What is term insurance and why you should have one

Introduction

Life is like a pandora box. It’s never the same and doesn’t offer you the same emotion every time. There is no need to be prepared when life enters the happy phase, and everything goes with the flow. But, when stressful clouds surround, it’s nothing less than chaotic in a wholesome manner. 

For instance, you are the family’s breadwinner and earn 10 lakhs per annum. Life is running smoothly. There is no financial crunch, and none in your family have to compromise with their lifestyle or dreams.  

However, one day you meet with an unfortunate accident and die. What about your family? What about their emotional and financial vacuum? 

It is where insurance steps into one’s life. It doesn’t ensure to be an emotional pillar for the loss but acts as an unsung warrior that backs up your loved ones in terms of finances. 

This blog will help you in understanding,

• What is life insurance, and its importance?
• What is term insurance, and why should you have one?
• Different types of term insurances.
• How does term insurance work?
• What are the benefits associated with term insurance?
• Best term insurance you must consider buying in India in 2022

It might look like an exhausting list, but it isn’t, and it’s worth a read.

What is Life Insurance?

We all know that life insurance acts as a financial safety, but how does it work?

In life insurance, in exchange for the premium paid by the insured, the insurance company pays a certain amount promised to the policyholder or the specified nominee(s)/legal heirs if the policyholder meets with an untimely death.

Also, according to the policy, if the policyholder dies or matures, the insured will pay the individual or his family a lump sum payment after a specific period. 

Benefits of having life insurance are as follows:

• Tax-benefits
• Death Benefits
• Maturity Benefits
• Loan Provision
• Health Coverage
• Retirement Shelter

There are different types of life insurance available in the market, and they all vary as per the needs of different audiences based on their requirements and pocket allowance. 

What is Term Insurance and its types?

Out of multiple insurance types, Term insurance is considered adequate because it provides coverage for a specific period and is more dynamic and inclusive of all the benefits. 

Unlike every insurance, the insured is also expected to pay premiums on time. Suppose the policyholder dies unexpectedly within the active term plan. In that case, the nominee(s) receives the death benefit in a lump amount or according to the specified plan established by the insurer. Certain insurance companies give the leverage of ‘return of premium‘. It is a benefit where it means that if the client survives the insurance period with zero claims, the insurer will reimburse the policyholder’s money.

Talking about the financial coverage entirely depends on the insurance company you are consulting. Therefore, you can witness term insurance policies that offer higher sums assured, ranging up to Rs.1 crore at lesser rates. 

As discussed earlier, insurance is a broad world that can accommodate and assist people from different walks of life. Similarly, multiple types of term insurances cater to varying needs of other people, and they are as follows:

Level Term Plans: It is a common term plan where the premium amount and life cover remain constant throughout the policy’s term. The insurer must also pay the nominee(s) upon the policyholder’s death.

Convertible Term Plans: This term insurance plan gives the policyholder the leverage to switch from one to another term plan at any time. This add-on feature can be performed only if the policyholder makes a formal request to the insurance company.

Riders on a Term Plan: As the name suggests, it adds rider benefits. The riders can include sickness coverage, accidental death coverage, disability coverage, and many others. You may have all of these features in a single insurance policy by paying an additional fee here.

Term Insurance with Return of Premium: During the maturity period of term insurance with return of premium (TROP), the policyholder receives a refund of all premiums paid during the policy term. However, if the insured dies, the term insurance with a return premium pays the beneficiaries the money guaranteed. If the insured survives the policy period, they will return all premiums paid throughout the coverage duration.

Increasing Term Plan: The sum covered increases with age, whereas the premium stays constant. In this case, the death benefit rises progressively throughout the policy, but the premiums do not.

Decreasing Term Plan: Here, the premiums remain constant, but the amount insured payment decreases year after year over time. Such term insurance policies can be utilized to safeguard against a specific debt that will be paid off over time, and these term plans frequently offer lower rates.

How does Term Insurance Work?

Here, the premium for term insurance is influenced mainly by age, health issues, the length of the policy, the type of coverage, and many other elements.

The premium may be paid in one lump payment or at regular intervals depending on the insurance terms. 

