The premium for life insurance plans depends on your age as it determines the risk of your passing away. Therefore, when you are young, there are lower health risks, and your life expectancy is much higher. Thus, the cost of premiums is also low.
What Are the Types of Term Insurance Plans?
Term life insurance policies are the most affordable form of life insurance policies that offer financial security to your family within a fixed duration of time. Due to its affordable premiums, it is a popular choice of life insurance plan today.
However, you can find numerous types of term insurance, each offering different kinds of benefits and terms. Thus, before coming to a decision, it would be wise if you understand what these types include. Keep reading to learn more about term insurance and its different forms.
What is Term Insurance?
A term insurance policy refers to a financial protection plan that offers coverage within a fixed coverage term. As the name suggests, a term insurance company will offer a death benefit to your beneficiaries in light of your unfortunate demise within the specified period.
However, if the policyholder lives past the coverage period, then their nominees will not be entitled to the death benefit or maturity benefit.
Term insurance plans are a great bargain as they offer a high assured amount at reasonable premium rates. The large amount ensures financial security for your family, even against the effects of inflation, to meet their future goals along with daily lifestyle expenses.
Moreover, many insurers offer to return the paid premiums in case the insured survives past the coverage tenure. Apart from this, the different types of term insurance plans offer benefits under different conditions. Therefore, you must know each type before opting for the most suitable one.
Types of Term Insurance Plans
1. Level Term Plans
Level term plans are a standard type of term insurance, commonly offered by most insurance companies by default. For this plan, your premium amount and the sum assured are determined at the beginning of the term and remain constant throughout.
Note that premiums for life insurance plans depend prominently on your age. Therefore, if you opt for the policy at a younger age, your premium will also be lower. In addition, factors like your income, health conditions, etc., will also influence the premium rate.
The benefit received on the level term insurance policy is a death benefit. This means that the assured sum will go to your nominees in case of an unfortunate occurrence leading to your demise. However, in case you survive the term period, no benefit will go towards your family.
2. Term Insurance with Return of Premium (TROP)
Unlike most term insurance plans, TROP is a type of term plan that offers maturity benefits. Therefore, in case you outlive the term of your plan’s coverage, you will still be entitled to the premiums paid until the maturity period. There will be a 100% refund of the paid premiums, also called survival benefit, in case you live past the policy term.
However, this does not mean that the death benefits are not applied here. So, your beneficiaries will be entitled to receive a death benefit in light of your unfortunate demise within the policy period.
3. Increasing Term Plans
As suggested in the name, an increasing term plan refers to that policy where the amount of assured sum increases with the passing time at a fixed rate. However, the rate of premium remains relatively constant.
Therefore, you will find that the premium of these plans is also relatively steeper. It also depends on the rate at which the assured sum increases. The maximum limit of increase is set by the insurer.
Nonetheless, this plan could be helpful, at times of inflation, to cope with the increasing cost of living. You can also choose this if you expect to have an increase in financial responsibilities in the future.
4. Decreasing Term Plans
A decreasing term plan works opposite to an increasing term plan. This means the assured amount will get reduced with time at a fixed rate. The benefit of this plan is that its premium is significantly low and fixed.
Furthermore, this plan can be beneficial if you have financial debt, such as loans, mortgages, etc. With the passing of time, the debt amount gets reduced, and so does the assured amount.
5. Convertible Term Plans
Convertible term insurance policies refer to those specialised term plans that you can convert into a different type of live coverage plan later on. This means you can turn the term life insurance plan into an endowment plan or whole life insurance plan if required.
This plan is particularly useful if your financial goals change or you find a better option than your present one. Therefore, if you opt for this type of term insurance and decide to get a whole life insurance or endowment plan after 15 years, you can do it hassle-free.
The eventualities of life spare no one. Thus, the best you can do is ensure that your loved ones are protected and secured long after you are gone. Term plans are such options that offer coverage to your family in your absence without having to devote a high premium.
This article discusses the different types of term insurance plans to cater to your different financial needs. However, it is vital that you understand the terms and conditions of the policy you opt for to secure the maximum benefit for you and your family.
FAQs About Types of Term Insurance
If you want a term plan that reduces your premium payment burden then you can opt for the decreasing term plan. In this policy the premium amount gets reduced each year with the death benefit remaining constant.
Yes, under Section 80C of the Income Tax Act of 1961, the premium you pay is deductible up to ₹1 Lakh from the taxable income. Moreover, death benefits received by your nominees are tax-free, as per Section 10(10D).
If you survive the policy tenure of a level term plan, you will not receive any maturity benefits. However, if you choose a TROP plan, you will receive the maturity benefit, i.e., the total amount of premium paid by you.
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- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.