If the policyholder passes away during the term, the sum assured is paid to the family. There are many different plans and coverages, making it overwhelming to pick the best one. To make your job a little easier, here is a simple explanation of different coverage options available to help you pick the best-suited policy for you and your family.
Types of Term Insurance Plans
Level Term Plan
The simplest form of term insurance is a level plan. The sum assured remains fixed for the duration of the policy. In other words, if something were to happen to you during the policy term, your family can claim the same amount, regardless of when the claim is made within the policy period. It's a great choice if you prefer fixed premiums and predictable coverage.
Increasing Term Plan
As inflation reduces the value of money, buying an increasing term plan can be helpful. In this plan, the sum assured increases at a pre-defined rate each year. This helps ensure your family receives more over time to maintain the value of the coverage as costs rise. Keep in mind that premiums for increasing term plans may also increase.
Decreasing Term Plan
A decreasing term plan is typically associated with loans, such as home loans. This plan is similar to regular term insurance, but the sum assured decreases over the policy term, usually in line with the outstanding loan balance. In the event of a claim, the payout will help cover the remaining loan amount, providing financial protection without excess coverage as the loan reduces.
Return of Premium Plan
A return-of-premium plan might sound appealing if you want the benefits of term insurance coverage with a refund of the premiums paid, should you outlive the policy term. Though the premiums may be higher than a standard term plan, you get back the premiums paid (without interest) if no claim is made. This plan is suitable for those who want an element of savings along with insurance, but not necessarily for reducing premium payments.
Convertible Term Plan
A convertible term plan offers flexibility by allowing you to convert your term plan into a permanent life insurance policy, such as a whole life or an endowment plan, without the need for additional medical exams. This can be useful if your insurance needs to evolve in the future, allowing you to adjust your coverage based on your changing financial situation. Note that this conversion may be allowed only during a specific period in the policy term.
Conclusion
Term insurance is vital for ensuring the financial security of your family. By understanding the different types of term insurance plans and their coverage, you will be able to make an informed decision that suits your requirements. So, take time to assess your financial objectives, weigh the possible options, and select a plan that provides both protection and peace of mind. A well-chosen term plan is much more than a policy-it is a promise to your family that their future will be secure, even if you are not around.
