Term Life Insurance- A Detailed Overview

There are many people who are unable to pay the high premiums of life insurance.  In this matter, they look for an alternative to insurance. 

Term life insurance can act as a saviour at that time. Do you want to know how?

Please dive into the article below to find out.

What is Term Life Insurance?

Term Life Insurance refers to a life insurance policy that provides coverage only for a fixed number of years which is the “term” of the policy. If the insured person dies accidentally while the policy is active, a death benefit is provided to the nominees of that insured person.

A basic variant of term life insurance doesn’t have any cash value, which means, if that insured person survives during that term of the policy, the policy will not return any value, with the exceptions of plans like Return on Premium etc.

You can also purchase a term insurance policy which may provide you with a certain corpus to your dependents in event of any demise. At that condition, they would be able to sustain the same lifestyle that they have lived or pay off their existing liabilities without compromising on their dreams. It is due to the sum assured that they would receive from life insurance.

Types of Term Life Insurance

There are different types of term life insurance available in the market. The best term life insurance depends on the individual’s circumstances.

The Level Term or Level-Premium Policy

The level term or level premium policy provides coverage to insured individuals for a period that ranges from 10 to 30 years. Both the death benefit and the premium are fixed in this type of term life insurance.

As actuaries are accountable for the rapidly increasing costs of insurance over the life of the effectiveness of the policy, the premium is comparatively larger than that of the early renewable term life insurance.

The Yearly Renewable Term (YRT) Policy

Yearly renewable term (YRT) policies are one of the best term life insurance that doesn’t have specified terms but they can be renewed every year without providing any evidence of insurability.

The premiums rise from year to year as the increasing age of the insured person ages. Although there is no specified term or period, the premiums can become prohibitively expensive with the increasing age of the policyholders, making the policy.

The Decreasing Term Policy

The Decreasing Term policies are the kind of term life insurance that has a death benefit which declines every year, as per a predetermined schedule. The policyholder pays a fixed, level premium for the duration of the policy.

Who should purchase a term life insurance policy?

Anyone who has financial dependents living with them must buy a Term Insurance Policy. It includes married couples, parents, business people and self-employed, SIP investors, young professionals with dependent parents, and in some cases, even retirees etc.

The term life insurance comes with three significant benefits that include life protection, tax-saving and affordable premiums. Thus, any individual who wants to derive any of the three significant benefits which are associated with term insurance must consider before buying such policies. 

Parents

The parents are basically solely responsible for providing financial support for their children. Any unfortunate event that happens with a parent may jeopardise the future of the child and deprive children of life’s opportunities. Thus they need to have term life insurance.

Newly-married couple

Roses, chocolates and movie tickets might be the greatest gift but there’s also a truly long-lasting gift that you can purchase for your spouse including term insurance. 

This gift will not only give your spouse more than momentary joy, but also it will secure their future. It can also assure the spouse of financial support in case of any mishap with the insured person. Thus it should be purchased as soon as possible by newly married couples.

Working Women

In today’s days, a family is as dependent on the income of a woman as it is on the man’s. This dependency brings some need for financial security to your loved ones in case of something happens to you. 

The Term Insurance plan may assure your parents/spouse/children are financially secure and independent even in your absence. 

It makes sure that your family don’t need to compromise on their lifestyle and can continue with the goals that you have set for them. 

Young Professionals

Young professionals are just about to start their careers and most of them are not yet married and don’t have financial dependents. However, it might change in the near future when they get married or support their parents/relatives. Such individuals should not wait for an event to happen. Instead, they should buy term insurance now rather than wait. 

Self Employed

If you are a self-employed person, you might face many challenges in future. Unlike salaried individuals, you might not earn a fixed monthly income; so you may have an uneven source of income that depends primarily on the market’s ups and downs. 

Apart from that, you might have also taken a business or personal loan from some creditors, banks, or even your family and friends to employ yourself. Thus, you must buy a term life insurance plan to secure your family becomes even more important to you. 

Buying a term life insurance policy will ensure that your family will always remain financially secure even in your absence.

Benefits of term life insurance 

Term life insurance is a very simple product and it is also very easy to understand. Here are some reasons to purchase term insurance

Low premium and attractively large cover

The coverage provided by a term insurance policy can be substantial and the premium for this cover is quite affordable. Thus such a product should be at the foundation of the financial portfolio of any individual as it provides excellent protection to your loved ones. 

High protection at low premiums

Life insurance policies are very accessible to the masses as they provide great coverage at a very relatively low premium. So the earlier in life you buy a term life insurance, the lower the premium will be.

Financial security

The death of the breadwinner of the house is not only very distressing, but also it can bring a lot of financial liabilities. Term life insurance makes sure that the daily expenses of a person don’t suffer as a result of the insurer’s death. 

The pay-out which I made from the insurance policy can be received by your family members in the form of a lump sum or in the form of instalments which will enable your family to cope with their living expenses.

Add ons

If the policyholder of the insurance may be incapacitated due to an accident or the diagnosis of a critical illness due to any kind of unfortunate circumstances it might impact the income-earning capability of the policyholder. 

In that case, the family of the policyholders might find it difficult to manage expenses. For protection of one against such scenarios, one might consider augmenting the term insurance plan with multiple add-ons or riders. 

Few terms associated with term life insurance 

Following are some of the major terms which are associated with the term life insurance that you must be aware of before purchasing it.

Claim Settlement Ratio

The Claim Settlement Ratio (CSR) refers to the ratio of the total number of claims raised per year to the number of claims which ID settled in a year by an insurer. 

The higher the ratio, the more reliable the insurance provider is, as the chances of a claim of your family being rejected.

Low-Term insurance premium

Low-term insurance premium refers to the money that you need to pay to the insurance provider in return for financial protection. Premiums can be made on a monthly, half-yearly, and annual instalments basis. Premiums tend to increase as per your age.

Add-on benefits (riders):

To improve the coverage of your policy, you can add benefits to your plan, like an accidental death rider, a critical illness rider, or a permanent disability rider. Riders may come at a nominal cost over the premium. 

Sum assured

Sum assured refers to the amount of money which your nominee will receive in the case of an unfortunate event. It will also determine the premium amount for your term plan. 

Death benefit

This is the somewhat same as a sum assured and is provided to the nominee in case of an unfortunate eventuality. 

The Bottom Line

Term life insurance is a very good option for those people who can’t or won’t pay the higher monthly premiums which are associated with whole life insurance.

It is the same as car insurance. However, it’s statistically unlike that you’ll need it, and the premiums are a waste of money and drain if you don’t. But you should have it in case of worst happens.

*image source from Google

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