A Term plan is the most basic form of life insurance policy. It offers a guaranteed death benefit for a pre-determined period. This means that in the event of the death of the insured, his or her beneficiary receives a lump sum amount.

A Term policy normally runs for a five-year to thirty-year term. Some term policies set their term to a specific age, typically 65. It is the cheapest form of life cover that gives you a high coverage at a very low premium.

Why should one Invest in a Term Plan?

Term Plan provide you and your family a much-needed financial security at a very low cost because one can get a high life cover by paying a nominal premium. Hence, a term insurance is considered the least expensive compared to other insurance policies.

These term life plans are usually purchased by individuals who have financial obligations, such as a personal loan or a mortgage, that reduce over time. Hence, term plans are also known as Pure Protection plans.

Points to remember when you buy a Term Plan

  • There is no money back - i.e. in case the insured survives the term of the policy, no money is paid back
  • Typically, one should avail a cover (Sum Assured) equaling ten times the annual income
  • Tax exemptions can be claimed for the amount paid as premium
  • Along with life cover, extra benefits can be opted for - the same are called 'Riders'
  • The costs for a Term Plan increases with age

Types of Term Life Insurance

  • In Level Term life insurance, you pay a fixed premium, for a fixed amount of coverage, for a pre-determined number of years. Common durations for this type of insurance are 10-year, 15-year, 20-year, 25-year, and 30-year terms.
  • Annual renewable term insurance provides a guaranteed rate for one year. The rates you will pay for your policy will increase each year. One of the main advantages of buying annual renewable term insurance is that you can renew your policy each year without taking a physical exam or submitting a new application.
  • With Convertible Term Life Insurance, you are allowed to convert your term insurance to permanent insurance. However, converting the policy will result in higher rates because the risk of death increases with age.
  • When you purchase a Decreasing term insurance policy, your premiums remain level throughout the term. However, the face value of the policy keeps decreasing each year. By the time the policy expires, your coverage will equal zero.
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