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What would you do for your loved ones? There’s no doubt that most people would go to great lengths to protect their loved ones. This is exactly what a term insurance plan helps you do. The insurance market in India is fast growing, and statistics reveal that its value is expected to be at a whopping $250 billion by the year 2025.
Term plans are life insurance policy plans that provide coverage for a fixed term. If anything untoward were to happen to the insured during the term of the policy, the nominees receive an amount of money. This amount will help cover expenses following the tragic demise of their loved one, and will help keep them afloat until they get back up on their feet. It is a great way to ensure that your loved ones are protected, even after your time.
In this article, we take you through the various aspects of a term insurance plan that you should be aware of before purchasing them.
Some insurance terms to be familiar with
When you set out to purchase a term plan, you will come across multiple insurance terms, and it is necessary that you are aware of what these terms mean. Let us consider some of them.
- Sum Assured – This refers to the amount that will be payable to the nominees after the demise of the insured.
- Tenure – This refers to the ‘term’ of the term insurance plan. Let us look at an example. For instance, ‘A’ purchases a term plan at the age of 40, that expires when he will be 80 years of age. Then the ‘tenure’ or ‘term’ will be 40 years (80-40). It is best to have a tenure ranging between 10 to 40 years, for maximum coverage.
- Entry Age – This refers to the age group that is eligible to buy a term insurance plan. Typically, this starts at 18 years of age and extends till about 65 years.
- Riders – Riders are the added benefits that can be purchased to enhance an existing term insurance plan. For example, if there is a rider that covers accidental death, the nominees will receive an additional amount, to the existing sum assured, in the event that the insured passes away due to an accident.
- Maturity Age – The maturity age refers to that point in time when the term plan will expire.
- Health Checks – The insured is made to undergo health check-ups when they apply for a term insurance plan. This is to identify any underlying health defects if any, as these details could affect the policy terms.
- Claim Settlement Ratio – The claim settlement ratio is perhaps the most important term you should know about when you buy a term insurance plan. It is the ratio of the number of claims raised to the number of claims settled by the insurance company. A high claim settlement ratio means there is a higher chance that the company will settle any claims made by you or your loved ones.
- Free look period – Free look period means the time period after purchasing the term plan, during which you can relinquish the policy if it doesn’t work for you, without any hassle. This free-look period acts as a safety net in case you want to opt out.
The different kinds of term plans
Term insurance plans are broadly classified into four kinds:
- Level term insurance plans – These term plans offer a sum assured to the nominees post the demise of the person insured.
- Monthly income term insurance plans – Typically, the sum assured is paid as a lump sum amount. However, in this type of term plan, the sum assured is paid to the nominees in monthly installments. This monthly payment simulates a salary and keeps loved ones of the deceased financially protected during the mourning period.
- Increasing term insurance plans – In this type of term plan, the sum assured increases by a fixed percentage with every year. This will ensure that the sum assured will be adequate to cover rising costs and inflation rates.
- Decreasing term insurance plans – The decreasing term plan is the converse of the increasing term plan. Here, the sum assured decreases by a specific percentage with each year that passes by. This is especially beneficial in cases where there is a financial constraint, or an economic lull.
How to go about purchasing a term plan?
Purchasing a term plan is fairly easy and can be done online, in a matter of minutes. Zero in on the specific terms of the policy and the coverage you want on the basis of the number of nominees, your health condition, and your budget for the insurance plan. After this, finalize your insurance company on the basis of the claim settlement ratio of the company and customer testimonials. You can make use of the free look period to see how the policy works for you.
