Term Insurance is unarguably the purest type of life insurance, as it offers comprehensive financial support to the insured’s family members after his or her demise. To know more about what is term insurance read on.
A term plan is a type of life insurance policy that insures a policyholder for a particular duration. If the policyholder dies during the plan’s period, the insurer pays the death benefit to his or her nominees. However, a term life insurance plan does not come with any maturity benefit. It only covers the insured person’s risk of demise and pays the death benefit to the nominees if an unfortunate event occurs. As a term plan does not provide any survival benefit or returns on investments, it is a pure life insurance policy.
How term insurance works
Unlike, traditional life insurance plans that provide cover until the death of the insured, term plans only provide cover for a specific duration. If the policyholder meets with an untimely and unfortunate incident within the tenure of the plan, then the beneficiary of the policy will receive the death benefits from the insurer. On the other hand, if the policyholder outlives the tenure of the term plan, then the premium paid until maturity will be lost.
Term life insurance premiums are determined by a person’s health, age at time of application, tobacco usage, and amount of coverage. Melissa Thompson of Diabetes Life solutions notes” term insurance rates are going to vary from person to person. Generally, the younger, and healthier you are at time of applying for life insurance, the ‘cheaper’ your rates will be. Those who are in pretty good health can be approved for coverage without completing any medical exams. On the other hand, life insurance with type 2 diabetes is probably going to require additional underwriting requirements.
Features of term insurance
Here are the key highlights of a term plan.
- Cost-effective
A term plan comes at the lowest premium compared to other life insurance policies. So, you can provide monetary stability to your loved ones at a nominal cost. With this sum assured, your family members can live a financially stress-free and independent life.
For instance, Ramesh purchases a term insurance plan with a life coverage of INR 1 crore at the age of 30. He opts for a tenure of 25 years and pays a monthly premium of approximately INR 800. This indicates that the premium is quite economical. You can seek the help of a term insurance plan calculator to determine the premium based on your age, gender, the sum assured, tenure, and lifestyle habits.
- Opportunity to pay premiums for a lesser period
Certain term plans give you the privilege of paying premiums until retirement, and the insurance may insure you for a longer period. Suppose you invested in a term plan at the age of 35 for a period of 40 years. If you have taken this facility, you can pay premiums until you turn 60 and be insured until the age of 75.
- Flexible payouts
A term plan offers different options when it comes to the disbursal of the death benefit. You can receive this amount as a one-time lump sum, at monthly intervals for a particular period, or as a combination of both the alternatives. If you feel that your family will be unable to manage a huge amount in one go, you can opt for a fixed monthly payout. This option replaces your income, and your family can efficiently manage the expenses.
Why is a term plan a pure form of life insurance?
Term insurance is called a pure protection plan because it provides life cover to the policyholder for a specific duration. It does not offer any maturity benefits unless you have purchased a term plan with a return of premium feature. Besides this, there is no investment component. Your premium is not invested in any type of funds. Therefore, you end up paying a lower premium.
You can heave a sigh of relief if you have invested in a term plan, as you have secured your family’s financial well-being in your absence. If you have not invested in it, use a term insurance plan calculator to search for the most suitable policy.