What is a Term Plan or Term Insurance?

Term Plan or Term insurance is the simplest and most affordable form of life insurance.

Term plans provide peace of mind to you by ensuring that your family is financially secure and independent, in your absence. If you are the person insured, you pay a specific premium amount at fixed intervals during the policy term. In the event of your unfortunate demise during the policy term, your nominees will receive the ‘Sum Assured’ which you had selected while purchasing the plan.

Term insurance is a form of life insurance that is active for a fixed period of time (popularly referred to as the term). These plans are easy to understand and provide financial protection that your family will need if you are no longer around.

Types of Term Plan:

 

  1. Pure Term Plan: In the event of the death of the insured, the nominee receives a lump sump Sum Assured amount. So if one has a 2 Crore of cover, the nominee would get 2 Crores in the event of the death of the insured.
  2. Lumpsum plus Monthly Income benefit Term Plan: In this option, the nominee, along with a lump sum amount also receives additional monthly amount for a predecided tenure.

    For eg. One has taken a 2 Crores of Term Plan under this option with 1% of Monthly payout for 10 years, it means, in the event of the death of the Insured, the nominee would get 2 Crores as the lumpsum amount and he/she would receive 2 lacs of monthly income for the next 10 years.

    The monthly amount & tenure varies from one Insurance Company to another.

  3. Lifestage Term Plan: Lifestage Term Plan is an increasing Life cover, where your life insurance cover keeps on increasing based upon t various events at different stages of your life. So once you get married, your cover increases, you are blessed with a child, your cover increases & henceforth.
  4. Increasing or Decreasing Term Plan: In this option, the insured can choose, by what percentage she/he would want her/his premium to increase every year. So if someone has initially taken a 1 Crore Term Plan with a 10% increment option, it means her/his cover will keep on increasing by 10% every yr on the base cover. So in the above example, the Sum Insured would increase by 10 lacs every year. So next yr it would be 1.10 Crores, then, 1.20 Crores & henceforth.
     
  5. Return of Premium Term Plan: This plan is for the highly Optimists. In this plan, if the person survives the policy term, then whatever premium the insured has paid for the policy (excluding the Tax component), is returned to the insured when the policy ends.

    Let’s understand it with an example: Mr Sharma has taken a 1 Crore Term Plan at age 35 for Rs. 18,000 + Tax with the return of premium option for 50 yrs Policy Term. So when Mr Sharma crosses 85 yrs of age, the insurance company would return all the premium paid by Mr Sharma during the policy tenure. So, in this case, he would get a total amount of Rs. 9 lacs (18000 * 50) back from the insurance company.

  6. Combinations: Other than the above options there are certain companies which offer a combination of the aforesaid options. So you may have a plan where your cover also increases every year plus there is also an income option.

 

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