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"Life Coverage Insights: Exploring Term Insurance to Secure Futures"

Term Life Insurance

Term Insurance


To begin with in today’s time we all have understood the importance of having life insurance to save on money for future benefits. A Term life insurance policy is the simplest, purest form of life insurance: You pay a premium for a period of time – typically between 10 and 30 years – and if you die during that time a cash benefit is paid to your family (or anyone else you name as your beneficiary).


Term life is typically less expensive than a permanent whole life policy – but unlike permanent life insurance, term policies have no cash value, no payout after the term expires, and no value other than a death benefit. To keep things simple, most term policies are “level premium” – your monthly premium stays the same for the entire term of the policy. Term life insurance is a type of life insurance policy that provides coverage for a certain period of time, or a specified “term” of years. If the insured dies during the time period specified and the policy is active, or “in force,” then a death benefit will be paid.


How Term Life Insurance Works?

There are various types of term insurance policies available. Many policies offer level premiums for the duration of the policy, such as 10, 20, or 30 years. These are often referred to as “level term” policies. A premium is a specific cost, typically monthly, that insurance companies charge policyholders to provide the benefits that come with the insurance policy.


The Insurance Company calculates premiums based on health, age, and life expectancy. A medical exam that reviews the insured person’s health and family medical history might be required, depending on the type of policy chosen.


Premiums are typically fixed and paid for the length of the term. If the person insured dies prior to the expiration of the policy, then the insurance company will pay the death benefit to their beneficiaries. If the term expires and the individual dies afterward, there would be no coverage or payout. However, the policyholder can often extend or renew the insurance, but the new monthly premium will be based on the person’s age at the time of the renewal. As a result, premiums are higher upon renewal.


Many term policies are also “convertible,” which means they can be converted into a permanent life insurance policy, such as universal or whole life, within a certain number of years after the policy was taken out. If you convert term life insurance to permanent life insurance, the premium will increase.


Types of Term Insurance

There are various types of term insurance besides the level term policies we’ve outlined so far. Each policy has its pros and cons, depending on the needs of the policyholder and their beneficiaries.


1.       Convertible Term

Convertible term life insurance allows a term insurance policy, which has a limited number of years before expiring, to be converted into whole life or universal life insurance. The major benefits of convertible insurance is that the policyholder gets lifelong coverage and doesn’t have to submit to a medical exam, nor are any health conditions considered when the term policy converts to permanent insurance.


2.       Increasing Term

Some policies allow you to increase the death benefit as time goes on. The premium increases as well, but it allows policyholders to pay lower premiums early on. The increasing term prevents having to qualify for another policy at an older age to get the added death benefit, as would be the case with traditional term insurance.


3.       Mortgage Term or Decreasing Term

A mortgage term or decreasing term policy is the opposite of the increasing term because the death benefit amount decreases over time. The goal is typically to match the decline of the term benefit to the reduction of the policyholder’s outstanding mortgage. The idea behind this strategy is that you don’t need as much life insurance if you have less mortgage debt. However, although the premiums are smaller than level-benefit term insurance, the premium payments remain constant even as the benefit declines.


4.       Annual Renewable

As each year passes, annual renewable term (ART) insurance is renewed but for a higher premium since the policyholder is a year older. The benefit to annual renewable term insurance is that the coverage is guaranteed to be approved each year. However, it may not be the most cost-effective for everyone due to the increased costs over time.


Do you get your money back at the end of a term life insurance policy?

If you’re alive when the term expires, you get nothing back from your term life insurance policy. It is a death benefit, payable to your heirs only if you die. That is why term life insurance is relatively inexpensive. However, return of premium (ROP) term life insurance policies are available. They return some or all of the premiums you paid. Most people outlive their term life insurance policies.


Features of Term Insurance

Some of the hallmark features of term plans include the following:


1.       Affordability: Term insurance policies are some of the most affordable life insurance products. The premiums you have to pay for term plans are usually much lower than other life insurance policies. You can get life cover up to ? 1 crore for a monthly premium as low as ? 485/-.


2.       Age of entry: With the minimum eligibility age of 18 years, you can get term plans early in life. Buying a term plan at a young age helps you get sizeable coverage at very reasonable premiums.


3.       Policy Term: Term insurance provides coverage for a specified number of years, known as the policy term. In case of an unfortunate event during this period, your nominee will receive the sum assured in your policy. Term insurance tenures can start from 5 years and extend up to your 99th birthday if you choose the whole life insurance option. Depending upon how long your loved ones might need your financial support, you can select the right policy term for your needs.


