Understanding term insurance and its various types and terms

Last Updated: Thu, Oct 18, 2018 17:54 hrs

A person in twenties or thirties may come across several articles, relatives, and friends forcing them to the myriad aspects of investing.

Financial planning at that age is a must exercise, but one should desist from making decisions without due research.

Insurance being one of the basic investments that one starts with needs quite an understanding. After all, insurance is often said to be a product that witnesses instances of misselling.

Life insurance, to begin with, can be termed as a source of protection against several forms of financial losses arising out of premature death of a person.

The insurance promises to pay a nominee a sum assured and the insured family is expected to maintain their standard of living.

Term insurance is the most effective form of life insurance to get the needful cover during hard times.

Term insurance comes in two basic varieties—level term and decreasing term.

Nowadays, most people are investing in level term insurance. The terms “level” and “decreasing” refer to the death benefit amount during the tenure of the plan.

A level term policy offers the same benefit amount in case of death during the term.

Here are some Common types of level terms
Yearly- (or annually-) renewable term
5-year renewable term
10-year term
15-year term
20-year term
25-year term
30-year term
Term to a specified age (usually 65)

Renewable term policies

It is a myth that term insurance plans are non-renewable policies. There are a few plans that you can renew. The most popular one is a 20-year term.

There are many companies that are not ready to offer term insurance to a person for a term that ends past his or her 80th birthday.

If a policy is "renewable", it means it continues in force for an additional time period up to a specified age, even if the health of the insured (or other factors) would cause him or her to be rejected if he or she applied for a new life insurance policy.

Basically, it is a fact that the premium of the policy depends upon the age of the insured person and health as well.

The premium remains the same for all the level of the tenure. So, premiums for 5-year term plan will be fixed for 5 years, then on purchasing the new one, the new age will keep in consideration.

A few term insurance plans will assure you that the premium will remain the same during the term. It may cost a little high.

A few term insurance plans are convertible as well.

Return of premium

For many term insurance plans there is no refund if the person did not fil the claim by the time it expires.

A few customers are not happy with this feature. In such cases there are term insurance plans with returns that are popular by the name of TROP.

The premium of such policies will be higher as compared to the traditional term insurance.

They require that you keep the policy in force to its term or risk forfeiting the return of a premium benefit. A few plans will return the base premium but will not offer return whereas a few plans will offer returns as well.

An insurance adviser could offer benefits at the same time explain in detail the fine-print.

Naval Goel, is the CEO and Founder at PolicyX.com Also Read:

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