It’s like playing a test match of sorts in the investment pitch. The 5-day spell is sacrosanct except for innings ending before that period. Similarly, the period of a term insurance cannot typically be extended. However, renewable and/ or convertible term insurance plans have provisions of renewing and extending the term period. But this is subject to being laid down in the policy terms and conditions.
The landscape of term insurance is strewn with many ambiguities which can be warded off if the policy holder is clear about what he/ she wants.
Simply put, term insurance is life insurance for a fixed period or term. Clearly, here, the differentiating factor is the period or the “term”. The policy holder is secured for that specific term.
In case of an untimely, unfortunate demise of the policy holder during the term life insurance period, the nominee of the policy will get a specified amount called “Sum assured” as death benefit.
However, if the policy holder survives the policy term; normally, no cash value accrues and he gets nothing in that case.
To understand the term insurance period, one should first know the kinds of term insurance available in the market and their circumstantial ramifications.
From plain jane term insurance plans to various beneficial frills attached, term insurance can be chosen from among a host of variants, depending on our needs and preferences. The 7 main term insurance plans and their variants are:
Level Term Insurance Plan
In this kind of term insurance, the death benefit and the amount of premium remains the same throughout the insurance contract period. This is the most basic form of term insurance.
Increasing Term Insurance Plan
In this kind of term insurance, the death benefit goes on increasing with every passing year. So, even the premium will go on increasing in this case.
Decreasing Term Insurance Plan
In this kind of term insurance, the death benefit goes on decreasing with every passing year. So, even the premium will go on decreasing in this case.
Term Insurance with Return of Premium (TROP)
In this kind of term insurance, the premiums paid are not lost. If the insured survives the insurance term, the premiums paid by him/her over the years are returned to him/ her. This is a fantastic way of getting the assured returns on money given out on premiums paid.
Convertible Term Insurance Plan
In certain term insurance plans, there is an option to convert the term plan to a permanent plan after given number of years.
In this case, there is no need to go through the medical formalities all over again at the time of conversion. So, it is of huge help in cases where fresh term insurance may not be available due to medical conditions.
Term Insurance plans with riders
Riders are basically additional attached to a term insurance and are given in case of permanent disability, terminal illness, accidental death, etc. These riders can further be of different types; viz.:
Accidental death benefit rider
This is an additional sum assured given to the beneficiaries of the insured in case the assured dies due to an accident. But if the death is not accidental, only the original sum assured is what the beneficiaries will get.
Accelerated death benefit rider
This is about getting a part of the sum assured in advance in case the assured is terminally ill. This is particularly helpful in meeting out the heavy expenses incurred in treatment and palliative care of the assured.
Critical illness benefit rider
This is an amount the assured gets in case he is diagnosed with critical illnesses or is undergoing treatment thereof. This includes cancer, paralysis, stroke, heart attack, kidney failure, liver transplant, any organ transplant, by-pass surgery, etc.
In this case, the term insurance may either get terminated or continue as per the terms in the policy. In case it continues, it may be that the rider payout will get deducted from the sum assured. This too, depends on the terms of the policy.
Accidental disability benefit rider
This rider is in the form of regular payouts given to the policyholder for a specified period of 5-10 years, in case he is permanently or partially disabled or impaired following an accident.
The condition, however, is that the disability/ impairment should be due to the accident. This rider is usually coupled up with the accidental death rider in any term insurance.
Waver of premium rider
Waver of premium for a rider is a contingency plan to keep the term insurance alive in case of default in payment of premium. But the default should be due to disability leading to the policyholder’s loss of income.
If this rider exists, the policyholder may not be required to pay the remaining premium and his sum assured will also be intact.
Income benefit rider
Income benefit rider in term insurance is an additional financial support (apart from and in addition to the sum assured) given to the family of the assured after his death.
It is in the form of regular monthly income to the beneficiary for a specified period of 5-10 years to stay as a financial prop till the beneficiary becomes self-sufficient or starts earning.
Renewable Term Insurance Plan
Renewable term insurance gets auto-renewed without any medical underwriting after the end of the term insurance period. This also gives lot of breathing space if the insured in question is ailing and taking another term insurance policy may not be possible.
Based on the above discussions on the types of term insurance policies available in the Indian market, it is obvious that the period of the term insurance, is technically fixed.
