Looking for answers about what is term insurance? Term Insurance is a type of life insurance that provides coverage at a fixed rate for a certain period of time, also specified as ‘term’. Term insurance is such that once this period/term expires, coverage at the previous rate of premiums is no longer guaranteed. In this case, a client must forgo coverage or obtain further coverage with different payments or conditions. But if in case the life insurer dies during their term, the death benefit will be paid to the beneficiary. Let’s find out more about term insurance and why should one buy term insurance.
It is basically the least expensive way to purchase a death benefit. Term Life Insurance generally includes permanent life insurance such as whole life, universal life, and variable universal life in contrast.
What is term insurance – The use of term insurance
Since term insurance is also called ‘death benefit’, its primary use is to provide financial help for the insured or its beneficiaries. An important point to note here is that this financial responsibility covers, but is not limited to consumer debt, university education for departments, dependent care, funeral costs, and mortgages.
what is term insurance?
To further take a look at the advantages of term insurances, read the benefits below:
Simplicity – Term insurance plans are much easier in understanding than insurance plans like endowment policies, etc. You need to understand that plans that comprise risk cover and a savings component are known as cash value plans. At the time of analyzing, it’s not easy for a layperson to divide the premium that he pays into risk cover cost and the amount that is actually being invested on his behalf as savings. This is why planning financial goals around a cash value insurance plan can get really complicated. There are rules governing things like the size of your cash value savings v/s the policy death benefit and the repayment of policy loans, etc. Term life insurance, on the other hand, is the essence of simplicity – pay the premium and get covered for the term chosen. It is just that simple.
Competitive pricing – Term life policies can easily be compared on the basis of price. That’s because they’re structurally similar and simple to understand. This leads to a competitive market. Buyers usually suffer from fewer information problems about term insurance which gradually leads to rendering the term market with more price-competitive thinking rather than for cash value policies.
what is term insurance?
Flexibility – Choosing a term life policy is way easier to get out of as compared to cash value policies. In a term policy, if you stop paying the premium, the risk cover ceases and the policy just ends. On the other hand, with cash value policies, they only give full promised survival benefits if they are held for the full tenure of the policy. This means that if you ever stop paying premiums mid-term, you’ll suffer from financial loss as you cannot recoup your savings portion of the policy without deductions.
Many term life policies are also “renewable” and “convertible.” With a renewable term policy, you can go in for another term policy without a medical exam at the end of the first term policy. On the other hand, with a convertible term policy, you can convert your term life policy into an endowment policy for the same sum assured with an associated increased premium.
Tax benefit – With the endowment type of insurance, it needs to be pointed out that while the premium paid for term insurance is much less, it is eligible for tax benefit under section 80C of the Income Tax Act. Further, the difference in premium and endowment insurance can also be invested in other tax-efficient schemes like PPF and ELSS which offer front and rear end tax breaks.
Lowest premiums – Premium for term insurance is much lower compared to cash value policies.
what is term insurance?
Here’s a list of Term Insurances that you can invest in:
- Aditya Birla Sun Life Protector Plus Plan
- Aegon Life iTerm Plan
- Aviva LifeShield Advantage Plan
- Bajaj Allianz eTouch Lump Sum
- Bharti Axa Term Plan eProtect
- Canara HSBC iSelect Term Plans
- Edelweiss Tokio Life My Term+
- Exide Life Smart Term Plan
- Future Generali Flexi Online Term Plan
- HDFC Life Click 2 Protect 3D Plus
Recommended Reading: Top E-commerce Companies in India, many of which went on to become Unicorns
For more articles like, ‘what is term insurance: Its uses and benefits’, do follow us on Facebook, Twitter, and Instagram for interesting content. For watching our collection of videos, follow us on YouTube.
Disclaimer: Insurance is a subject matter of solicitation. The information provided on this website cannot substitute for the advice of a licensed professional. The information and data provided on this website is of a general nature and strictly for informational purposes. For more details on risk factors, terms and conditions please read the sales brochure carefully before concluding a sale.