What is the Meaning of Term Insurance?

Year-end is here and chances are high that you would be looking for investment avenues to save on your taxes. If you are looking for affordable investment avenues, nothing beats term insurance plans in term of affordability and cost-effectiveness.

Term insurance is the oldest and most affordable form of life insurance. According to Collins Dictionary, the meaning of term insurance is “life assurance, usually low in cost and offering no cash value that provides for the payment of a specified sum of money only if the insured dies within a stipulated period of time”.

Term insurance plans offer peace of mind to the insurance holders by ensuring that their families are financially secure & independent in the absence of the breadwinner (insurance holder) of the family. In term insurance plans, if you are the life assured, you would have to pay a specific amount as the premium payment at regular intervals during the tenure of your term policy.

In case of any unfortunate eventuality, your family will receive the ‘sum assured’ which you had chosen at the time of buying the policy.

Furthermore, the meaning of term insurance can also be explained as a form of life insurance that is valid for a fixed period of the term (time). Term insurance plans are simple and easy to understand and they provide financial protection to your family when they need it the most.

New age term insurance plans enable the policyholders to get additional protection (riders/add-ons) through optional benefits like Accidental death Cover & Critical Illness Cover. These riders can easily be selected and compared with the help of online calculators.

However, before you go ahead to sign the dotted line to buy a term plan, it would be good to understand the basics of different types of term insurance plans, so that you choose the one that suits your needs:

1.     Basic Term Plan:

This is the simplest form of term insurance where the cover amount remains the same throughout the policy tenure and the insurance nominees are paid the sum assured on the death of the life assured.

2.     Return of Premium Plan:

Unlike basic term plan, Return of Premium plans has maturity benefit to offer to its customers. Under these plans, the premium amount paid by the policyholder is returned to her/him if s/he survives the tenure of the term plan.

3.     Increasing Term Plan:

In increasing term plans, the policyholders have the option to increase their sum assured at a yearly frequency during the tenure of the policy wherein the premium amount will remain the same.   However, the premium amount of this plan will be different than that of basic term insurance policies.

4.     Decreasing Term Plan:

In a decreasing term plan, the sum assured will decrease every year so as to match the decreasing coverage needs of the life assured. Individuals, who have taken a personal loan or large home loan and are paying regular EMIs, normally prefer a decreasing term plan as the sum assured keeps on decreasing based on the frequency chosen by the policyholder at the time of buying the policy.

5.     Convertible Term Plan:

Convertible term plans give the choice to the policyholders to convert their term plans into some other form of life insurance plans later on. For instance, if you have bought a term insurance policy for 20 years, after 5 years you have an option to convert your term plan into an endowment plan, whole life insurance plan or any other life insurance plan of your choice.

6.     Term Insurance Plans with Riders:

In these plans, you can buy riders like accidental death cover, critical illness cover, etc. by paying an additional nominal amount of money. Also, if you opt for premium waiver rider, you won’t have to pay the future premiums in case of an unfortunate event and your financial situation doesn’t allow you to pay further premiums.

Over to You:

Now, when you have got the basic idea of the meaning of term insurance and types of the plan, feel free to go ahead and select one depending upon your requirements. However, don’t forget that thorough research and using online tools to compare various best term plans of 2019 are the keys to find the best deal.