Term Insurance: What, Why, How & When Explained!
Looking out of the window, while sipping at your tea, you must have thought many times about what your life is going to bring forth. This question strikes everybody’s head, but we tend to evade it by getting ourselves busy in something. Do you know how jeopardizing a situation can get for your family when you are no longer there to support them? Financial support is what our family needs when we are or are not around. We need to be sure that their lives are secure when we are gone. Thanks to insurance policies that now we can some way or the other support our families when we are gone.
Term Assurance: An Easy Guide
Unlike the life insurance where you need to pay high premiums for the lifetime, term insurance is a reasonable and easily accessible insurance plan. You simply pay specified and fixed premium for a specific period of time. When the relevant term of the policy expires, the person needs to either forgo the policy or opt to the new term plan with new conditions and payment rates. This insurance policy is known to be the least expensive policy for death benefit. In case the life insured passes away, the death benefit will go to the beneficiary. Term insurance is risk protection like any other policy. For instance, if you have bought car insurance and have been paying the premiums for it, you will only file a claim in case of an accident. Similarly, home insurance claim can only be filed if the house is damaged in any way. The company does not refund the premiums if nothing has happened.
Mostly the term of the policy is one year. If the life insured dies within the year, the coverage will be paid to the beneficiaries. In case the life insured does not die, then no money will be paid to the beneficiaries.
Other than annual term assurance, you can get level term insurance. This type of insurance plan covers 5, 10, 15, 20 and 30 years. In this case the amount of the money to be paid to the company remains the same for the specified period of time. Unlike that of the annual one where the policy expires after completion of one year. An important point to keep in mind is the premium rates are directly proportional to the time period. Higher the time period more the premium is going to be.
Age plays an important role in purchasing the term insurance. If you are aged above 80, you are very unlikely to get term insurance. In addition, the people who are younger and healthier need to pay less premium as compared to older and weaker.
Pros And Cons Of Term Insurance
Like every other policy the term insurance has its pros and cons.
The biggest advantage of the term insurance policy is its inexpensiveness. You cannot find any other policy which is as inexpensive as term insurance.
You can renew the insurance plan depending on your financial conditions.
Another plus point for this plan is you can sometimes convert a term plan into a life insurance plan.
If we talk about the disadvantages of the term policy, the biggest disadvantage is uncertainty with no refund. It means if the life insured has been paying the entire term and does not die, the whole coverage will go to the company’s pocket. You cannot file a claim against that money.
Another big disadvantage is you cannot use this type of insurance policy for money accumulation purpose. Unlike other life insurance policies, this one does not have any room for savings.
You cannot use term insurance policy for any investment purpose. The cash value of the policy is very low so you will not get anything in the end if you are planning to use it as an investment plan.
If the policy expires, you need to forgo the policy altogether. In case you want to continue with the plan, you would need to continue it on new conditions and premium rates.
Things to Keep In Mind While Buying The Insurance Plan
If you are planning to buy the insurance plan, know your budget. There is no need to rush. Knowing the tenure and cover amount is crucial. Ask different companies. Get the quotes and compare them. Know the inflation rate. Try to buy the policy with longer tenure.