What is term life insurance?
Term life insurance, also referred as a protection plan for life is an insurance that offers the insurance for a certain period of time for example an year. If the person, whose insurance was fixed, dies during that specific “term” or time, then his family will be provided with some extra benefits by the insurance company. It is like a surety to you, that your family will remain in a continuous assistance with more benefits when you are no longer there to help them.
This policy is for the people aging from 18 years to 60 years. Even when you invest a small amount of money, it can become beneficial for you, as it increases the sum of the money. Typically, the sum that would be provided will increase from 5 lac to 15 lac. You will have to wait for at least a month for the insurance to become active, once you have applied for it. However, if the policy expires and you die after that then it will not provide you with any benefit. You need to renew it if you want to ensure this policy.
Types of term life insurance:
| Type | Explanation |
|---|---|
| 1). The Convertible Term | The Convertible offers a specified number of years after which the term policy will be automatically converted into a permanent insurance policy. It benefits the policy holder as he/she does not have to undergo the whole procedure in order to renew thw insurance policy, rather it is converted automatically. |
| 2). The Increasing Term | This policy allows you to keep a low sum of money for insurance in case you have a lot of expenses, as it will increase after your death. Thus, this policy will enable to increase the benefit of death. |
| 3). The Decreasing Term (Mortgage Term) | According to this policy, the death benefit will decrease as the amount that is to be provided as a benefit is paid in shape of mortgag’s debts. The amount that is fixed for insurance is not effected by it but the benefit that you ought to get will be paid as the debt. |
| 4). The Annual Renewable | This policy will keep on ncreasing and getting renewed by itself, as the person keeps on getting older. However, the premium will also be greater as you grow older and that is why it is not always feasible for everyone. |
How term life insurance policy works?
It works in the following ways:
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Its like a contract between the insurance company and the person who wants to make an insurance. The insurer sets an insurance for a specific period of time like for 10-30 years and the company in return offers to give a benefit, which is usually tax-free.
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They look for a proper process by seeing your activities and will set the benefit per month according to that. For example they will make an evaluation of your health conditions, your job and other styles of life. They will see your other hobbies in which you risk your life such as diving. If it’s a very dangerous occupation, your rates can be increased.
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Then they will most probably ask you the time period for the policy. You should always try to choose a long term policy as it will ensure protection for your family for a great amount of time.
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At the last you need to decide the name of the people who will get the benefit. It totally depends upon you. You can leave it for your children, your spouse, an organization that offers charity, your friends, relatives etc. You can also divide the sum for example giving half of it to family and half to some other people.
What are the benefits of term life insurance?
1. Less investment higher return:
It allows you to have a larger premium fixed for your family by paying a small one and getting a larger one in return.
2. The Flexibility:
It consists of a range of options and you can choose according to your needs and what is suitable for you. For example if you want to only pay the college or tuition fee of your child, then you can have a 5 year policy. But if you want your debts to be paid long with the tuition fee, then you can choose the policy have larger years, between 20-30 years.
3. Beneficial for the younger families:
As this policy relies upon several chunks of terms, that is why it is less expensive as you can pay the premium in a small amount. The young families usually get stressed out in case they do not get immediate jobs and have to manage a lot of expenses. So this insurance can help them easily cope up with all the problems.
4. Simple to be understood:
The best feature is about the simplicity and easy approach of this policy. You need to keep a track of 3 things:
• The amount of the premium.
• The time period.
• The company or organization for the insurance.
Which is better term life insurance or whole life insurance?
You can choose term life insurance if you want to :
• Only appoint an insurance till your children are being raised up or your debts are to be paid after your death.
• Want to have an in-expensive and cheap insurance with more benefits later.
• Want it to be converted to a permanent life insurance later. One of the types of term life insurance offers this feature.
• Have a plan to invest wisely as it will provide you with double benefit.
You should choose whole life insurance if you:
• Want to Have a policy that is lifelong and you want to be sure about a lifelong policy, not to risk your child’s life.
• Have enough money to invest for a lifelong policy and help your family in other costs such as the ■■■■■■■ ones.
• Want your children to have equal inheritances as the whole life insurance will guarantee it.