Types of Term Insurance

Term insurance plan is a type of life insurance plan that pays out a lump sum amount to the nominee in case the policyholder dies during the term of the policy. Thus, this plan makes for a good financial tool providing stability and protection in case of unpredictable circumstances. In comparison to other life insurance plan, a term plan is one of the most economical plans, ensuring financial protection to your family in case of you’re your demise. Not just this, a term insurance plan also provides you tax benefits under section 80C of the Income Tax Act, 1961. However, it is always advisable to opt for a term insurance plan that suits your budget and requirement. Below are the few types of term insurance plans you should know about.

Regular term insurance plan

This is the basic term insurance plan that pays out the nominee in case the policyholder dies during the duration of the policy. No payout is made on survival of the term and the policyholder will have to forgo the premium paid. The premium for this type of plan is low in comparison to other types.

Return of premium plan

This is a type of term plan suitable for policyholders who do not wish to forgo the premium they pay for getting the desired coverage. This simply means that on surviving the term of the policy, the premiums paid by the policyholder are given back to him. If the policyholder dies during the term of the policy, the sum assured is given to the family. With this, it is important to note that the premium for this plan is high compared to pure term cover.

Decreasing term insurance plan

Under this type of term insurance plan, the death benefit provided to the policyholder decreases over a predetermined rate every year. This type of term cover functions with the idea that as you age, your liabilities decrease, thus reducing your coverage. The premium payable for this type of plan is cheaper in comparison to other plans and it remains constant all throughout the term of the policy. This type of plan is usually purchased as a loan protection cover.

Increasing term insurance plan

This type of term cover is exactly opposite to decreasing term insurance. Here the sum assured increases as the policyholder ages. This type of term cover functions on the concept of rising inflation i.e. as the rate of inflation rises, the policyholder would feel uninsured in the future and would need more financial protection. The sum assured under this type of term plan increases at a predetermined rate. Also, the premiums remain constant all through the term of the policy.

Convertible term insurance

This is a type of term insurance plan that gives you the benefit of both savings as well as protection. This type of term cover lets you convert your term plan into any other life insurance policy of your choice. This simply means that if you want to change your term insurance coverage to ULIP, then you can easily convert it into one. If you buy a term plan initially and in the future, if you think you have saved enough, then you can easily convert it into a plan of your choice. This type of plan takes into account your changing financial goals and hence lets you avail the life benefits of your choice.

Group term insurance

As the name suggests, this type of coverage is provided to a group, association, organization, etc. Coverage is provided to all the members belonging to the group. In case if any member of the group dies, then the death benefit is paid to his/hers nominee. This type of term insurance plan is gaining popularity and attracting lot of employees.

Now you know about different types of term insurance plans, opt for the one that best suits your requirements, budget and financial goals.