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Term Insurance 588 views February 5, 2019
Most people look at term insurance as nothing beyond an economical way of securing death benefits for your loved ones. However, an in-depth probe into how term insurance plans work helps to understand how the age-old concept of term insurance is more than a mere protection tool. In fact, buying a term plan insurance aids not only in long-term financial planning but also in meeting one’s life goals.
A major percentage of the population buys term insurance plans without understanding their inherent characteristics. With so little understanding of term insurance benefits, it would be worthwhile to know certain facts about term insurance policies before buying them online.
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Some of them are:-
As opposed to most other traditional insurance plans plying in the market, a level term insurance policy costs much less. One can himself or herself insured for a whopping amount of Rs 1 crore by paying a nominal amount as premium. However, term insurance plans that cover against death only (or promise death benefits only) entail lower premium payments in contrast to Term Insurance Return of Premium (TROP) that beget greater premium amounts. Term policies serve best to those looking to secure their loved ones at lower costs.
Term insurance works on the principle that the nominee(s) of the insured get access to death benefits only if the policyholder has died during the policy term period. However, there are no maturity or survival benefits in case the policyholder survives the policy period as term plans do not include elements of savings and investments. With no possible survival benefits in sight, some people feel wary of paying for term insurance plans. To meet customer expectations and grow consumer base, some insurers over the past couple of years have doled out term insurance plans with a return of premium (TROP) that allow the return of the premiums paid if the policyholder has survived. Also, the premiums charged on such policies are more than that paid on level term plans with rates varied for different companies.
Insurers now realize that the needs of their prospective customers have changed. Instead of looking at term insurance plans that promise only sum assured on the death of the insured, they expect additional benefits that cater to their growing and ever-changing needs. Some term policies these days are convertible, which means that the policyholder(s) has the option to convert the existing term plan into an endowment plan or a permanent insurance policy while the policy is in force or after its expiry. In addition, some term plan insurance policies, these days, have inbuilt rider benefits to augment the extent of policy coverage. One needs to pay extra for availing these rider benefits, viz., accidental death benefit rider, critical illness rider, premium waiver rider, and permanent or partial disability rider.
At times, policyholders believe that their nominees might not be able to handle the lump sum amount of sum assured (the amount being big and received a single payment). However, insurers now recognize the need to tailor their products according to how their customers want. Insurance companies now extend the benefit of handing over the sum assured over a period of time as monthly payments that increase with each coming year. Also, if the nominee(s) determined by the insured wish to receive the entire sum assured as lump sum amount, they can do so, albeit at a discounted value as offered by insurance companies.
Online purchase of any term policy saves the hassle of dealing with intermediaries when bought offline. This results in cost-saving, thus, resulting in lower premium rates. With lesser documentation involved, online term insurance buying is now much easier and hassle-free.
Every new milestone in life begets increasing costs, thus, necessitating a rise in policy cover. This is where the concept of increasing term plan comes into play. One has the option to apply for the greater sum assured or increase in policy cover depending on the probable rise in costs synonymous with greater responsibilities including spouse, children, home loan, higher education of children, etc.
It is not necessary that one needs to pay premiums their entire lives. Depending on requirements and financial obligations, they may choose a policy term of 15 years, 20 years or more. However, looking at possible requirements in the future, one may also choose to extend the term of the policy. Premium payments, whether monthly or lump sum payment, can also be selected accordingly. One can choose to buy term plan insurance by making a single premium payment and seek coverage for the entire life or choose to pay premium payments for limited periods and get life coverage. Flexibility in policy terms or premium terms serves ineffective debt or loans payments too.
Every kind of life insurance plan including term plan insurance works on the principle of Uberrima Fides, i.e., the principle of utmost faith. This requires all policyholders to share all relevant information and disclose necessary details inclusive of personal information, current health conditions or illnesses that they may have suffered in the past. Non-disclosure of relevant information may result in increased chances of policy claims getting rejected, which means that one must be utmost careful about the inclusions and exclusions pursuant to the policy contract.
If you have dependents whose lives you wish to secure, buying a term plan helps. All you need is to browse through the multitude of existing term insurance plans in the market, compare their features and choose the best term insurance plan keeping in mind the prolonged requirements of your loved ones. For those trying to create a sound investment portfolio to meet future needs, it is important to realize that buying term insurance means paying for a pure life insurance plan sans any diversion of your premiums towards investment or saving. It is a necessary inclusion in every financial portfolio unbiased of other monetary instruments included.
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