Term Insurance Plans
Types of Term Insurance Plans
There are various categories of term insurance plan available in India, as discussed below:
1. Increasing Term Plan: Increasing term plans allow the life assured to increase the value of the sum assured on death on a yearly basis while keeping the amount of insurance premium the same. Due to the benefit of increasing sum assured, these plans feature a relatively higher premium than level term plans.
2. Decreasing Term Plan: Decreasing term plans are those term plans where the sum assured keeps decreasing every year to match the life assured’s decreasing insurance needs. This type of term plan is useful for those who have already taken a personal loan or a home loan and need to pay EMI’s. The sum assured under this plan decreases at the decided frequency along with the EMI payment. Thus, these plans help life assured to meet their financial liabilities.
3. Level Term Plan: Level term plans are the most basic type of term plans. In level term plans, the sum assured is fixed throughout the entire policy term and the plan benefits are payable to the nominee in case of an untimely demise of the life assured.
4. Term Plan With Return of Premium (TROP): Term plan with inbuilt return of premium benefit is a type of plan which provides sum assured in case of an unfortunate demise of the life assured, but if the life assured survives the entire policy tenure he/she is provided with a maturity benefit amount i.e. equivalent to all the premiums till the date of plan maturity. This is the only term plan which offers maturity benefit.
5. Convertible Term Plan: Under this plan, the policyholder has the liberty to change their existing term plan into any other type of plan in the future. For instance, if you have purchased a convertible term plan with a policy tenure of 20 years and you wish to convert it into a pension plan after 7 years, you can do the same without any hassle.
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FAQ About Term Insurance Plans
Why are the types of term insurance plans available?
There are many types of term insurance plans available in India such as Increasing Term Plan, Decreasing Term Plan, Level Term Plan, Term Plan With Return of Premium (TROP) and Convertible Term Plan.
How does a term insurance plan work for policyholders?
Term insurance plans offer a good amount in lump-sum based on the policy in terms of sum assured to the family of the policyholders in case of death of the insured person. The term insurance plans are designed to cover your family from the unforeseen risk of death for a limited period of time and tend to look after them in such unfortunate times by providing financial assistance.
Is it beneficial to buy a term insurance plan online?
Yes, purchasing a term insurance plan is beneficial and you can buy it directly from your insurance company’s website within a few minutes. Buying the term insurance plan online helps you purchase it in much less time when compared to offline purchase. In addition to a faster purchase process, the term insurance plans turn up to be more economical when purchased online due to fewer distribution costs, no agent's commissions, and so on. Also, online purchase of term insurance plans allows you to make payment through fast and secured payment options such as net banking, debit cards, credit cards, etc.
Do term Insurance plans offer tax benefits to the policyholders?
A term insurance policy offers you tax benefits as per section 80C of the Income Tax Act, 1961. The tax deduction is imposed on the amount of premium paid for which you can get a tax deduction for a maximum of up to Rs 1.5 Lakh. On the other hand, when it comes to critical illness benefits, you can earn tax benefits under Section 80D.
How much of the sum assured should I opt for my term insurance plan?
The limit of the sum assured amount which you should opt for your term plan completely depends on several factors such as your annual income, your age, etc. Ideally, the term insurance cover should be 10 to 20 times your annual income to get adequate coverage to cope up with unforeseen situations.