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There are various types of term insurance plans, like Level Term, Increasing Term, Convertible Term, Joint Term, Group Term, and No-Cost Term Insurance. Each plan offers different features and benefits, so it is important for you to have a clear understanding. This will help you choose the right fit for your family’s needs.
Term insurance is a life insurance plan that provides coverage for a set period, called the ‘term.’ If the policyholder passes away during this time, the insurance company pays a lump sum amount to their family. Unlike some life insurance policies, term insurance does not give any payout if the person survives the term, unless they choose a Return of Premium (TROP) plan. It is an affordable way to ensure financial security for your loved ones.
There are various types of term life insurance policies in the market, each catering to different financial goals and protection needs. Let us take a closer look at the different term life insurance available:
Level term insurance is the simplest and most common type of term insurance. The coverage amount, also known as the sum assured, remains constant throughout the policy duration, with fixed premiums. This straightforward structure makes it ideal for families seeking stable coverage over a specific period.
Increasing term insurance is designed to keep up with inflation. In this plan, the coverage increases every year by a fixed percentage, while the premium remains the same or increases slightly.
Decreasing term insurance works inversely to increasing term plans. Here, the sum assured gradually decreases over time, often aligning with a loan or mortgage balance that reduces over the years.
Unlike regular term insurance, Term Insurance With Return Of Premium (TROP) offers a maturity benefit. If the policyholder survives the policy term, all premiums paid are returned, making it a viable choice for those who prefer getting something back from their insurance plan. While TROP plans come with slightly higher premiums than standard term insurance, they provide a form of financial reassurance for those looking to benefit in case of survival.
Convertible term insurance offers the flexibility to convert your term insurance plan into a different type of life insurance, such as a whole life or endowment policy, at a later stage. This can be beneficial if your financial goals evolve and you want coverage that goes beyond a certain term. This type of plan is suitable for people who do not need permanent coverage at the moment but want the flexibility to transition to it later on.
Whole life insurance extends beyond the standard term by providing coverage for the policyholder’s entire life, often up to 99 years or more. It ensures that your family will receive a payout whenever you pass away, offering financial security regardless of your age.
No-cost term insurance plans let policyholders exit the policy at a set time and get back the premiums they have paid. With no-cost term insurance, you have the flexibility to leave the plan without losing all your money.
A term insurance plan serves as a financial safeguard that ensures your family has enough financial support even in your absence. Beyond just providing monetary support, it also comes with a variety of additional benefits. Some of them are mentioned below:
In case of your demise during the policy period, the insurer gives your family a lump sum amount. It helps cover outstanding debts or mortgages, future financial goals, and monthly expenses.
Term insurance plans usually come with affordable premiums, making them accessible to everyone. If you want, you can also customize the plan according to your requirements and budget.
You have the freedom to select the coverage amount and policy duration based on your personal needs and financial situation. Furthermore, you can also opt for add-ons such as the accidental death add-on, the accidental permanent disability add-on, the critical illness add-on, and more. This helps you ease your financial burden.
According to Section 80D of the Income Tax Act, the premiums paid against the term insurance plan are eligible for tax deductions, helping you lower your taxable income. Additionally, the lump sum payout and any bonuses received by the nominee are fully tax-free.
You can find several insurance companies in the market claiming to be the best one, which often makes it difficult to choose the right plan. However, the factors listed below can help you make the right choice:
This is one of the most important factors to consider before finalizing your decision, as it directly influences your policy tenure and the amount of coverage you require.
Every individual has different financial responsibilities in life. For instance, someone who is the sole breadwinner in their family will need more life coverage than an individual who lives alone and has fewer dependents.
You must have a clear understanding of your lifestyle, including your current spending habits, existing liabilities like loans and your general standard of living, when buying a term plan. This ensures that your family does not compromise on their living standards in case of an unfortunate event like your demise.
When it comes to selecting a term insurance amount, people are generally concerned about whether it will be enough for their family. A practical way to estimate the coverage amount is by carefully analyzing your current income. This is because everyone has their own financial obligations. Understanding the income allocation can provide clarity and help you make informed decisions.
Riders, also known as add-ons, are additional benefits provided by insurers to enhance the base coverage of the existing insurance policy. These usually include an accidental death rider, permanent disability rider, and more. These riders can be included either when buying the policy or during renewals by paying a little extra amount.
The Claim Settlement Ratio shows the successful number of claims settled by the insurer in a given fiscal year. This ratio tells the financial position of the insurance company in the market and helps you decide whether it is worth considering or not. Be sure to choose the insurer with a high CSR.
Buying a term insurance plan is a simple procedure and can be done from the comfort of your home, with just a few taps on your smartphone/laptop. Here how to get started:
Selecting the right type of term insurance involves understanding your long-term goals and aligning them with your family’s financial needs. Whether you are considering a simple level-term plan, exploring the flexibility of convertible options, or looking for whole-life coverage, it is essential to make an informed choice that supports your family’s financial future.
Remember, each type of term life insurance plan offers unique benefits, so take time to evaluate your current and future requirements to find the plan that best suits your life and financial journey.
1
Increasing term insurance offers a rising sum assured over time, adjusting for inflation, while decreasing term insurance provides coverage that reduces, often aligning with a decreasing loan balance.
2
Certain policies, like convertible term insurance, allow you to convert your policy into another type, but not all plans offer this flexibility.
3
Return of premium term plans (TROP) return the premiums paid if the insured survives the policy term, combining coverage with an element of savings.
4
Group term insurance provides coverage to a group, typically offered by employers, with lower premiums but usually limited coverage. Individual term insurance is tailored to an individual’s needs and offers greater flexibility.
5
For long-term financial planning, Whole Life Insurance or Level Term Insurance can be suitable choices, ensuring coverage and stability over an extended period.
6
An increasing term insurance plan is a type of life insurance where the death benefit your beneficiaries receive if you pass away goes up each year by a set percentage. This helps ensure your coverage keeps up with inflation.
7
Yes, in many cases, you can increase the term insurance cover. Many policies give you the option to enhance your sum assured during renewals.
8
Term insurance with Return of Premium (TROP) simply means that if you pass away during the policy term, your beneficiaries receive the death benefit. However, if you survive that period, you can get your premiums back. Unlike a regular term insurance plan, which does not pay you anything if you survive the policy term.
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
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