Types of Term Insurance Plans in India
Term insurance plans offer financial protection to your family. Explore the different types of plans available in India.
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Life is unpredictable, and we never know what the future holds. In such uncertain times, securing our loved one's financial future is essential, and term insurance plans offer an effective solution. These plans provide a lump sum to the policyholder's nominees in case of their untimely demise, ensuring their financial stability. With various term insurance plans available in India, it's crucial to understand the different types and their features to choose the best plan that suits your needs. In this comprehensive guide, we will take you through the different types of term insurance plans in India and help you make an informed decision.
What is Term Insurance, and why is it important?
Term Insurance is one of the types of Life Insurance plans. In this policy, you sign a deal with an insurance agency for a specified period. You pay a defined monthly premium for a set period during the term. In return, the insurance agency promises to pay a specific amount to your family or nominee mentioned in the policy as a death benefit if you pass away during the term.
It is a pure life insurance policy with no savings or investment component. Term Insurance is crucial because it offers financial security for your family and helps them maintain their lifestyle in case of unforeseen circumstances. It is one of the most affordable ways to secure your family's future.
Types of Term Insurance Plans
1. Level Term Insurance
Level-term Insurance is a type of Term Insurance Plan where the sum assured remains constant throughout the policy term. The nominee will receive a fixed amount in case of the policyholder's death, irrespective of the year of demise. Level-term Insurance is popular among people who want a fixed amount of coverage throughout the policy term. It is an excellent choice for people with a fixed income and budget.
Features and benefits of Level Term Insurance
The sum assured remains constant throughout the policy term.
Affordable premiums.
Provides a fixed amount of cover throughout the policy term.
Tax benefits under Section 80C of the Income Tax Act, 1961 under the old tax regime
Who should consider level Term Insurance?
Level-term Insurance is an excellent choice for people who want a fixed amount of coverage throughout the policy term. It is an ideal option for people with a fixed income and budget. It is also suitable for people who want to provide financial security to their families in case of their untimely demise.
2. Increasing Term Insurance
This type of Term Insurance is similar to the Level Term Insurance plan but with a critical difference - the sum assured increases yearly by a fixed percentage. This increase is usually linked to the inflation rate and ensures that your coverage keeps up with the rising cost of living. With this plan, you can be assured that your family's needs will be cared for even if you cannot provide for them.
Features and benefits of Increasing Term Insurance
The sum assured increases yearly, providing inflation-adjusted coverage to your loved ones.
This plan is especially suitable for young families with growing financial responsibilities.
The premium for this plan is usually higher than the level-term plan due to the increasing sum assured feature.
Who should consider increasing Term Insurance?
Individuals who want to ensure that their family's financial needs are met even in an inflationary environment should consider this plan. If you are a young earner with a growing family and expect your financial responsibilities to increase over time, this plan may be suitable for you.
3. Decreasing Term Insurance
As the name suggests, the sum assured under this plan decreases over time. This plan is usually suitable for individuals with specific financial liability, such as a loan or mortgage, which decreases over time.
Features and benefits of Decreasing Term Insurance
The premium for this plan is usually lower than other types of Term Insurance.
This plan provides coverage specifically tailored to the needs of individuals with a decreasing financial liability.
This plan ensures that your family is not burdened with liability in case of your untimely demise.
Who should consider Decreasing Term Insurance?
Individuals with a specific financial liability that decreases over time, such as a loan or mortgage, should consider this plan. It is also suitable for individuals who want to ensure that their family is not burdened with their financial liability in case of their demise.
4. Renewable Term Insurance
Renewable Term Life Insurance is a type of life insurance that allows you to renew your Term Life Insurance Policy at the end of each term without a medical exam. You can purchase Term Life Insurance for a particular period, such as 20 years, and at the end of each term, you can renew the policy for another term. It is important to note that the premium of this policy typically increases at each renewal.
Features and benefits of Renewable Term Insurance
This plan ensures that your coverage is not affected by any changes in your health status.
This policy is a good option for individuals with short-term insurance needs and who want to renew based on their choice.
The policyholder can continue to renew the policy as long as the policy allows.
