As a family person, you may be concerned about the happiness and stability of your loved ones. One way to provide for their emotional and financial well-being in your absence is by opting for a term life insurance policy.
Term insurance offers coverage for a specific timeframe that helps you secure your family financially in case of your untimely death. Nevertheless, there are different types of term insurance available, which you can choose from based on your preference. This article will explore term insurance types, their features, and things to consider before buying.
What are the Different Types of Term Insurance Plans?
Here are the different types of term insurance policies that will help you make an informed decision:
1. Level Term Plan
It is a basic term insurance plan where the sum assured remains the same throughout the tenure. Under this plan, your family will receive a fixed amount in case of your demise, irrespective of the year of your death. This option is ideal if you plan to
buy life insurance at an affordable premium rate. In addition, if you pay tax under the old regime, you can also avail yourself of the tax benefits under Section 80C of the Income Tax, 1961.
2. Increasing Term Insurance Plan
Although similar to the level-term insurance plan, the sum assured under this plan increases at a fixed percentage every year. The increasing term insurance plan is often linked with the inflation rate, ensuring the plan offers coverage to your family with the rising cost of living.
It is a perfect term insurance plan that assures your family will manage their financial requirements seamlessly in your absence. In addition, if you are a young earner with growing financial responsibilities, you can opt for the increasing term insurance policy, as it considers the inflationary environment.
3. Decreasing Term Insurance Plan
When you opt for this plan, the sum assured decreases over the tenure of the life insurance policy. The decreasing term insurance plan works on the ideology that as you age, your liabilities may decrease, and your requirement for high insurance coverage may also decrease.
It is ideal when you have a specific financial liability, such as outstanding debts that decrease over time. In addition, it ensures your family does not face any liability burden in case of your sudden death.
4. Renewable Term Insurance Plan
It is a type of term insurance policy that enables you to renew the plan at the end of the tenure with no medical check-ups. Under this policy, you can get coverage for 1 year that allows you to fulfil your short-term requirements. Moreover, this policy will enable you to drop it at the end of the tenure.
However, when you renew the plan, you may have to pay a higher premium rate than the previous year as your age increases. It is an excellent option if you are concerned about insurability.
5. Convertible Term Insurance Plan
A convertible term insurance plan allows you to convert this plan into another type of policy at a later stage. In this plan, the insurer offers you the flexibility to convert your term policy into a whole life or endowment policy. Furthermore, it ensures that your health status changes do not affect the coverage.
However, when you opt for this plan, you may have to pay a higher premium rate than other types of term insurance. You can use a
term insurance calculator to determine the rate of your preferred plan.
6. Return of Premium Term Insurance
It is a term insurance plan that returns the premium you have paid once you outlive the term. However, you can only get the premiums back if you have not made any claims during the policy tenure. It is ideal if you are seeking a risk-free life insurance investment option. Moreover, you can add riders, such as critical illness, accidental death benefits, etc., to enhance the insurance coverage. These policies typically have higher premiums than traditional term plans.
Final Words
Term insurance is the purest and most straightforward type of life insurance. Choosing the right term insurance plan requires understanding the available options, as each has different features and benefits. Factors such as outstanding debts, income replacement needs, long-term financial goals, and budget constraints can help you pinpoint the most suitable option.
