Any financial person who buys a term insurance plan must ensure that at least one rupee is invested for long-term goals as this is one of the most important financial decisions of one’s life.
A term insurance plan serves the purpose of protecting one’s existing investments. At the same time, it also helps to fulfill future goals of family members easily. If an earning family member dies prematurely, the family’s goals are not derailed as the deceased’s income can be used by the surviving family members. Any financial person buying a term insurance plan should ensure that at least one rupee is invested for long-term goals. It can be the most important financial decision of one’s life.
After all, a term plan is the purest form of life insurance that comes with a low premium and high coverage.
How does it work?
The premium you pay depends on four factors – the amount you need to purchase (life cover), your age, gender, and the number of years you want to keep the card (policy term). In case of death within the policy term, the sum assured is paid to the nominee. At the same time, nothing is paid to the life assured (policyholder) who survives till the maturity of the policy.
A person buys a term plan with a sum of Rs.1.5 crore for a period of 30 years. A lump sum death benefit of Rs 1.5 crore is paid to the nominee if the life assured or the policyholder dies anytime during the policy term. So, now that you know not only how a term plan works but also its importance, it is time to know the different types of a term insurance plan.
Types of Term Insurance Plans:
Level Term Scheme
This is the most basic type of a term insurance plan. Also, the sum assured remains the same for the entire policy term as in this name. In a level term plan, the principal sum assured is paid as a lump sum to the nominee on the death of the assured term plan. As a policyholder, you can rest assured that the nominee will receive a specified amount whenever death occurs during the policy term.
Premium Income Plan
As the name suggests, in a premium income term plan, the premium amount is paid back to the policyholder over the term of the policy. The premium amount in such a plan is usually higher than a plain-vanilla term plan. In which nothing is paid to the policyholder at maturity. Such schemes are suitable for those who wish to withdraw money (premium) by maintaining the policy term. If the policyholder dies during the policy term, the sum assured is paid to the nominee and the premiums are non-refundable.
Increasing Cover Scheme
In an increasing cover plan, the sum assured increases over time either by a pre-specified amount or based on inflation. This means that the death benefit may not be the original amount, but an increased amount depending on how many years the death occurs. As the purchasing power of the rupee depreciates over time, such schemes help maintain the value of life insurance and comfortably meet the cost of inflation-adjusted targets. However, the premium is fixed throughout the policy period.
Decreasing Cover Plan
Over a period of time, there is an increase in financial responsibilities for the family. From ensuring timely funding for children’s education to helping the family maintain the same standard of living even in your absence, the need for adequate security is crucial.
Therefore, it is advisable to buy adequate protection during the period when you and your family have to meet important financial milestones in life. As such liabilities are met, the need to reduce coverage may arise. In such cases, a degreasing cover plan helps as the sum assured decreases over time.
Such schemes also help in settling home loans. Here the principal balance falls over time. However, if you are buying such plans for this specific purpose make sure you have adequate coverage with a level term cover plan.
Monthly Income Cover Plan
In a term plan, a lump sum equal to the sum assured in the policy
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