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Understanding Coverage Terms in Life Insurance Plans

Life insurance plans come with different coverage terms. It's important to understand them to choose the right policy.

Different Coverage Terms

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What are the different coverage terms in Life Insurance plans?
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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.

What is Term Life Insurance? 
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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.

What are the different coverage terms for Term Insurance?
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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.

Advantages and disadvantages of Term Life Insurance
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Here are a few points to keep in mind before buying a Term plan.



Easy to buy 

No investment or savings plan

Straightforward terms 

No motivation to pay premiums 


Low premiums with few benefits


Only valid for a set number of years

Should you buy a Term Plan?
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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.


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.

What is Whole Life Insurance? 
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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.

What is the coverage term for Whole Life Insurance?
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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!

Advantages and disadvantages of Whole Life Insurance 
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Here are a few points to keep in mind before buying a Whole life plan.



Offers coverage for life 

Premiums can cost much more than Term Life Insurance 

Fixed premium rates 

More premiums to pay over a longer time 

Saving and investment plan 

Return on investment is minimal 

Cash value 

Should you buy a Whole Life Plan?
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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! 


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.

What is Universal Life Insurance? 
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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.

What is the coverage term for Universal Life Insurance?
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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.

Advantages and disadvantages of Universal Life Insurance 
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Here are a few points to keep in mind before buying a Universal life plan.



Flexible premium amounts and payouts 

Needs regular payment of  premiums or the policy can lapse

Death benefit payout

Return on investment is not guaranteed 

Your cash value can grow exponentially

Amount withdrawn from the policy can be taxable

Facility to borrow a loan

Should you buy Universal Life Insurance?
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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. 


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.

How to choose the right plan and coverage term for Life Insurance
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When choosing a life insurance policy, there are several factors to consider to ensure you get the best coverage for your and your family's financial requirements. The following are some important factors to remember while buying life insurance.

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Your age is a crucial factor when selecting a life insurance policy. If you are younger, opting for a longer life insurance coverage term is recommended. This protects for a longer duration and ensures your family receives payouts in the long run. On the other hand, if you are older, it's a wise idea to choose a shorter coverage term and extend it as needed.

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Your health status and pre-existing medical conditions significantly determine the premiums you'll pay for your policy. Your premium amounts will be higher if you have any illnesses or injuries that pose a higher risk. Therefore, choosing a plan that covers your pre-existing conditions and any unforeseeable health issues that may arise in the future is essential.

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Your current expenses, such as mortgages, debts, loans, and education costs, should be considered while buying a life insurance plan. In the event of your unfortunate demise, it will be your family's responsibility to bear these expenses. Choose a coverage term that provides a sufficient payout to cover these expenses.

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Your spouse and dependent children rely on your income to survive. It's important to choose a life insurance policy that offers coverage for life for you and long-term payouts or a substantial lump sum for dependents.

Lifestyle habits
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Your lifestyle habits can affect your life insurance premiums and coverage terms. If you smoke or drink regularly or enjoy dangerous hobbies, your premiums will increase, or you might be denied coverage. High-risk coverage is necessary when selecting a policy for your family in such cases.

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Your income and your earnings are important criteria to consider when selecting a life insurance policy. A policy with life-long coverage will have a higher premium that costs more, and a shorter coverage term will have lower premiums. You should choose a plan that suits your budget and financial requirements.

Tips to choose the best life insurance policy
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We've explored the different types of Life Insurance policies available, and the factors that affect coverage terms and premiums. Here are a few handy tips to make choosing a Life Insurance Policy easier.

Identify your required coverage amount
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The first step in choosing a life insurance policy is to determine how much coverage you and your family need. This amount will depend on a variety of factors, such as your expenses, debts, loans, education, and day-to-day costs like groceries. By assessing your needs, you can choose a policy that provides sufficient coverage.

Know the types of life insurance plans
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There are three types of life insurance plans in India: whole life insurance, universal life insurance, and term life insurance. Term life insurance provides coverage for a specified period, while permanent life insurance provides coverage for life. Understanding the differences between these plans can help you choose the one that best suits your needs.

Verify the company's credentials
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When purchasing a life insurance policy, it's important to choose a reputable company that offers legitimate services and has a history of paying claims. Fortunately, it's easy to verify an insurance company's credentials online. You can read reviews from other policyholders and research the company's reputation to ensure that you are making the right choice.

Look for suitable life insurance riders
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A policy rider is an add-on that provides extra coverage or benefits. Adding a critical illness rider to your policy, for example, can provide a payout if you become injured or ill, even if you don't pass away. Consider adding riders to your policy that offer the additional coverage you need.

Review terms and conditions
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Before finalising your life insurance policy, it's essential to review the terms and conditions carefully. Make sure you understand what the policy covers and what it doesn't. If you have any questions, don't hesitate to ask your insurance company for clarification. Also, remember that terms and conditions are subject to change, so keep an eye out for any updates.

Frequently Asked Questions
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Here are the answers to the most asked common questions related to different coverage terms in life insurance plans.


What are the differences between Term Life Insurance and Whole Life Insurance? 

A Term Life Insurance policy covers you for a certain number of years, usually from 1 to 30 years. If you pass away before the term is up, your loved ones will not get the death benefit payout. Whole Life Insurance provides lifelong coverage, and a savings component. Premiums may be higher and more frequent, but it ensures that your beneficiaries get all of your death benefit when you pass away. 

Are Whole Life Insurance and Universal Life Insurance the same thing? 

No, Whole Life Insurance and Universal Life Insurance are 2 different policy types. A Whole Life Insurance policy offers fixed rates on premiums and payouts. Universal Life Insurance gives you the flexibility to switch up your premium amounts and payment frequency. 

Will I get my money back when a Term Life Insurance Policy ends?

No, you will not get your money back if you outlive your Term Life Insurance policy. Term Life Insurance is affordable because most people live longer than their Term Life Insurance Policies.

Can I buy a Term Life Insurance policy if I'm a senior citizen? 

You can buy a Term Life Insurance policy until a certain maximum age limit. This age limit varies among insurance companies but is generally between 80 to 90 years old. The older you are, the higher your premiums will be. 

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.