What Is Term Insurance Plan? On this topic, we are going to understand the things below with the help of queries generally asked online by the insurance seekers.
What is the term plan?
A Term Insurance plan is a life insurance policy/plan where you can give a nominal premium to get life coverage in case of life loss. The premiums of term plans are generally fixed. The earlier you start the term plan the lesser premium you have to pay.
There are three similar questions related to what is the term plan. The answer for all is the same as mentioned above.
- What is the term insurance plan?
- What is a term life insurance policy?
- What is term insurance?
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- Why should we take insurance?
- Who is the policy holder in Insurance?
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How does the term plan work?
Term plan works in a way of a pool. Generally, no individual or a small group can afford to compensate for the loss of any individual. However, insurance companies collect a small amount of premium from a large group of people. All that money is kept in a pool account. Most of the companies invest this fund in secured methods to keep it growing. And, in case any individual meets any mishappening, the support to his/her family comes from that pool.
There are many methodologies and strategies which work behind this. However, as a layman, we may not be required to understand that. What we need to understand is We are paying a small amount and securing our family when we are not there.
Kindly note that there is no benefit if the policyholder survives for the policy term. The only benefit is peace of mind.
I advise you to take a term as long as possible.
Which term plan is best?
Most of the insurance companies work under the guidelines laid down by the govt authority. however, they keep twisting and blending multiple insurance products to provide fancy insurance products. This is the case with term insurance plans as well.
My advice to you is to go for a pure/standalone term insurance plan. I am not here to promote any company, however, you need to understand the settlement ratio and premium price before going for any term plan.
On the safer side as insurance is to safeguard your loved ones, go for a reputed and well-established insurance provider.
What are the major benefits of the term insurance plan?
The benefits of the term insurance plan are as mentioned below:
- Financial security to the entire family if the policyholder expires.
- Peace of mind while the policyholder is paying the premiums.
- Premiums are affordable
- You can get tax benefits if applicable to your financial income.
Insurance plans are not for benefits, they are back up and support when you as a policyholder are not there with your family. So, do not expect benefits from insurance plans.
What are the advantages of a term plan? – Already answered above.
What are the disadvantages of a term insurance plan?
- The first disadvantage is you have to pay higher premiums as you grow older. So, try to start the term plan as soon as possible.
- They are not money-saving or money-growing instruments, obviously.
- Sometimes policyholder has a feeling that he is paying premiums of nothing in case he/she is sure to live longer, Smile!
Honestly, there are no disadvantages to the term plan if you understand the real internet behind that. What else do you need apart from the assurance that your family will receive a handsome lump sum amount when you are not anymore in this world. In most cases, the family’s economic condition really grows apart from your loss. The choice is yours.
What are the types of term insurance plans?
I found some interesting information on AdvisorKhoj about the types of term plans.
Level Term Plans
This is the simplest form of a term insurance plan where the sum assured does not change during the tenure and benefits are paid out to the nominee on the death of the policyholder.
Return of Premium Plans
Unlike level term plans, here the plans have maturity benefit, wherein the premiums are returned to the policyholder if he or she survives till the maturity of the policy.
Increasing Term Plans
In this plan, one can opt to increase the sum assured at annual frequency during the plan period while keeping the premiums the same. Of course, the premiums of this plan will be different than that of level term plans.
Decreasing Term Plans
The opposite of an increasing term plan is the decreasing term plan. Here the sum assured decreases year after year so as to match the decreasing insurance needs of the policyholders. These plans are mostly taken when someone has taken a large home loan or personal loan and paying an equated monthly installment, or EMI. The sum assured decreases with a chosen frequency as and when the EMIs are paid out and the total loan amount keeps decreasing.
Convertible Term Plans
This is a plan offered by some of the Insurance companies wherein a term insurance plan can be taken with an option to convert it into some other plan of your choice at a future date. For example – You have taken a term plan for 25 years but after 5 years you can convert this into a whole life insurance plan, endowment plan, or any other plan of your choice if you so wish.
Term Plans with Riders
This is a unique plan whereby you can buy riders like, critical illness cover, accidental death cover or disability cover, etc. by paying a small additional premium. If you take a rider and opt for a premium waiver benefit, then you need not pay the future premiums in case of any eventualities for which you have taken the rider. For those of you who are still wondering why we are praising the term insurance plans so much, let me tell you that a term insurance plan is the only instrument through which you can entirely protect your family’s financial well-being in your absence. And the price for this cause is small as the premium of term plans are the cheapest amongst all life insurance plans.
How much life coverage do you need under the term plan?
In fact, it should be your choice that how much life cover you need for your family. Try to understand in an easy way.
Suppose you are earning 3000 (replace it with your real monthly income) bucks today. I am sure you would like to give support to your family for at least ten years in your absence.
It is generally said that you need to opt for 12 times your current annual earnings. So, if your current monthly income is 3000, your yearly income is 36000. So, you need to opt for 4,32,000
While reaching this figure you need to replace 3000 with your real income.
How can you buy a term insurance plan?
These days, it is quite easy to buy a term insurance plan. As mentioned above, always try to get from well established and reputed insurance provider.
There are many online portals to buy term plans online. You can easily find top insurance providers by searching in any search engine like Google and Bing.
At what age should you stop term life insurance?
As you have opted for a term insurance plan, we do not advise you to stop that. Why? Because a few years are left to get the benefit. The benefit for which you have been paying for almost decades is around the corner. So, do not stop here. When you will leave the world, your family will get the sum assured in your insurance policy.
Is term life insurance a good idea?
It is definitely a great idea. Do you wish to see your family not able to survive or enjoy life in your absence? Your answer is definitely NO. So, term life insurance is a must to have thing these days. Term life plan protects your family and loved ones who rely on you for their financial needs.
What kinds of Deaths are not covered under term insurance plans?
Suicide, Accident, Certain Illnesses, Homicide, etc. That is why you need to understand the term policy before going for it. Different insurance providers have different terms and conditions. Study all of them thoroughly.
For how long do you need term life insurance?
This is directly equal to the time period till your family and loved ones are dependent on you financially. Generally, this time period is till you attain the age of 60. Till then your family needs a strong layer of financial protection.
Do you need life insurance after 65?
If you want to take term insurance at the age of 65, it is not advisable. The premium is too much and will break you financially. So, the answer is NO. however, if you are planning early and you have the option to extend your term plan beyond the age of 65, there is no harm in doing that because you will be paying a very low premium at that time.
What happens to term life insurance if you don’t die?
There is no other good news in this world. If you are able to live long what else do you need. Consider the premium paid for the term plan paid for your life longevity. however, there is no monetary benefit from the term policy if you live longer. The money paid to the insurance company will be used by the company.
Can you take 2 term insurance?
Yes, you can take as many term policies as you want. Also, you can have a different nominee for each term policy.
Does life insurance pay if you are murdered?
If nothing is done intentionally, the insurance provider will pay in case of murder.
Who needs life insurance the most?
Do you need a term policy or not? You can understand it easily. Do you think that you are the breadwinner for some or for your whole family? If your answer is yes, you need a term insurance policy.
How can you choose a term insurance plan?
There are a few tips to do that:
- Consider your life stage/age and the number of people dependent on you.
- Think about the amount of money your family will need to maintain their living standards in your absence.
- Life cover amounts should be considered as per the needs of the family and not as per your income
- The insurance provider should have a higher claim settlement ratio.
- Choose the riders wisely.
If we find more questions about term insurance plans, we will surely come back and add them here for your perusal.