Now, coming onto the death benefits, if the insured dies while the insurance is still valid, the nominee(s) will get the sum insured. However, if the policyholder survives the policy period, the coverage terminates, and the insurer makes no cash payments. 

However, certain insurance firms provide a ‘return of premium’ feature, which offers the insured the option to receive a specific lump sum after maturity.

What are the Benefits of Term Insurance?

Term Insurance is Beyond Death Benefit: As the name suggests, term insurance policies come with an expiry date. Here, you invest in the term plan for certain years, such as 30 or 35 years. This period guarantees that you are protected for a long time. Moreover, some term plans can be perpetually renewable.

It provides broad coverage for a more extended period, and with riders added, you receive extra advantages to function as a shield for various requirements.

The financial backbone to family in your absence: Assume you are the lone breadwinner and die in an unfortunate mishap. It is where term insurance comes into play and will help cover your family’s financial needs. 

Mellow down the financial burden: Not everyone is a millionaire who can afford every leisure to themselves and their family when they need it. Not everyone has enough money to realize all of their aspirations at an early age, which is why we take out loans. When you are there, physically, the debts might not look that distressful, but the repayment /loan might be financially demanding for your family in your absence. 

Here, term insurance helps pay off your loans and ensures that your family is not financially overburdened.

Health Coverage: With increasing pollution levels and changing lifestyles, growing age is common to have health problems. Critical illness coverage is included in term insurance plans, which covers your family in the case of an unforeseen incident and throughout their lives. It offers health coverage to the insured if they are diagnosed with cancer and other serious ailments.

Best Term Insurance to buy in 2022

Once you know term insurance, usage, and benefits, what is the next step? You will Google ‘what are the best term insurance plans to consider buying’? 

The search engine will thrash you and see thousands of results. But do you have time to go through each, understand the dynamics, and filter through to buy the best one? Tiring, right?

To ease your job, we have brought you some of the best term insurances that would fit a wide variety of audiences and their financial constraints.

They are as follows:

Aditya Birla Sun Life Insurance DigiShield Plan

Want to have an inclusive term plan that can help you sail through almost every tangent of life? It could be the ideal term insurance plan you should invest in because this Sabka Vala Term Plan by ABSLI comes with 10 comprehensive Options that can be useful for a broader range of audiences. 

The Options are as follows:

1. Level Cover Option
2. Increasing Cover Option
3. Sum Assured Reduction Option
4. Whole Life Option (Level Cover)
5. Whole Life Option (Sum Assured Reduction Cover)
6. Income Benefit
7. Level Cover plus Income Benefit
8. Low Cover Option
9. Level Cover with Survival Benefit
10. Return of Premium (ROP)

• Death Benefit: If the policyholder dies within the policy term, the insurer will pay the death benefit to the nominee(s)/legal heir(s) assigned by the policyholder’s Plan Option.
• Enhanced Life Stage Protection: Marriage and children are beautiful aspects of life. And these wonderful phases come with responsibility. Therefore, if you choose this term plan, this feature will help you raise your life insurance coverage following each of these occurrences without having to attend any medical tests.
•  Accelerated Critical Illness Benefit: Suppose the term plan is active and meets the applicable Accelerated Critical Illness conditions and circumstances. In that case, the guaranteed ACI payment will be made during the initial diagnosis of the specified critical diseases within the ACI Benefit Cover Period.
• Survival Benefit: This benefit of the term plan ensures that a monthly Survival Benefit of 0.12% of the Sum Assured is paid beginning with the first policy month anniversary after the incident and continuing until the conclusion of the policy term or the death of the policyholder.
• Terminal Illness Perk: Under this benefit, if the insured is diagnosed with a terminal disease during the term plan (is aged within 80), the policyholder will receive a lump-sum payment of 50% of the applicable amount assured on death, up to a maximum of Rs. 2 crores, and all future premiums will be canceled.

This comprehensive term plan also includes Riders (that can be availed by paying extra). Pretty inclusive, right?

Click here to know more about ABSLI DigiShield Plan if you are intrigued.

Conclusion

Investing in term insurance is a wise decision, and one should start practicing it in their early twenties when they begin to earn. But, before investing in term insurance, you should do proper research over the types of term plans and how you can manage the premiums with your existing budget.