4.       Maturity Benefit: Term insurance provides financial protection to your family in case of an eventuality. It is not meant to be used as an investment instrument. Thus, it does not offer any return on the premium you pay in the fortunate event that you survive the policy tenure. However, the very absence of this investment component makes term plans so affordable. One of the unique features of term insurance is that your entire premium goes into securing your insurance cover. No part of it is deducted for investment purposes. Thus, you can get substantial coverage, enough to cover the current and future expenses of your loved ones at pocket-friendly premiums. Also, you can opt for term insurance with a return of premium feature if you want some maturity benefits. After the policy matures, you will get back the entire premium you had paid throughout the policy tenure with such plans.


5.       Flexibility in Premium Payments: You can pay your term plan premiums as per your convenience. Annual, semi-annual, quarterly, or monthly premiums are some of the premium payment frequencies you can choose. Such regular premium payments are ideal for salaried individuals with a stable income. You can also go for a one-time, lump sum premium payment if you have some surplus funds lying unused. Alternatively, you can go for a limited pay option and pay off your premiums within the initial few policy years. Your life cover^ remains active for the entire term plan tenure. Thus, if you are self-employed, with variable cash inflows, you can take advantage of such single pay or limited pay options and keep your loved ones financially protected against life’s uncertainties.


6.       Life cover: A term plan keeps your family secure from financial challenges if an unfortunate event occurs. It provides a life cover of your choice at affordable premiums. With this life cover, your loved ones get an assured sum in case of an unwanted incident during the policy period. The payout can help your family avoid compromising with the lifestyle you want for them in your absence. Additional add-ons: You can add riders or add-on benefits to your term insurance policy to extend the scope of your base coverage at a nominal cost.


Various types of riders are available with term plans, such as:

1.   Critical Illness Rider

2. Accidental Death Cover

3.  Waiver of Premium Benefit in case of a permanent disability

4. Increasing term insurance: Term plans allow you the flexibility to update your policy as per the changing financial needs of your life. You can increase the sum assured or add riders to your plan at your life’s key milestone events. Thus, after marriage, or when you welcome your children into your family, and your financial liabilities increase, you can enhance your coverage. It enables you to provide your loved ones with the right financial back up against unforeseen situations.

5. Tax benefits: Term plans offer many tax6 benefits. Under Section 80C of the Income Tax Act, 1961, you can claim deductions up to ? 1.5 lakh on the premium you pay for your term plan. The payouts are also tax6-exempt under Section 10(10D). Moreover, with an add-on health-related rider, you can avail of tax6 benefits under Section 80D on the premium paid for the rider.

6. Premium waiver: This benefit waives off all your future premiums in the case of a disability9 caused by an accident. Hence, even if you fail to pay the premiums due to any income loss from a disability, you will still be able to keep your family’s future secure.


What is the Ideal Duration of a Term Plan?

Most life insurance companies offer coverage for up to 75-85 years of age, while some may offer coverage till the age of 99. It varies from insurer to insurer. Evaluating the correct duration of a term insurance plan is critical. You need to plan about the finances if something happens to you.

Let us understand what happens when you buy a term plan at different ages:


1.       If you are in your 20’s

Buying a term insurance depends on your current age and retirement plans. Let’s say you are in your 20’s and are likely to retire by the age of 60. You must go for a 35-40-year term plan. It will get you covered until your desired retirement age. It is good to think and plan for your future. If you buy a term plan at this age, the premium will be low. It will be affordable for you. Hence, it is always said to buy a term insurance plan as soon as you start working.


2.       In your 30’s and 40’s

When you enter your 30’s or 40’s, you will likely get married and start your family. Now that you have people who are dependent on you, you should start thinking about buying term insurance plans. At this age, you should opt for a duration of 35-40-year term insurance, depending on your financial s and retirement plans or employment type.


3.       In your 50’s and 60’s

When you are older, around 50-60 years of age, by this time, your children will likely be settled, and the burden on you to work and pay bills will be low. At this age, you can opt for a term plan for a 15-year term.


In conclusion, term life insurance offers a cost-effective solution for providing financial protection for a specific period of time. It provides a death benefit to the policyholder's beneficiaries if the insured passes away during the term of the policy. Term life insurance is a popular choice for individuals who want coverage during their working years or to protect their family's financial well-being. It allows policyholders to customize the coverage amount and term length based on their specific needs. However, it's important to note that term life insurance does not build cash value and expires at the end of the term, requiring policyholders to renew or convert the policy if they want to continue coverage.

- IFA Team