2020 brought home some harsh truths for all of us. We have always known that the future cannot be predicted with certainty, but the past year showed us that jobs can be lost, lifestyles overturned and lives cut short overnight. It also highlighted the upheaval that can result from the loss of a breadwinner in a family. It reminded us we need to protect our loved ones against financial risks or liabilities we could leave behind.
This is where term insurance can help. Term life insurance is a type of life insurance that provides coverage for a specific period, and offers financial security to your family if the policyholder dies during the policy term. In addition, compared to many other life insurance products, term insurance policies offer higher life cover at lower premiums, as it does not have any savings component.
Who should buy term insurance?
Any individual who has relying dependents can get a term insurance policy to ensure that the surprises that life could throws up do not derail his family’s lives if he is not around anymore.
If you are the sole breadwinner, your family is dependent on your income for their daily needs and hence a term insurance can be a crucial financial safety net. This will ensure that your financial goals like a dream house or car, or kids’ education or marriage is not disrupted for financial reasons in your absence. If you have a home loan or other loans that need to be repaid over time, you should opt for term insurance, so that your family is not saddled with the repayment liability in case of your untimely death.
How does term insurance work?
The premium for term insurance is mainly calculated on the basis of age, health conditions, term of the policy and the coverage amount. The Premium can change depending upon the type of product. Various term insurance calculators available on various portals will assist you through this process.
The premium can be paid in in a single go, or at regular intervals depending on the terms of the product. If the policy holder dies during the term, the coverage amount, also known as sum assured, is paid to the beneficiaries. On the other hand, if the policy holder survives the policy term, the coverage ends and there are no financial payments made by the insurance company. However, some policies may include ROP feature i.e. return of premium feature, which can fetch the holder a lump sum on maturity.
Highlights of term insurance plans
You need to bear in mind the important features of term insurance plans before opting for one.
# Term plans have lower premiums and there is usually no limit on the coverage that you can avail. However, the coverage you can get is derived from your current annual income.
# Usually, the coverage period of term insurance plans extends to 30 or 35 years, so that you stay covered for a long time. Some policies also offer life-time renewability, or till the age of 99 years.
# Riders, which are additional benefits, are available to policy-holders to enhance the scope of coverage of the policy at an extra cost. These include Critical Illness Rider, Accidental Death Rider, Waiver of Premium Rider etc.
Types of Term Insurance plans available in India
There are many varieties of term plans that you can choose from, depending on your requirement and ability to pay premiums. Insurers like Bajaj Allianz Life offers a range of term insurance plans that can help you keep your family financially secure and their life goals on track in case you are not around to provide for them.
A few popular types of term insurance plans are listed below.
Regular term plan: Regular term insurance plans includes where ones premium payment term is equal to the policy term of the policy. Such plans have monthly, quarterly or annual as modes of premium payment. Return of Premium is also a feature that could be availed on a regular term plan depending on the conditions mentioned therein.
Single premium term plan: With single premium term insurance plans, you have the option to pay the premium for the entire policy term at once as a lump-sum amount. It offers the same complete coverage benefit as a regular plan. The premiums in this plan are usually higher than regular term plans.
Increasing Term plan: Under this plan, the death benefit increases gradually during the policy term but the premiums do not increase. Most plans have a maximum limit that a sum assured can reach. The premiums in this plan are usually higher than regular term plans.
Decreasing Term plan: Under this plan, premiums remain constant but the sum assured payable decreases every year over a period of time. These policies can be used as a cover against a specific debt, which reduces in size over time. Premiums are usually lower in these plans.
Term Insurance with Return of Premium (TROP): Under this plan, you will receive the premiums (excluding taxes) you have paid over the term of the policy, at the end of the coverage period, provided you survive the policy period.
Points to consider while buying term insurance
The track record of any service-provider always gives a good insight in to how their consumers are treated. For an insurance company, Claim settlement ratio is one such parameter that you must examine before you select a term insurance plan.
Selecting the optimum level of coverage depending on your personal and financial circumstances is also crucial. Financial experts recommend an assured sum that is 15 to 20 times your income so that it is enough to replace your income as well as cover the expenses of your dependents for a fairly long period of time.
Also, choose riders prudently, depending on your lifestyle, profession and family history. Online term plan such as Bajaj Allianz Life Smart Protect Goal – A Non Linked, Non Participating, Pure Life Term Insurance Plan gives you an option to get back the entire premium (exclusive of taxes) at the time of maturity and also covers 55 critical illnesses.
It is also important to note that the younger you are when buying term insurance, the lower your premiums will be for the entire policy period. Also, consider your life goals like children’s education and liabilities like home loans that can impact your family’s financial security. The term plans enable you to provide the required financial security for your family. Term plans offer life cover at a low premium, with the option to your loved ones to receive the death benefit in instalments depending on the terms of the product, in order to meet their financial needs.
As we step into 2021, it is time to pledge ourselves to the continued wellbeing of our loved ones, come rain or shine!
1Product feature/benefit mentioned above are dependent on variant. For more details on risk factors, terms and conditions please read sales brochure & policy document (available on www.bajajallianzlife.com) carefully before concluding a sale.