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Types of Term Insurance Plans

If you are planning to buy a term insurance plan, the chances are quite high that you must have gone through a number of options that claim to provide you with plethora of benefits. And it is sure to confuse even the most seasoned of investors. During the last decade, the insurance industry in India has broadened rampantly and several insurance companies have introduced a wide array of term insurance plans to meet the customer needs.

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Term insurance plan are one of the most basic and traditional forms of life insurance. These are basically protection plans that are designed to protect one’s family against unforeseen circumstances by offering financial security to manage their expenses if you are not around with them anymore.

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 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 plan that comes with death coverage.

Here’s a guide to different term insurance plans that have been broadly classified into 6 different types, based on their coverage and term insurance benefits

Why buy Term Insurance early?

Your premium is decided on age at which you buy the policy and remains same, throughout your life

Premiums can increase between 4-8% each year after your Birthday

Your policy application could be rejected or premiums increase by 50-100%, if you develop a lifestyle disease

See how age affects Term Insurance Premiums
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1. Level Term Plans

This is the most basic and simple form 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 insured.

2. TROP (Return of Premium) Plans

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.

3. Increasing Term Plans

In these plans, the policyholder has the option to increase the sum assured on 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.

4. Decreasing Term Plans

Unlike increasing term plans, the sum assured keeps on decreasing every year in these plans to meet the decreasing insurance requirements of the life assured. These plans come handy in the situations wherein the policyholder has already taken a huge home/personal loan or paying an EMI (Equated Monthly Installment).

In this type of plan, the sum assured keeps on decreasing at chosen frequency with the payment of EMIs. It also decreases the total loan amount.

5. Convertible Term Plans

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 an endowment plan, a whole life insurance plan, etc., you can do so without any hassle.

6. Term Plans with Riders

This type of plan comes with rider options such as accidental death cover, critical illness cover, etc. which can be purchased along with the normal term plan by paying a small premium amount. For example, if an individual opts for a rider and get a premium waiver benefit, s/he won’t need to pay the future premiums in case of any eventualities for the particular rider s/he has opted for.

Points To Consider While Buying Term Plans:

  • Not every person is literate in financial terms, especially when it comes to managing money. Now, try to imagine situations where something happens to you and your nominee decides to invest all the money he has got from your term plan in one go.

Let’s say, based on a friendly advice by a friend/family, he invests the money in a chit funds and eventually loses all the money. You wouldn’t want that to happen. That money is meant to take care of your family’s expenses when you are not around to take care of them and thus, needs to be managed well.

So, make sure to inform and educate your chosen nominee of the term plan you have invested in and what to do with the sum assured.

  • Another important factor to consider is temptation – the temptation to overspend. When a person gets access to too much money at once, the desire to overspend is quite natural. In her/his shopping haste, one may go overboard and spend on the things that may not be affordable for her/him in the long run. This can further lead to erosion of the claim amount corpus and can eventually result into financial hardships.

Over to You!

While nobody wants anything uncertain to happen in their lives; the uncertainties of life doesn’t spare anyone. Life throws-in a lot of surprises and these surprises may as well be bitter. If you are short of time, you can also opt to go for online term insurance plans. These days, insurance providers are constantly working towards making their websites more user-friendly and easy to use. It is absolutely safe to buy term plans via online, as they come with a range of benefits such as convenient to use, quick responsiveness and lower costs availability.

Different types of Plans

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