Understanding Coverage Terms in Life Insurance Plans

Life Insurance is a crucial part of your investment and savings plan for your family because it gives your family financial security when you're not around. In India, several life insurance plans offer different coverage terms, benefits, riders, and exclusions. Understanding these terms is essential to make an informed decision when buying a policy. In this article, we will discuss the different coverage terms for each type of life insurance plan. Read on to know more.

In Term Life Insurance, you are covered for a certain term or duration of time, such can range from 1 to 30 years. This type of Life Insurance ensures that your family can access your death benefit when you pass away, or cannot work anymore. Generally, you need to pay premiums in your Term Life Insurance. These premiums can be paid in a lump sum or frequently over a period of time. When you pay your premiums on time, and unfortunately pass away while the policy is effective, your beneficiaries will get the death benefit.

Most insurance companies offer Term Life Insurance Policies that are valid for 10, 15, 20, or 30 years. A Term Life Insurance has premiums that are calculated by determining criteria including your age, health, any health issues, and lifestyle habits. You can also convert your Term Life Insurance policy into a Whole Life Insurance policy before it expires. However, this is subject to the terms and conditions of your insurance policy.

Here are a few points to keep in mind before buying a Term plan.

A Term Life Insurance Policy is a good choice if you're looking for extensive yet affordable coverage. If you're younger and healthy, or have few health conditions, this may be an option you can look at, as you're probably just starting to save your income. You can choose to convert your Term Life Insurance into Whole Life Insurance at a later date if you want to secure your family's finances for life.

Example

Let's pretend you're 30 years old and purchase a 10 year Term Life Insurance policy for  ₹500,000, which costs ₹50 per month in premiums. You pass away unexpectedly, but within the Term Life Insurance policy. Your family will get ₹500,000 as the death benefit. If you pass away after you become 40, your Term Life Insurance policy expires, and your family will not receive anything.

A Whole Life Insurance Policy is a type of Life Insurance that covers you for life. This feature appeals to the majority of people. While this type of plan offers you lifetime coverage, Term Life Insurance offers you coverage only for a certain number of years.

The coverage term in a Whole Life Plan is until the death of the policyholder. Since Whole Life Insurance extends for your lifetime and guarantees a death benefit payout, it's a preferred insurance policy type. With a Whole Life Insurance policy, you have to pay your premiums on time, so that your loved ones get your death benefit payout. 

Unlike a Term Life Insurance policy, a Whole Life Insurance Policy offers an investment and savings component, where you can withdraw from, or borrow against. One of the unique benefits that a Whole Life Insurance Policy offers is an endowment or term maturation when you get to blow out the candles on your 100th birthday or beyond!

Here are a few points to keep in mind before buying a Whole life plan.

A Whole Life Insurance policy may be for you if you need coverage for life. In addition, this policy offers fixed premiums that won't fluctuate, regardless of inflation, interest rates, and the state of the financial market. 

What's more, your Whole Life Insurance policy gives you a cash value component to withdraw or borrow from. The reason this policy is one of the most popular ones is because your beneficiaries are guaranteed the death benefit, regardless of how or when you pass away - provided you've been paying your premiums on time! 

Example

Suppose you buy a ₹350,000 Whole Life Insurance Policy. You could choose to pay monthly premiums which would cost ₹1,000 to ₹1,200 per month. If you want to pay in a single amount known as lump sum, you will pay all of your premiums up front. In either case, your beneficiaries will receive ₹350,000 as the death benefit payout when you pass away.

Universal Life Insurance gives you the advantages of Whole Life Insurance, plus flexibility in payments, payouts, and more. In this type of insurance, you get a savings component in addition to life insurance coverage.

The coverage term for Universal Life insurance is the lifetime of the policyholder. The premium you pay is divided into two parts. One part goes toward the actual cost of your policy, and the other goes to an investment account which will compound interest to offer you a substantial return on investment. 

The most popular feature of this policy is that you can tweak your premium amount and the frequency of payment adjusted towards your death benefit. With the investment part of this policy, your account can be utilised to invest in stocks, bonds, and mutual funds.

Here are a few points to keep in mind before buying a Universal life plan.

If you want a Life Insurance Policy that offers flexible features, as well as savings, then Universal Life Insurance may be what you're looking for. Whole Life Insurance premium and payout amounts are fixed, but Universal Life Insurance amounts can be changed. This policy is an ideal fit especially if you've dabbled in the financial market and if you can invest long term. 

Example

An example of Universal Life Insurance would be if you buy ₹100,000 of Universal Life Insurance coverage. You pay premiums to reach ₹60,000 in the policy's cash value. If you pass away, your beneficiaries will get ₹100,000. Your cash value balance is added to the death benefit.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.