Who should consider Renewable Term Insurance?
Renewable Term Life Insurance can be an excellent option for older individuals concerned about insurability. With age, it gets challenging to qualify for Life Insurance. Renewable Term Life Insurance allows renewing your policy without any hassle. This policy typically has lower premiums, making it a good choice for people with limited budgets.
5. Convertible Term Insurance
Convertible Term Insurance lets the policyholder convert their coverage to Permanent Life Insurance without undergoing a medical examination. This plan ensures that your coverage is not affected by any changes in your health status.
Features and benefits of Convertible Term Insurance
This plan allows the policyholder to convert their coverage to Permanent Life Insurance Policy.
The policy offers guaranteed insurability as long as the policy is converted within the specified time frame.
The premium for this plan may be higher than other types of term insurance.
Who should consider Convertible Term Insurance?
Convertible Term Insurance is an excellent option for people who want to gain more financial confidence over risks and uncertainties of life. If you are worried about developing health issues or the cost of renewing your term life, then consider getting a convertible feature to your term life before signing up for the policy.
6. Return of Premium Term Insurance
Return of Premium Term Insurance is a type of term insurance plan that refunds the premium paid by the policyholder at the end of the policy term if the policyholder manages to survive the policy term. This plan ensures that your investment in the policy is not lost if you outlive the policy term.
Features and benefits of Return of Premium Term Insurance
Option to add riders: You can enhance your policy coverage by adding riders such as critical illness insurance, accidental death benefit rider, etc.
Maturity benefit: Besides the return of premiums, some insurance companies offer a maturity benefit if the policyholder survives the entire policy term.
Premium payment options: You may pay your premiums in a single lump sum or opt for regular payment options such as monthly, quarterly, half-yearly or yearly.
Premiums returned: The most prominent feature of this plan is that if you outlive the policy term, you get all your premiums back. It is a unique feature not offered by other term insurance plans.
Death benefit: In case of a sudden demise during the policy term, the beneficiary receives a lump sum as the death benefit.
Who should consider the Return of Premium Term Insurance?
The Return of Premium Term Insurance Plan is a good fit for individuals seeking a risk-free investment option. This plan is also recommended for those with a steady income who can afford to pay a higher premium in exchange for a refund of their premiums at the end of the policy term. Additionally, it can be an excellent choice for those who want to ensure that their loved ones receive a significant payout in case of their untimely death.
Top reasons to buy a Term Insurance Plan
Here are some reasons why getting a Term Insurance Plan can be an excellent option.
Financial protection
A term insurance plan can offer your loved ones financial security during your untimely death. The payout can help your family pay off outstanding debts, mortgages, and other expenses.
Affordable premiums
Term insurance plans offer affordable premiums, making them accessible to most individuals. You can choose the policy term, sum assured, and other features based on your needs and budget.
Flexibility
Term insurance plans offer flexibility regarding policy terms, sum assured, and riders. You can choose the features that suit your needs and budget.
Tax benefits
The amount of money you spend for buying a Term Plan is tax-free under Section 80C of the Income Tax Act, 1961 under the old regime. Also, under Section 10 (10D) of the same act, the life insurance amount received by the nominee, including the bonus, is exempted from tax.
Frequently Asked Questions
Here are the answer to the given questions below related to types of term insurance in India.
Can I buy multiple term insurance policies?
Yes, you can buy multiple-term insurance policies from different insurance companies. However, you must disclose all your existing policies to the insurance company while applying for a new one.
Can I change the sum assured of my Term Insurance plan?
Yes, most insurance companies allow you to change the sum assured of your Term Insurance plan during the policy term. However, you may have to pay an additional premium for the increased coverage.
What happens if I miss paying a premium?
If you miss paying a premium, the policy enters into a grace period during which you can pay the premium without penalty. On failing to pay the premium during the grace period, the policy can lapse, and you will lose coverage.
Do I need to undergo a medical examination while buying a Term Insurance plan?
Yes, most insurers mandate you to undergo a complete medical examination before allowing you to purchase an insurance policy. However, some companies offer coverage without a medical exam, but the premium for such plans may be higher.
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.
