On the other hand, we have policies that provide coverage even after the end of the policy term. Out of these policies, the term insurance policies are the most preferred ones. Let us see the advantages of term insurance plans over other types of insurance policies.
Overview of Term Insurance
Term insurance is insurance for a fixed tenure that assures guaranteed benefits on the policyholder’s death. It ensures a sum of money to the policyholder’s family and some other benefits in the form of riders (if chosen) that can meet financial requirements in times of need. However, these benefits can only be claimed, if the policyholder passes away within the policy term. These policies usually lack the feature of maturity benefit, but there are exceptional term insurance policies that promise a maturity benefit as well.
As already said, term insurance renders benefits only if the policyholder passes away during the policy term. But, what if the policyholder survives the policy term? In that case, they can choose to:
- Renew the policy again for a fixed term.
- Terminate the policy.
- Convert the policy into whole life coverage insurance.
Features of Term Insurance
The functioning of term insurance is almost identical to the functioning of any different kind of insurance. The difference lies in the detailed characteristic features of term insurance, which are as follows:
- The premium costs of term insurance plans are lower.
- They usually have a short term.
- The premium paying term is often equal or sometimes less than the duration of the policy.
- They assure a death benefit if the policyholder passes away during the policy term.
- Term insurance policies usually don’t come with a maturity benefit. Still, some policies come with the feature of premium return, which the policyholder is offered as a maturity benefit.
- They also offer rider benefits.
- They are more suitable for people below the age of 45.
Advantages of term insurance over other types of insurance
Though general insurance policies may be beneficial to some customers, in several cases, investing in term insurance is better than investing in any other insurance. The choice would depend upon the age and requirements of the customers. For customers who wish to invest in term insurance, the following are the advantages that they will enjoy:
1: Lower Premiums: Term insurance plans can be bought at reasonable premium rates compared to any other type of life insurance policy. It is a great advantage that term insurance has over the different types of insurance plans. The insurance policies that provide whole life coverage are provided at premium rates that slice out a considerable chunk of the policyholder’s income.
With rising inflation, the pressure to take on all the responsibilities while maintaining one's quality of life and health is a huge task. That said, if insurance policies demand high premiums, it adds pressure. Therefore, customers who are not willing to buy policies with higher premium rates find term insurance plans more preferable.
2: Reasonable Returns: In continuation with low premium rates, term insurance surprisingly assures higher returns than other life insurance plans. It may be because other insurance plans offer the benefit of life coverage even after the policy matures. Therefore, to compensate for those extensive benefits, the premium rates are kept high. However, on the other hand, term insurance can be claimed only if the policyholder passes away during the policy term. So, in most cases, term insurance doesn’t guarantee any maturity benefit on the policy’s maturity, but it does provide a higher death benefit in return for low premium rates.
It is an advantage because the returns are given by other life insurance policies often prove to be inadequate for the family and may land the family members in strenuous financial conditions. The higher returns of term insurance can provide a little extra protection from such scenarios.
3: Advantageous for Young Policy Buyers: Young adults have fewer life risks as compared to older people. Hence, it makes no sense for them to invest in high-cost premium policies for their whole life from a young age. However, lifestyle-related diseases are on the rise in recent times, and even young people are subject to many complex health risks. So, keeping insurance as a precaution is wise. They can easily opt for term insurance as the best fit for them. These term policies have a fixed term, are less expensive, and provide necessary benefits. If something happens to the insured during the policy term, their family will be well protected financially. If they survive the duration of their policy, depending on their age and health conditions, they can choose to renew or switch the policy.
4: Short Duration: In continuation with the above point, every individual age and undergoes health changes. If someone buys term insurance at a young age with no alarming health risks, it doesn’t mean their bodies won’t change with time. As a result, they will be required to have a policy that can guarantee extensive benefits. In this case, the term insurance which was once beneficial may prove to be insufficient.
Hence, the feature of term insurance being short-term is an added advantage. It allows the policyholders to keep themselves protected at their young age, and while they age along with the policy, they can comfortably switch their policy when it matures. If term insurances were of longer duration, they wouldn’t have allowed the customer to modify their policy for the entire long policy term.
5: Return of Premium Option: Some unique term insurance plans offer a particular feature of return of premium in the form of maturity benefit. It is exclusive to these specific groups of term insurance plans only, as money invested in the form of premiums in any other term insurance plan is not returned to the policyholder in any case. In this way, if the policyholder survives the policy term, he/she will receive the premiums paid as the maturity benefit of the policy.
It is undeniably an exceptional benefit because the insurance holder who survives the policy term gets a two-fold advantage. First, the assurance of being financially protected during the policy term, and second, getting back the money he/she has paid, upon survival. Moreover, this money can be further invested in the same or some other policy.
People who are looking for short-term financial protection for their families can count on term insurance plans. Not only that, people who wish to invest in insurance but don’t want to pay high premiums, or young customers who want to keep precaution while moving on with their lives without cutting a large portion of their income for premiums can choose to invest in term insurance. All in all, they are a better option for customers who are looking for the points mentioned above in their policy than traditional life insurance policies.