an endowment plan, where the death benefit is equal to the amount of sum assured. These types of policies come with high premium amounts due to maturity benefits being equal to sum assured at the time of conversion of plan.
FAQ’s
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Can the coverage of Term Insurance be increased?
There are three main modes to increase the coverage of term insurance plan:
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Through Add-On Riders or Top-Ups:
Here, you can increase the base coverage of your term policy, and they are not as expensive also. But, mist of the term plans only provide the inclusion option to be availed at the time of purchase of plan only.
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Upgrading to a Newer Policy:
Here, you are again required to take new medical examination and documentation also in order to purchase the term plan.
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Buy An Increasing Term Plan:
In case you are not sure about the amount of coverage that is required, you should opt for a term plan online i.e. buying an increasing term plan.
Conclusion
The coverage of term plan is dependent upon your lifestyle, number of dependents in your family, family obligations, etc. Most of the individuals tend to purchase the level term plans due to them being affordable and offering a fixed sum assured which is a guaranteed death benefit. In case you are willing to pay a slightly higher amount of premium, the Term insurance with Return of Premium Plan is also a good option.
One can also go ahead to buy more than one term plan, but you should be well aware of its terms and conditions. The main advantage of buying more than one term plan is that by buying multiple smaller plans leads to a big coverage, which is cheaper as compared to buying a single term plan having high amount of sum assured.