We have discussed about Term Insurance and the importance of the Term Insurance Plan in one’s life and why one should opt for it? Today I would like to talk about the different types of Term Insurance Plans that are available in the market (mostly because of the need raised by marketing teams of insurance companies in order to sell the policies).
It is always important to know the policy features, terms and conditions and even compare the features of the plans that are offered in the open market (never be company biased, my real life experiences make me made this quote “Don’t love the company, the company may hate you for no reason”) before we finalize and buy the insurance plan. In this article as the stress is totally towards Term Insurance Plans offered, the following are the plans that are there (I have seen) in the market
- Pure or Level Term Insurance Plan
- Return of Premium Term Insurance Plan
- Increasing Term Insurance Plan
- Decreasing Term Insurance Plan
- Life Cover & Monthly Income Plan
Quick Read for Skimmers: If you want a single word answer to choose among the kinds of Term Insurance Plans that are available in the market, my answer is Pure Term Insurance plan without any add-ons for the longest tenure available in the market (why to choose long tenure is the feed for another article which we will discuss soon in this series).
Different Types of Term Insurance Plans
Pure or Level Term Insurance Plan
Pure Term Plan is the simplest form of term insurance, in simple terms the sum insured and tenure is fixed right at the time of signing up for the policy and in case of death of the policy holder fixed sum insured amount will be paid to the nominee and in case if the policyholder out lives the tenure he/she gets back nothing.
The premiums for these kinds of policies depend on age, health and tenure and are available at cheaper prices in the market (much cheaper if bought online).
Return of Premium Term Insurance Plan
As the name suggests Return of Premium Term Plans are the ones which offer Return of Premium paid during the tenure of the policy to the policyholder in case if he survives the term of policy and if the policy holder dies sum insured is paid to the nominee. Premiums for Return of Premium Plans are higher when compared with pure term insurance plans and this plan is targeted for those who think that term plans are waste of money.
Increasing Term Insurance Plan
Increasing Term Insurance Plan offers you some percentage of increment every year to the sum insured amount you choose at the start of the policy, for example if you choose to Rs. 1 Crore of insurance for an increase of 5% every year the sum insured amount will be updated to Rs. 1.25 for 5 years and 1.5 Crores for 10 years.
This policy address the concern of inflation as one might be termed as under insured after few years owing to inflation, the premiums for this Return of Premium policy will be higher for the benefit it offers.
Decreasing Term Insurance Plan
Decreasing Term Insurance Plan is just the opposite for Increasing Term Plan, here the sum insured amount will be decreased as the term passes by, for example if the sum insured is Rs. 1 Crore at the inception of the policy, the same will be creased to Rs. 75 lakhs after 5 years and Rs. 50 lakhs after 10 years of the tenure.
The premium of Decreasing Term plans will be lower when compared to other types of term plans and these are usually bundled with home or mortgage loans for loan protection.
Life Cover & Monthly Income Term Plan
Life Cover & Monthly Income Term Plan is the combination of pure term plan with an additional benefit of monthly income for fixed tenure along with sum insured will be provided to the nominee in case of death of the policyholder and nothing will be paid to policy holder in case if he/she out lives the tenure.
For example, if one chooses Life Cover & Monthly Income Term Plan for an amount of Rs. 1 Crore with 5% monthly income benefit for 10 years and upon death of the policy holder an amount of Rs. 1 Crore will be paid at the time of settlement and amount of Rs. 50000 per month will be paid to the nominee for a period of 10 years.
In the market there are plans that offer increasing monthly income benefit where the nominee will be paid sum insured plus monthly benefit which increases every year. For example, if one chooses Life Cover & Monthly Increase Income Term Plan for an amount of Rs. 1 Crore with 5% monthly income benefit with 10% increment for 10 years and upon death of the policy holder an amount of Rs. 1 Crore will be paid at the time of settlement and amount of Rs. 50000 per month which will be increased by 10% every year Rs. 50000 in 1st year, Rs. 55000 in 2nd year, Rs. 60000 in 3rd year and so on will be paid to the nominee for a period of 10 years.
The disadvantage of this plan is high premium, one can safely ignore these kinds of plans and can go for higher sum insured which gives more risk cover and a simple fixed deposit of the claim amount can yield the nominee with higher returns.
On the closing notes, once again my recommendation will be to opt for the pure term insurance among different types of term insurance plans that are available in the open market.
Between Us: Do you have anything to say about different types of term insurance plans, and which among the above plans suits best according to you and for those who already have a term plan please share your experience, company of your choice, plan you choose and why you like it? After all real experience with term insurance always matters, isn’t it?