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Different Types of Term Insurance Policy Users

TeamAckoNov 7, 2023

Buying Term Insurance is important because it provides financial protection for the policyholder's family in the event of the insured person’s untimely death. It is a cost-effective way to ensure your loved ones are cared for financially in your absence. Additionally, it can be used to cover any outstanding debts or financial obligations that the policyholder may have, such as a mortgage or business loan. Thus, different categories of people are Term Insurance policy users. More on this ahead. But first, let’s begin with understanding policy beneficiaries and nominees.

Different Types of Term Insurance Policy Users

Contents

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Beneficiaries and nominees in insurance policies

Beneficiaries and nominees are individuals or entities named in an insurance policy to receive benefits or payouts in case of the policyholder's death. Beneficiaries can be family members, friends, organisations, or trusts, while nominees are individuals appointed by the policyholder.

It's important to designate a beneficiary and keep the nomination details updated to ensure the intended recipient(s) receive the insurance payouts without any legal issues.

Types of users that buy Term Insurance

Term insurance is a crucial financial tool that provides financial security for individuals and their families. Here are some different profiles that can be termed as Term Insurance policy users. 

1. Single individuals

Even if you are single, you should consider buying Term Insurance (TI) if you have dependents, such as elderly parents or siblings. For instance, if you have an ageing parent who depends on you for financial support, Term Insurance can help them in case of your untimely death.

It can also be an excellent idea if you have high outstanding debts or work in a high-risk profession.Here’s an example. Let's say John is a single commercial pilot. Despite not having a spouse or children, John has a significant amount of outstanding debt, including a mortgage, car loan, and student loan.

He also supports his elderly parents financially. As a pilot, John works in a high-risk profession and recognizes that anything can happen at any time. Therefore, he buys Term Insurance to provide financial security for his parents. He also ensures that his outstanding debts are paid off in case of his untimely death. With TI, John can have peace of mind knowing his loved ones will not be burdened by his debt. They can continue to receive financial support even after he is gone.

2. Married couples without children 

Consider a couple in their 30s who work and have no children yet. They have a joint mortgage, car loan, and credit card debt. In the event of a death, the other person would struggle to pay off these debts on a single income. Term insurance can cover these financial obligations.

Let's consider the life of a married couple, Mr. & Mrs. Sharma as an example who are in their 30s and living in Mumbai, India. They don't have children yet, but they both work full-time jobs and have a joint mortgage, car loan, and credit card debt. 

In case of either one's untimely death, the surviving spouse may struggle to pay off these debts on a single income. This is especially if they have no support from their extended family. By purchasing a Term Insurance policy, the surviving spouse can receive a lump sum payment. This can help cover these financial obligations and provide financial security during a difficult time.

3. Married couples with children

A couple in their 40s with young children has a mortgage, car loans, and education expenses. If one of the parents passes away, the death benefit from Term insurance can help cover these expenses and ensure the children's financial security.

Here’s an example: Rohit and Priya, in their 40s, live in Delhi. They have two young children and the couple are the breadwinners of the family. They have a joint mortgage, car loans, and education expenses for their children. If one of them were to pass away unexpectedly, the surviving spouse and children may struggle to pay off these financial obligations. This is especially true if they have no support from their extended family.

To ensure their children's financial security, Rohit and Priya purchase a Term insurance policy with a sufficient death benefit. This can help cover these expenses and provide financial stability during a difficult time. This way, they can have peace of mind knowing that their children will be taken care of in case of an unfortunate event.

4. Business owners

Let's say a business owner has taken out a business loan to finance their venture. In case of their untimely death, Term insurance death benefits can cover the outstanding business loan. This ensures that the business can continue to operate smoothly.Here’s an example: Rahul runs a successful manufacturing business in Mumbai.

He has taken out a substantial business loan to finance his venture, and the loan's outstanding balance is significant. If Rahul were to pass away suddenly, his family and business partners would be responsible for the loan's repayment. This could burden them financially.To ensure business continuity and protect his family's financial interests, he purchases a Term insurance policy that covers the outstanding loan amount. If he died, the policy death benefit can be used to pay off the business loan.

This will ensure that the business can continue to operate smoothly without financial setbacks. This way, Rahul's family and business partners can have peace of mind knowing that the business will be taken care of in case of an unfortunate event.

5. Retirees

Retirees may still have outstanding debts or dependents, such as adult children with disabilities or grandchildren. Term insurance can provide financial protection for their loved ones and ensure that their debts are paid off in case of their death.Here’s an example: Suresh and Radha are an elderly couple living in Chennai.

They have adult children, one with a disability who needs ongoing care and support. They also have outstanding debts, such as a mortgage and a car loan. While they have saved enough for retirement, they worry about their adult children's financial security. They are also concerned about the burden of their outstanding debts in case of their untimely demise.To provide financial protection for their loved ones and ensure their debts are paid off, Suresh and Radha purchase a Term Insurance policy with a death benefit.

This policy can cover their outstanding debts and provide financial support for their adult child. This way, they can have peace of mind knowing their child will be taken care of. In addition, their debts will not burden their family in an unfortunate event.

Frequently Asked Questions

Here’s a list of common questions and answers related to different Term insurance policy users.

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What is the minimum and maximum age to avail of Term Insurance?

Most insurers have a minimum age requirement of 18 years and a maximum age requirement of 65-70 years to avail of Term Insurance.

Can I increase or decrease my sum assured during the policy term?

Yes, some insurers allow you to increase or decrease the sum assured during the policy term. However, this may be subject to certain conditions and may lead to changes in your premium amount.

Is there a waiting period before the policy benefits can be claimed?

In case of death due to natural causes, most Term Insurance policies have a waiting period of 2 to 3 years from the date of policy inception. However, there is usually no waiting period in case of death due to accidental causes.

Will my premiums increase as I get older?

Yes, your premiums are likely to increase as you get older. This is because the risk of death or illness increases with age, and the insurer will adjust your premiums accordingly.

Can I cancel my policy and get a refund of premiums paid?

Yes, most insurers allow you to cancel your policy during the free-look period (usually 15 to 30 days from the date of policy inception) and receive a refund of the premiums paid. However, if you cancel the policy after the free-look period, you may not be eligible for a refund.

Is it possible to buy Term Insurance for a shorter duration than the standard policy term?

Some insurers offer Term Insurance policies for shorter durations, such as 5 or 10 years, in addition to the standard policy term of 20 to 30 years. However, the premium amount may be higher for shorter policy terms.

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.

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