Have u ever closed your eyes and imagine - " What will be the financial impact on my family behind me, if I die ? . How will my family pay the Rent, Kids complete their education, my family pay off their monthly expenses ...etc ? "
In order to cover this fear one should buy a good Insurance Plan which can provide you the guaranteed PDC ( Post Death Cheque) , for your family - this is called as 'sum assured'. So here comes the options of various insurance plan sold by the insurance companies :
Insurance Plans wherein the premiums are invested on your behalf which is returned with profit in case there is no death i.e policy holder survives the term
Insurance Plans wherein the premiums are not returned in case of there is No Death i.e policy holder survives the terms
Typically, the second one is called as Term insurance Policy. This is a type of life insurance policy that provides coverage for a certain period of time or a specified "term" of years. If the insured dies during the time period specified in the policy and the policy is active, or in force, a death benefit will be paid.
Why Term Insurance Policy is favourite of all ?
Term insurance is much less expensive when compared to permanent life insurance. Unlike most types of permanent insurance, term insurance has no cash value. In other words, the only value is the guaranteed death benefit from the policy.
Understanding Term Insurance
There are various types of term insurance policies available. Many policies offer level premiums for the duration of the policy, such as ten, 20, or 30 years. These are often referred to as "level term" policies. A premium is a specific cost, which is typically monthly, that insurance companies charge policyholders to provide the benefits that come with the insurance policy.
The insurance company calculates the premiums based on the individual's health, age, and life expectancy. A medical exam that reviews the person's health and family medical history might be required depending on the policy chosen.
The premiums are fixed and paid for the length of the term. If the policyholder dies prior to the expiration of the policy, the insurance company will pay out the face value of the policy. If the term expires and the individual dies afterward, there would be no coverage or payout. However, policyholders can extend or renew the insurance, but the new monthly premium will be based on the person's age and health at the time of the renewal. As a result, the premiums could be higher for the renewed policy versus the original term policy that was initiated when the individual was younger.
Premiums can range depending on the age and the amount of payout. For example, a 30-year policy with a 1 Crore payout can range from Rs 500 per month for a person in their twenties to less than Rs 2000 per month for someone in their fifties. Of course, each insurance company might have different rates depending on the policyholder's health, history of smoking, and other factors.
If you love someone , you must provide the financial protection to them through a TERM Insurance Policy. Check following Key takeaways for quick reference to our discussion in this Blog :
Term insurance is a type of life insurance policy that provides coverage for a certain period of time or a specified "term" of years.
If the insured dies during the time period specified in a term policy and the policy is active, a death benefit will be paid.
The premium depends upon the entry age as well as chosen term of the policy
Other term policies offer decreasing or increasing benefits over time as well as the option to convert from term to permanent insurance.
Types of Term Insurance
There are various types of term insurance besides the level term policies we've outlined so far. Each policy has its pros and cons, depending on the needs of the policyholder.
Convertible term life insurance allows a term insurance policy, which has a limited number of years before expiring, to convert into whole life or permanent insurance. The major benefit of convertible insurance is that the policyholder doesn't have to submit to a medical exam, nor are any health conditions considered when the term policy converts to permanent insurance.
Some policies allow you to increase the death benefit as time goes on. The premium increases as well, but it allows policyholders to pay lower premiums early on in life when they have a lot of bills and expenses. The increasing term prevents having to qualify for another policy at an older age to get the added benefit as would be the case with traditional term insurance.
Mortgage Term or Decreasing Term
A mortgage term or decreasing term policy is the opposite of the increasing term because the death benefit amount decreases over time. The goal is to match the decline of the term benefit to the reduction of the policyholder's outstanding mortgage. The idea behind this strategy is that you don't need as much life insurance if you have less mortgage debt. However, although the premiums are smaller than term insurance, the premium payments remain constant even as the benefit declines.
As each year passes, the term insurance is renewed but for a higher premium since the policyholder is a year older. The benefit to annual renewable term insurance is that the coverage is guaranteed to be approved each year. However, it may not be the most cost-effective for everyone due to the increased costs over time.
Due to its guarantee on the premium and survivor benefit for a defined amount of years, this product is ideal for covering yo