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Life Insurance is one of the biggest and the first major investments made by people at an early age when they begin working and earning a regular salary. There are several types of life insurance plans that are designed to act as an emergency fund in the sad event of the demise of the person buying life insurance. Life insurance plans come under several types of fund requirements, such as a pension fund, children’s education, and daughters’ marriage. Many of them are equity-based and have a component that is designed to build wealth for life insured. Life insurance has become a wealth-building financial investment, and modern fund managers are constantly vigilant to ensure minimal loss to investors.

Term insurance has remained steady over the years and provides a risk-free lump sum amount to the nominee as an emergency fund as provides the maturity value at the end of the term of the insurance policy, which can range from 15 to 40 years. This type of insurance provides the least benefits though policyholders get a bonus and a loyalty addition at the end of the term. The amount of premium is primarily decided by the age of the applicant during the time of the commencement of the policy, and the premiums paid are exempt from income tax under section 80C upto a limit of Rs 1.5 lakhs.

Understanding Different Types of Term Insurance Plans

There are, however, different types of term insurance

Level term plans are the most basic type of term insurance. The sum assured is fixed, and the annual premium is calculated based on the age of the life assured. There is a death benefit which is the sum assured that is paid to the nominee in the unfortunate event of the death of the life assured. However, there is a lump sum payment that the person buying the policy receives if he or she survives the term of the insurance. The lumpsum amount consists primarily of the sum assured and some bonuses given by the life insurance company selling the policy. People interested in buying this basic term plan can use the term plan calculator.

There are TROP (return of premium) plans which are basically types of term insurance, but there is an option of return of all the premium paid by the life assured in case he survives the term of the insurance plan. Many insurance companies pay interest on the accumulated premiums in the form of bonuses and loyalty additions. At the end of the maturity, the return on premiums is more than the sum assured.

Increasing Term Plans- There are term insurance policies where the life assured has the option to increase the sum assured with each passing year. However, the premium for this is on the higher side due to the periodic increase in the sum assured. The nominee will get the sum assured last decided with the increase in the previous year in the unfortunate event of the death of the life assured.

Convertible term plans are basic term plans but with a difference. The person buying the term insurance plan can convert the plan into any other plan, such as a life endowment policy or a whole life policy, after continuing the term plan for at least 15 to 20 years. The premium is likely to be recalculated. The life assured will need to pay the recalculated premium, which may be more or less than the existing premium that the life assured had been paying all along. This is a very convenient option. People can overcome the regret of choosing a simple term insurance plan and can now have a more attractive life insurance policy more to their liking.

Term plans with riders- Riders are additional benefits such as coverage for critical illness or a crippling accident of the life insured, and the policyholder can add extra privileges while the term insurance policy is in progress. The addition of these extra benefits or riders will lead to an increase in the premium, and the policyholder will need to pay the increased premium while the extra riders are added to the existing benefits of the term insurance plan. The policyholder may benefit by one of the riders being applicable, in which case he or she will receive the entire sum assured and will not need to pay the remaining premiums. This can be a blessing for many families and can cover extra risks to the health of the breadwinner of the family.

Decreasing Term plans- This is a flexible term insurance plan where the policyholder can go for a lower sum assured and hence choose to pay a lower premium. This is a choice policyholders can make if they have a large amount of loans to repay, and high EMIs are taking a toll on their monthly expenditure. They have a lesser requirement of a heavy maturity amount for surviving their term insurance plan and choose to reduce their premium by progressively reducing their sum assured and maturity value.

Group Term insurance plans are popular with companies and corporations that go for this kind of group insurance for their employees or staff. There are several additional benefits in a term group insurance plan as a criticality involving the majority can lead to insurance payment to individually unaffected persons who are generally benefited by this type of term insurance.

Diversity adds to the attraction

The different types of term life insurance have added to the attraction of simple term life insurance. Life insurance companies are aware of the needs of policyholders to amend their term insurance plans and make them more amenable to their revised financial goals after a certain period of their lives. These types of term insurance plans allow policyholders to make those changes without having to go for a new insurance policy.

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April 2024