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Types of Term Insurance Plans

According to the basic term plan meaning, the insurer pays the beneficiaries a fixed sum if casualties occur to the policyholder within a specific coverage period, or ‘term’. If the policyholder survives past the term, the insurer will not make any financial payments.

Term insurance benefits you by providing for the landmark events in your loved ones’ lives, even in your absence. It can take care of even the outstanding liability on a home loan.

What are the types of term insurance plans?

Term insurance comes with varied types of plans. You can choose one depending on the unique term insurance benefits they offer. Let’s delve into the details:

  1. Regular term plan
  • In the regular term plan, you periodically make the premium payment for the entire term of the policy.
  • There are flexibilities for monthly, quarterly, and annual payment of premium along with a feature for the return of premium.

  1. Single-premium term plan
  • As the name suggests, here, you make the premium payment once with a lump sum.
  • The coverage benefits are the same as those available in a regular term plan.
  • However, the premiums are priced a little higher as compared to regular term plans.

  1. Level term plan
  • It is the most basic variant of term insurance. Here, you can make premium payments based on your needs.
  • The sum assured will not change during the term.
  • In case of an untimely demise, the beneficiaries receive the payment from the insurer.

  1. Increasing term insurance plan
  • This is a unique type of term plan. The insurer allows you to increase the cover amount as you progress in your age, while the premium remains constant.
  • As time passes, the value of money diminishes. Inflation eats away the value. Hence, if you have taken a cover today, you are estimating the expenses after 40–50 years based on today’s price of goods and services. Hence, an increasing term insurance plan covers the rising cost of inflation.
  • The insurer decides the rate of increase each year.
  • Normally, the tenure is 20 years. However, the premium is generally higher compared to the level term plan.

  1. Decreasing term insurance plan
  • In contrast, the cover amount decreases each year at a rate determined by the insurer while keeping the premium constant.
  • The logic: Your needs and commercial liabilities decrease with age. Therefore, you require a lower level of insurance. Therefore, a lower premium is charged.
  • This type of insurance works best if you already have mortgage plans, personal loans, or hefty EMIs.

  1. Group term insurance plan
  • As evident by the name, this term plan is for a group of members of an organisation. It best suits companies, businesses and other types of commercial units.
  • All members of the organisation receive similar term insurance benefits.
  • Bulk quantity comes with a discount.
  • Group term plans also come with added term insurance benefits that are otherwise not available for individual subscribers.

  1. Convertible term plan
  • A convertible term plan refers to a plan that allows the policyholder to change the plan term from say 20 years to an endowment plan or a pension plan or a whole life insurance plan.
  • However, it would change the attributes of the plan and thus the premium amount would change too.

  1. TROP or return of premium term plan
  • This is the best in class for insurance policyholders who have won the battle of life for the insured period.
  • Here, you receive a refund of the premium amount you have paid earlier.
  • This term plan ensures that the premium is not wasted and provides risk coverage for life.
  • However, the premium is accordingly higher for such policies.

  1. Term plan with riders
  • Riders such as accidental death, critical illness, etc. may be required as the risk of the policyholder increases with time.
  • These added covers can be purchased with a normal policy by paying a small additional amount of premium.
  • Riders give additional risk coverage in the same policy. So, you do not need to undergo another risk assessment.

Conclusion

There is no blanket rule to decide the best term insurance plan. But given the wide variety of term insurance benefits above, you can choose that policy that serves all your needs and liabilities. Assess your requirements and objectives for taking a term plan and then decide accordingly. Till then, stay safe!

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