However, this happens in the normal course. But the term period may get changed (increased or decreased) in certain circumstances. These instances include:
Where there is default in payment of premium and waiver of premium is not in the policy clause
This is a very technical cause and an obvious one. If there is default in the payment of premium, the policy gets terminated automatically and the term of the policy comes to an end.
The only exception, of course, is the waiver of premium rider attached wherein the policy continues even if there is default in payment of premium. Such failure to pay the premium must be due to loss of income or disability of the defaulting assured. In such a case, the policy continues till the end of the term period.
When policyholder exercises the option to convert a term insurance
This is primarily applicable in case of convertible term insurance policies. The assured has an option here to convert the term plan to a life plan.
However, this will happen in case a clause to this effect is present in the policy document. Also, it can happen only after a prescribed number of years as given in the policy document.
So, here is one case of extension of period for a term insurance at the behest of the policyholder.
When the policyholder avails of a critical illness benefit rider
This typically happens when there is an add-on of a critical illness rider in any term insurance plan and the policy expires on availing of the rider.
Once the assured or the policyholder is diagnosed with any critical illness or undergoes an expensive treatment of any such illness, he can avail of this rider and get a specified sum assured for such illness or its treatment.
Once he gets the rider amount, the term insurance comes to an end and its period gets shortened. However, anything to this effect must be mentioned in the policy document.
Auto renewal of term insurance plans at the end of a term period
Finally, here is an instance when the period of a term insurance gets extended. In case of a renewable term insurance plan, the policy gets extended by another term up to a specific age of the policyholder.
The beauty of this renewable plan is that the insurability is not a consideration for renewing the term insurance. This means that even if the assured is in a medical condition that will debar him from acquiring a fresh term insurance; he has an option to get his term insurance plan renewed without any medical undertaking.
The only thing that’s changed here is the premium amount. The policyholder will need to pay a higher premium than the original premium amount that was given out by the assured during the initial term period.
Not all term plans come to an end at the end of the term period
You just need to go through the terms and conditions laid down in the policy document. Most term life plans do not expire at the end of the term period.
Surprised? Yes, it is true. Most plans can cover the policyholder up to the age of about 95 years!
What happens is that after the expiry of the level term, the term gets extended with increasing premiums year after year or term after term as provided in the policy document.
This also means that most term insurance plans are renewable.
Going by the above, it is quite clear that period-flexibility in a term insurance is subject to certain conditions. Hence it is important to consider all circumstances, seen and unforeseen, to arrive at an ideal period of term insurance.
So, the ideal period of a term insurance will depend on a host of factors like:
Age of the assured
Whether the period of your term insurance should be 10 years, 15 years, 20 years, 40 years or more is primarily dependent on your age.
The policyholder is at an advantage if he/ she is young enough. This is because he/ she can opt for a term insurance with a longer period and lower premiums.
Young age is therefore, the most profitable proposition for the policyholder’s perspective.
If the sum assured is high, the premiums will automatically be on the higher end. This means that a prospective policyholder may be forced to take a short-term policy in case of a large sum assured else he will end up paying enormous amounts as premium.
So, the amount of sum assured should be judiciously decided because of its direct effect on the policy term
It is always advisable to go for a lower premium policy and check for added benefits or riders. Lower the premium, higher the sustainability of the term insurance plan. So, lower premiums help the policyholder to opt for a longer period of term insurance.
Lifestyle habits like smoking are a great deterrent in getting a better plan of term insurance. Smokers have a higher life-risk, so, they end up paying a higher premium for the same sum assured for the same term period.
So, it is always good to choose a healthy lifestyle. This will help the policyholder opt for a policy with a greater term period at a lesser premium.
Special incentive to women
Research shows that women have more longevity. This means that the death risk in women is substantially lower than that in men. So, the premiums charged to women policyholders is usually less.
This also gives added benefit to a female policyholder to get a larger period of term insurance for the same sum assured and the same premium payable as her male counterpart!
Buying a plan online or offline
An online term insurance plan is any day cheaper than an offline plan. This is mainly because the online option does away with the intermediaries and agents, whose commissions get appended in the plan premiums.
This means that the same term plan bought online will give the policyholder the option of choosing a larger period as his/ her term plan preference.
To sum up, there can be many options to increase the period of an existing term insurance plan subject to conditions laid down in the policy document. But mainly, the period of a term insurance can be renewed only in case of a convertible and/ or renewable term insurance policy.