Term insurance is the basic form of insurance. It is the easiest type of Life Insurance policy to understand. There is always an uncertainty about what the future might hold for us and thus, we need to be prepared for all kinds of situations. Having a term life insurance insures you and your family from a financial breakdown if anything unexpected happens to you(insured). The Term plan does not build wealth but it provides the assurance and security of a lump sum amount should some unforeseen event happen. Thus, term insurance plans can be called as an expenditure instead of an investment. Unlike the Whole Life Insurance, term life insurance quotes are more economical and thus, are cheap life insurance plans.
Term insurance, as said above is the simplest form of life insurance. Almost all of the premiums that you pay are used to cover the expenses of the insurance. And this is the reason why term insurance plan holders are ineligible to participate in the profits earned by the life Insurance companies on investments. Moreover, there is no accumulation of money to build up any surrender value. A term insurance plan will not have a paid-up amount if you chose to discontinue the policy.
There are different variations of term policy:
It is the type of term insurance where the premium is the same all through the selected term for a pre-fixed sum assured. So it eliminates the problem of paying premiums that rise every year. The general period of such term policy is from five years to 30 years.
In this type of term policy, the insured buys a pure term insurance policy with a choice of converting it into to a plan of their likings such as whole life insurance or endowment. For instance, the insured can convert their term life policy after five years to an Endowment Plan for 20 years. The premiums are then charged as per the new set plan and term.
This term insurance plan has both risk cover and savings element. If the insured person survives the policy term, then the premiums paid are returned to them. Naturally, the premiums charged are higher compared to other types of term insurance policies.
In this term life plan, the insurance policy is renewed for sure after the chosen term ends say five or ten years. The renewal is done without any proof of insurability like a medical examination.
In this life insurance policy, the sum assured gradually decreases per year to match depreciating insurance need. This type of policy is bought when the insured has a large outstanding loan. The risk here is that the insured may die before repaying the loan. Thus, the sum assured of the term policy is usually equal to the amount of loan that is to be repaid. Thus, in the case of a premature death, the sum assured amount will be able to repay the loan.
It is a term policy with rider clauses like critical illness rider, accidental death rider, etc. These riders add extra value to the plain term insurance policy in terms of extra premium.
Term Insurance is the most traditional form of insurance. To understand how it functions, the following factors should be considered:
To buy a term insurance policy, there is no need to keep a large amount of money aside. Many insurance companies cover a large sum assured for very affordable premiums.
The premiums for the term policy can be paid either per month, per quarter, every six months or once in a year.
There is no maturity benefit in term insurance policy. The main objective of a term plan is to provide life cover and in the case of death of the insured person, the beneficiary receives the promised sum assured.
There are certain guidelines to be followed while choosing the best term life insurance plan:
There are certain exceptions in term insurance claim wherein your claim will be rejected:
If the insured commits suicide, then the claim for death benefit will not be accepted. And suicide is exempted from all types of term insurance policies.
The death of insured under acts of war, terrorism or under natural calamities will not be eligible for death benefit claim.
If the insured dies because of the consequences of their own actions (e.g. extreme sports), the claim will not be processed as the insured took a self-imposed risk.
If the insured die because of being under the influence of narcotics or some other intoxications, the claim for the term policy will not be processed.
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In the event of the demise of the insured, the family needs to file a claim to receive the death benefit or the sum assured. Following steps must be followed for the claim process:
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