TERM INSURANCE

Life insurance is basically two types – whole life and term insurance. Term insurance is the simpler type which provides coverage for a predefined period or term. Sum assured is paid only in the event of death.

Different types of term insurance

Level premium

Premium of this type stays the same throughout – generally from 5 to 30 years.

Convertible

With this kind, a policyholder can convert the term insurance, say after 5 years, into an endowment plan or whole life insurance. Premium rates will change as per the new policy.

Return of premiums

At the end of policy term, the insurer returns the premiums you paid if you survive the policy. Premium rates are significantly higher in such types plus you must continue till the end.

Guaranteed renewal

You can renew after end of term without formalities, like medical examination.

Decreasing sum assured

This is for someone with a big loan which they want to pay off through insurance in case of death. As repayment installments decrease, so does the sum assured.

As a rider

You can attach a rider/s - such as for critical illness, disability, loss of employment, etc - to your policy and get extra benefits.

E-term insurance

These are cheaper because they are taken online thus deducting agent commissions.

Positives of term insurance

• Cheap: There is no cash accumulation hence cost is low.

• Larger cover: It is possible to get bigger life coverage, say for Rs 1 crore, for a young person at the same premium amount vis-à-vis an endowment plan which is costlier.

• Enhancing coverage: Certain companies allow you to start with a lower coverage and increase it as you move from being a bachelor to marriage to parenthood.

• Goal: May be bought for a specific goal like loan repayment.

• Flexible: Some policies allow a change to cash value life insurance.

• Indefinite: You can renew some term policies indefinitely.

Negatives of term insurance

• Limited: Provides coverage for a specified period.

• Cease: In some premiums may cease after the term without renewal option.

• High premiums: Option renewal is usually at significantly high rate.