Life cover plans provide protection to the policy holder for life-long. On the other hand, term life insurance plans are taken for a specified period of time called the ‘term’ of the plan. Term life insurance plans are the easiest and wisest investment plans when it comes to securing your future. The premium amount is paid for a specified period of time. In case of any eventuality during this term of the plan causing death of the policy holder, the dependents are paid a lump sum of the assured amount.
Term life Insurance plans are also called life covers, unlike conventional life insurance policies. Life insurance plans cover the life of an individual without any specific term. They cover the policy holder for the entire life. Upon death of the policy holder, the assured amount is paid to the family or dependents of the policy holder. They are also a means of investment and have monetary value since the value of the policy goes up with time and hence the pay out as well. However, term insurance plans do not have any money value. The amount paid as a premium in the entire term specified during the purchase of the plan is not returned if the policy holder survives the term. The policy holder can however renew the term after the initial maturity period.
Rohit is 30 years old and has bought a term insurance policy to protect his family’s needs and financial security in an event of his early death. The term insurance plan is bought for Rs.10 lakh with a monthly premium of Rs.600 for the next 10 years. In an unfortunate event, if Rohit meets with an accident and passes away in 10 years before his term insurance plan is over; the insurance company will pay his dependents a lump sum amount of Rs.10 lakh upon claiming. On the flip side, if Rohit meets with an accident and passes away a day later after his term life insurance plan is over; his family gets nothing. However, Rohit has the flexibility to choose to renew the plan for another 10 years. However, the premium rates this time would slightly vary from the initial premium amount.
Term life insurance plans are classified into various types.
- Yearly Renewable term plans are renewed each year and have no specified time. The premium rates paid each year upon renewal varies from the amount paid as a premium the previous year. This is because; term life plans are dependent on a person’s health and age. The later you buy or renew a term insurance plan, the more expensive it gets.
- Level Premium life insurance plans are the most common ones opted for and are bought for a period of 10, 20 or more years depending on the policy holder’s requirement.
Term insurance plans have an advantage over other life insurance plans. Life insurance plans pay out the amount only after the death of the policy holder. During the life time of the policy holder, any mishap causing physical disability of the policy holder has no effect on the life insurance policy. The premiums still need to be paid out to avail the benefits after the death of the policy holder. Whereas term life insurance plans come with strategically designed riders which covers any unfortunate event of physical disability of the policy holder, diagnosis with critical illness or loss of income. The benefits are reaped since the time of diagnosis of the critical illness and in certain riders, the premiums are waived off.
Term life plans are thus called ‘life covers’ since they cover the life of the policy holder for a specified period of time regardless of death or occurrence of any eventuality like illness or physical disability; the benefits are received instantly.