Life is a roller coaster. You never know what’s going to happen, and while that is what makes a living so adventurous, the financial security of your loved ones in the case of an unfortunate loss is chilling. That is why life insurance is such a prominent priority in these uncertain times.
Life insurance comes in many forms, the ideal plan of which are term insurance plans. So, let’s take a closer look at the means to securing your family’s financial future.
What is Term Insurance?
A term insurance plan is the most basic form of life insurance policy. It states that if you meet with an unfortunate demise during the tenure of your policy, the insurance provider pays your family or loved ones the sum assured as the death benefit.
To avail the sum assured, you must pay the premiums periodically. Term insurance plans are available for very reasonable rates of premium and the tenure of your policy can vary from 10-99 years as per your preferences.
What are the term insurance types?
There are different term insurance types available to befit the needs of you and your family. They are as follows:
1. Single premium term insurance –
As the name suggests, these term insurance types allow you to choose a sum assured and policy tenure but with a single premium payment. At the time of purchasing the policy, you can pay a lump sum amount as a premium. There is no need to pay again, and your policy will stand true for the entire term plan.
These are a great idea for those who have access to lump sum amounts of money but do not have a stable income source. The one-time payment guarantees your family’s well-being in the case of your premature demise.
2. Increasing Term Insurance plans –
Term insurance types differ by benefits. While the single premium plan allows you to avail of a viable term plan by paying the premium once, the increasing term insurance policy increases the amount of your sum assured every year.
As you know, the inflation rate affects the value of the Indian Rupee and it changes every year. Thus, when you choose a term plan with a specified sum assured, the value of that amount may decrease considerably by the time it is paid as a death benefit.
The increasing term plan allows you to choose a preferable increase in your sum assured every year. Therefore, the longer you live to pay the premiums, the higher the sum assured that your family receives.
3. Decreasing term insurance plans –
These term insurance types are the opposite of your increasing term plans. They are usually best suited when you have loans to pay back.
With the decreasing term insurance, you determine the sum assured and policy tenure, much like any term insurance type. Then, the insurance provider determines the premium rate that you need to pay.
Every year, the sum assured of your term insurance plan decreases, but the difference in amount is put to good use for your financial freedom. The money is allocated to repay debts and reduce your liabilities. Therefore, if you do meet an untimely death, your family will receive the remaining sum assured, minus what has been deducted over the years and paid to lenders.
The benefit of this plan is that they can still use the decreased sum assured to clear any remaining liabilities or plan for their financial future. The liabilities towards which the insurance provider already paid help decrease the rates of interest, therefore the amount needed to settle them is a lot less. And your family still has a sufficient nest egg to pull themselves together and recover their financial well-being.
4. Level Term Insurance –
These are the most common term insurance types. There are no changes to the sum assured or the premiums as the years go by.
You need to determine the term insurance policy tenure and the sum assured. Based on these figures, the insurance provider will calculate a reasonable rate of premium that you must pay regularly. In the case of an unfortunate death, the insurance provider pays the death benefit to your family.
You can choose your term insurance types based on your specific requirements. Since all the plans offer different benefits, you can choose the term insurance plan that helps stabilise your current financial situation while creating a corpus fund for your loved ones.
What are the benefits of term insurance?
Term insurance is an incredible financial tool that can help secure your family’s future. It is not easy to drive into financial planning mode when they suffer the loss of a loved one. The lump sum pay-out from term insurance policies can help with the following:
- Your family can use the money to pay off outstanding debts such as mortgages on the house, loans, etc.
- They can use the lump sum amount to invest smartly in plans that would pay them monthly dividends.
- They can meet the household expenses without hassle. Paying for services, groceries, utilities, etc., becomes much easier with the sum assured, especially during their time of grieving.
- They can use the money for renovations and further financial planning.
- The rates of premium for basic term insurance plans are far lower than other forms of life insurance policies. Therefore, you can invest in protecting the future of your family while saving money on larger pay-outs.
- You can add riders to your term insurance policy as per your specific needs.
For instance, if you add the return of premium rider to your policy plan and survive the tenure of your term insurance, then when the policy matures, you will receive the premiums that you paid in a lump sum amount. You can use the money for your financial planning as well as to further secure the future of your family.
There are other riders applicable such as critical illness death benefit, accidental death benefit, etc. that can help boost the sum assured to help protect your family’s future. - The premiums on term insurance are tax deductible up to INR 1.5 lacs.
The benefits of term insurance are plenty and you can choose the types of plans that are best for your family.
Conclusion
Term insurance plans can help your family recover from tough financial setbacks. While the death benefit helps stabilise your family’s finances, with the right financial planning, you can also secure your present and use term insurance like a savings plan with a return on premium.