Term Plan Insurance


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Term Plan Insurance

The term insurance plan is the simplest form of Life Insurance product. The policyholder has to pay a premium amount, that is fixed for the entire duration, for a specified period. In case of the unfortunate death of the policyholder, the nominee receives a lump sum pay-out.

Death, disability, disease, all are realities seldom talked about. However, all three are realities we cannot possibly overcome with certainty. Term insurance is one tool, which can save you and your family from the financial hardships brought upon by these three and similar disastrous conditions

Types of Term Insurance

There are various types of term insurance besides the level term policies we've outlined so far. Each policy has its pros and cons, depending on the needs of the policyholder.

 Convertible Term : Convertible term life insurance allows a term insurance policy, which has a limited number of years before expiring, to convert into whole life or permanent insurance. The major benefit of convertible insurance is that the policyholder doesn't have to submit to a medical exam, nor are any health conditions considered when the term policy converts to permanent insurance.

 Increasing Term : Some policies allow you to increase the death benefit as time goes on. The premium increases as well, but it allows policyholders to pay lower premiums early on in life when they have a lot of bills and expenses. The increasing term prevents having to qualify for another policy at an older age to get the added benefit as would be the case with traditional term insurance.

 Mortgage Term or Decreasing Term : A mortgage term or decreasing term policy is the opposite of the increasing term because the death benefit amount decreases over time. The goal is to match the decline of the term benefit to the reduction of the policyholder's outstanding mortgage. The idea behind this strategy is that you don't need as much life insurance if you have less mortgage debt. However, although the premiums are smaller than term insurance, the premium payments remain constant even as the benefit declines.

 Annual Renewable : As each year passes, the term insurance is renewed but for a higher premium since the policyholder is a year older. The benefit of annual renewable term insurance is that the coverage is guaranteed to be approved each year. However, it may not be the most cost-effective for everyone due to the increased costs over time.

Why are the premiums charged for taking a Term Insurance Policy very low?

The premiums for Term insurance policies are the lowest among all the types of life insurance policies. The premiums are low since there is no investment component and the entire premium goes for covering the risk. So if the policyholder expires during the insured term, the death benefit is paid to the nominee. There is no survival or maturity benefit once the policy term expires. There may be some plans that offer to return the premiums paid by the policyholder if he survives.

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