Should you get term life insurance instead of whole life insurance? To make a conscious decision, you need to understand the policy beyond the allure of celebrities and their marketing messages.
The main draw of Term Life Insurance is that it offers substantial life coverage at an affordable premium. Typically, the coverage ranges from one to 30 years, while life insurance premiums are available for every pocket. Plus, you can get certain tax benefits under Section 80c.
It may seem like the most straightforward and cost-effective plan to opt for, but a term insurance policy may not be right for everyone. Keep in mind that the policy works purely as a protection plan. You cannot expect savings, cash value, or investment components from it. On the other hand, it may be a better choice for certain people with zero liabilities, and policies that offer an income benefit.
In this post, InBest tells you about the Term Life Insurance policy, who may benefit from it, and when they can profit from it.
Term Life Insurance policies offer life insurance coverage for a limited term,” or period, at a fixed rate. The plan serves the purpose of providing income replacement for family members, especially sole bread earners, to support their families in the event of their unfortunate demise. It has a very low age limit, you can get this policy right away at 18 years of age. The following are some of the core features of term insurance:
Premium payment modes: Policyholders can make payments in different modes, which include a single, one-time lump sum amount, a limited payment of a recurrent amount for a capped period, and a regular payment to pay the premiums periodically for the entire policy period.
Option to attach separate riders: Riders mean additional benefits or coverages that can enhance the scope of the basic term policy. It could be coverage for any critical illness, disability, or accidental death.
Affordability: The relatively low upfront cost makes it more attractive and reachable for low-income individuals, as well as a means to secure a high coverage amount for loved ones.
Predictability: Since the plan lasts for a certain period and is short-term, there is more scope for planning and budgeting with a predictable outcome. With long-term or whole-life plans and relatively higher amounts, carrying on with the payment for years can have more risks associated with unpredictable circumstances where you miss your premium.
Flexibility: It is far easier to opt out of a term life policy than it is to opt out of a cash value policy. Once you stop paying the premium on term insurance, the risk coverage terminates and the policy expires.
Term Insurance premiums are comparatively lower than other types of life insurance, but if the insured person survives the term of the policy, the policy does not return any value. However, the plan is more tax-efficient in the hands of the nominee than a lump sum-based plan.
Some of the best term insurance plans offer benefits like “return on premium” and “income benefits” to improve the product and better match customer needs. Therefore, several types of policies and terminologies fall under the umbrella of term insurance, with the basic idea of offering higher coverage at lower premiums and a capped term. Take your time to explore different plans and policies before you choose.
There are two categories of term insurance. One is the Level Term Plan, which most people are familiar with, and the other is the decreasing term plan, which is more like personal asset protection. Insurance companies have added new features and benefits to these policies that create a diversity of options. Below are the most common plans to opt for.
Basic Level Term Plans: The premium and death benefit remain the same throughout the policy tenure. The death benefit is paid to the nominees or beneficiaries in case of the unfortunate demise of the policyholder.
Renewable Policies: The first validity starts at one year, and they have the option of renewing their coverage on a yearly basis. While yearly renewable plans seem like a budget-centric plan, when it comes to benefits, a 10 or 20-year term could be more worthwhile. While the policy remains the same, the price may slightly increase upon renewal. This policy is less expensive at first than long-term life insurance. Yet, costs may rise.
Convertible Policies: Convertible insurance allows the policyholder to convert a term policy that only covers the insured for a certain number of years into a policy that covers the insured eternally as long as the policyholder continues to pay the insurance payment.
Policies with an Income Benefit: The nominee receives the insured money in monthly instalments, with a portion of the benefit still available as a lump payment. It functions the same as any other term life insurance plan, except that instead of paying out a lump sum to the bereaved family, the insurer pays out a portion of the death benefit upfront, and the remainder is paid out in monthly instalments. Any lump payment guaranteed is often put into an interest-bearing financial instrument, and the periodic interest received may be taxed. The nominee also has the option to forego future income payments at any time and instead receive a lump sum equivalent to the present value of outstanding income benefits.
There may be times when you do not require whole life insurance at all. Term life insurance may be a better option, especially if you have considerable assets and little or no liabilities. Below are some of the core features that make a difference between the two types of life insurance.
It is far easier to opt out of a term life policy than it is to opt out of a cash value policy. Once you stop paying the premium on term insurance, the risk coverage terminates and the policy expires. You will get nothing because the insurance contains no savings component. Nevertheless, cash value plans only provide the entire guaranteed survival benefit if kept for the entire policy term. If you stop paying premiums mid-term, you may incur a financial loss since you will not be able to collect your savings portion of the insurance.
The low premiums may be the reason for you to consider term life insurance, but they should not be the only reason to consider term life insurance. Are you aware that the Insurance Regulatory and Development Authority of India (IRDAI) particularly encourages Key Man and partnership insurance to be obtained using only term insurance?
Purchasing this plan necessitates a thorough understanding. The earliest time to get insurance and how much it will cost are determined by your current financial situation.
Plus, you must consider that when you add a rider to a term insurance policy, certain notes change. If you are not sure about what type of coverage would suit your needs, always feel free to get in touch with us at InBest, where we can help you make a conscious decision with your term insurance.
