Complete Guide To Individual Term Life Insurance Plans

Individual Term Life Insurance Plans are increasingly becoming the need of the hour. More and more people are waking up to the importance of such plans and are intrigued to get more information to include it to their insurance portfolio.

But what about you? Do you have a complete knowledge of individual Term Life Insurance Plans? Since individual Term Life Insurance Plans are so important, they warrant a complete understanding on your part before you buy one. So, let’s unravel them–

What is an individual term life insurance plan?

A term plan is a life insurance plan which promises to pay a benefit (the Sum Assured) in case of death of the insured (the individual whose life risk is covered by the plan). Term plans have certain salient features, which distinguishes it from other plans of insurance. Here are such features:

Features:

• The plan benefits

Term plans, pay only the death benefit. When you buy the plan, you choose the specified coverage tenure. In case of death during this tenure, your family would be paid the Sum Assured. However, if you survive the chosen plan tenure of your term plan, no benefit is paid.

• The coverage and its premium

Term plans are unique in respect of the coverage granted by them. These plans allow you to avail a higher coverage amount at a very lower premium. Since term plans usually pay a death benefit, only the life risk premium is required to be paid. This life risk premium is low, thereby resulting in very low premiums.

• The plan tenure

Term plans cover death risk only during a specified tenure. Thus, the tenure of term plans is usually high so that you can avail coverage for the maximum possible duration. Term plans are usually offered for up to 40 years and by some insurers even till age 80.

• Plan variants

Individual Term Life Insurance Plans come in four different variants apart from the basic plan to suit varied needs. Let us see what these variants are:

• Increasing term insurance plans –Under these plans, the Sum Assured increases every year by a pre-determined rate mentioned at the start of the policy. When the insured dies, the increased Sum Assured as per the year of death is paid to the nominee and the plan terminates. Increasing term plans are good for you if you foresee an increase in responsibilities and financial obligations in future years.
• Decreasing term insurance plans – these plans are a complete opposite of increasing term plans. Under these plans, the Sum Assured decreases every year by a specified amount or percentage which is mentioned at the time of buying the policy. Upon death, the decreased Sum Assured as per the year of death is paid and the plan terminates. Decreasing term insurance plans are usually offered as mortgage redemption plans. The decreasing amount of the Sum Assured represents the decreasing loan liability as the repayments are made. On death, the burden of the outstanding loan liability is settled by the benefit paid by the plan.
• Return of premium plans – by now you must know that term insurance plans usually pay only a death benefit. This is, however, not the case in return of premium plans. Under these plans, if the insured survives the plan tenure, the premiums paid are returned back. So, this plan also has a maturity benefit, unlike other types of term plans.
• Monthly income plans – these are relatively newer types of term insurance plans offered by insurance companies. Under these plans, the death benefit is not paid at once in a lump sum. It is, usually, paid partly in lump sum and partly in monthly instalments. The monthly instalments are calculated as a percentage of the Sum Assured and are paid for a specified duration after the death of the insured. Thus, the family is ensured a regular stream of income even in the absence of the bread-winner besides a lump sum benefit.

Importance of Individual Term Life Insurance Plans

The main importance of these plans lies in the fact that they provide financial security. By enabling a higher Sum Assured, you can ensure that your family would be financially protected even when you are not around them. They can, thus, meet their financial obligations through the benefit paid by a term plan. Moreover, decreasing term plans also help take care of outstanding liabilities and prevent their burden from falling on your family when you are gone.

All in all, Individual Term Life Insurance Plans are a quintessential requirement. So, first know all about such plans and then ensure to include one in your financial portfolio at the earliest.