Types of Term Insurance
Not many people know, but term insurance can be categorised into various types. Knowing the different types of term insurance in India is essential to ensure you select a suitable plan according to your needs.
What is term insurance?
Term insurance is a pure protection life insurance product that offers an assured life cover` for a specific period. In the absence of the policyholder, term insurance provides financial security to the loved ones and ensures their well-being. Additionally, term insurance plans also offer tax benefits.
Why is it important to understand different types of term insurance?
There are many types of term insurance plans available in the market. Since everyone’s financial needs are unique, the same term plan may not be suitable for all. Understanding how the different types of term life insurance plans work can help you select a suitable one for your needs and goals.
What are the different types of term insurance in India?
There are several types of term insurance in India. These options help cater to the diverse financial needs of different people and families.
Level term insurance
Level term insurance offers a fixed sum assured throughout the policy term. The sum assured is chosen by the applicant at the time of purchasing the policy and remains unchanged till the policy term. This is one of the most basic types of term insurance plans you can opt for.
Increasing term insurance
In an increasing term insurance plan, the sum assured gradually rises over time to account for inflation as well as the growing financial responsibilities of the policyholder. These types of term insurance plans can be suitable for young policyholders who expect their financial needs to increase in the future.
Decreasing term insurance
These types of term life insurance policies are the opposite of increasing term insurance. Their sum assured lowers over time. These plans are suitable if you expect your financial liabilities to decrease over time. For instance, you may have a loan at the time of purchase, but you expect to pay it off in the next few years. In this case, you can opt for a decreasing term plan.
Term Insurance with Return of Premium (TROP)
TROP plans refund the premium at the end of the policy term. If the policyholder outlives the term and no claim has been made, the policy returns all the premiums paid towards the plan. These plans can be suitable for risk-averse individuals as they combine life cover` with the benefit of long-term savings.
Convertible term insurance
A convertible term insurance plan allows you to convert term insurance into another type of life insurance. For instance, you can convert your term plan into an endowment or a whole life plan. The option can be used anytime during the policy term. You may not be required to undergo a medical test and can directly convert the plan. This can be suitable if you expect your financial needs to evolve in the future.
Whole life insurance
Whole life insurance offers lifelong financial coverage. Unlike other term insurance plans, these plans may provide financial protection for up to 99 years or more, ensuring comprehensive financial security for your family.
What are the benefits of term insurance in India?
Below are some benefits of term insurance:-
Financial protection
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Affordable premiums
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Flexibility
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Tax benefits
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Income Replacement
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Whole Life Coverage
What should you consider while buying a term insurance plan?
Below are some steps on how to make an informed decision on buying the right type of term insurance:
Evaluate your needs
Determine coverage
Compare different plans
Determine the policy period
Find suitable payout options
Select the right insurer
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Why is sum assured an important factor when it comes to term insurance?
The sum assured is the amount paid to the nominee in the absence of the policyholder during the policy term. It plays an essential role in determining whether your family will have enough financial support to meet their needs in your absence.
Additionally, the sum assured directly influences the premium. The higher the life cover`, the higher is the premium, and vice versa. That is why it is essential to choose this amount carefully.
You must consider your dependents' lifestyle needs, any outstanding loans and possible future financial obligations when selecting the sum assured to ensure adequate protection for your family.
Types of term insurance plans based on payout option
Term insurance plans offer multiple payout options that you can choose at the time of purchasing the policy. They can be categorised into the following:
Lump sum payout option
Your nominee receives the entire claim amount at once.
Example: Your family receives the full ₹ 1 crore cover in a single payout.
Monthly income payout option
Your nominee receives the claim amount as monthly payments instead of one large amount.
Example: Your family may receive ₹ 50,000 every month for 20 years.
Lump sum plus monthly income option
A part of the claim amount is paid as a lump sum, while the remaining amount is paid monthly.
Example: Your family may get ₹ 45 lakh upfront and the rest as monthly payments for pre-specified years.
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How to choose the right type of term insurance?
Below are some factors to consider to make sure you select the right type of term life insurance:
Based on financial goals
Understand your financial goals before choosing a term insurance plan. This can help you select the right coverage for yourself and your family.
Based on income and liabilities
Evaluate your income, expenses, loans and other liabilities before selecting a cover amount. Make sure the plan can adequately cover these financial responsibilities.
Based on life stage
Consider your current stage of life. For instance, you may be single, married or a parent. This can help you choose a suitable cover amount, policy term and plan type.
Based on budget and premium affordability
Choose a plan with premiums that comfortably fit your budget, so you can easily pay the premiums without stress.
What are the benefits of term insurance in India?
ICICI Pru Life Insurance offers new-age term plans like ICICI Pru iProtect Smart Plus and ICICI Pru iProtect Return of Premium. These term plans not only provide life cover` but also offer optional add-on riders such as critical illness benefit# and accidental death benefit rider^. Additionally, you can choose from the different premium payment terms and payout options available based on your family’s financial needs.
Below is a list of the types of term insurance offered by ICICI Pru Life:
Basic Term Plan
Basic term plan is a type of term life insurance that offers life cover` for a specific period to the policyholder in exchange for premiums paid. In the case of an unfortunate event during the policy term, these plans provide a sum assured to the nominee. However, there is no benefit if the policyholder survives the term.
Term Insurance with Critical Illness Benefit
Term insurance with a critical illness benefit# offers the same benefits as a basic term plan, such as a life cover` in your absence during the policy term. Additionally, in the case of being diagnosed with a critical illness#, this type of term plan offers a lump sum payout that can help you cover the expenses associated with the illness.
Term Insurance with critical illness benefit# provides financial coverage against a range of major and minor illnesses, such as kidney failure, organ transplant, heart attack, cancer, and others. You can use the payout to cover pre and post treatment expenses.
Term Insurance with Accidental Death Benefit
This type of term insurance plan provides additional coverage in the event of the policyholder's demise due to an accident. This is a basic term plan combined with an accidental death rider^, which pays an additional sum if the insured suffers a fatality due to an accident. The accidental death benefit^ is paid over and above the base sum assured and adds an extra layer of financial coverage for the family.
Term Insurance with Limited Pay
This term insurance plan allows you to pay premiums for a limited period while retaining coverage for a longer term. For example, you might pay premiums for 10 or 15 years, but the coverage will extend for the duration you have selected while purchasing the term plan. This can be an attractive option if you wish to complete your premium payments early in life.
All-In-One Term Plan
An all-in-one term plan offers comprehensive coverage that includes basic life cover` along with multiple riders, like critical illness cover#, accidental death benefit^ and others. This type of term insurance plan offers numerous benefits, all bundled into a single plan. This can be a straightforward way to secure your loved ones and yourself rather than dealing with multiple policies for different coverages.
Frequently Asked Questions
1. Can I switch from one type of term plan to another after the purchase?
Yes, you can switch from one type of term plan to another. Convertible term insurance plans allow this flexibility. However, this can differ from insurer to insurer and make sure to always read the terms and conditions of your policy carefully to confirm eligibility and timing.
2. What types of term insurance plans offer maturity benefits?
Return of Premium (TROP) term insurance plans offer maturity benefits. These plans refund the total premiums paid over the policy term if the policyholder survives the term without making a claim.
3. Do all types of term insurance offer the same claim payout structure?
No, the claim payout structure can vary depending on the plan and your selected mode while buying the term insurance plan. Some policies offer a lump sum payout, while others may provide regular monthly income or a combination of both.
4. Do types of term insurance differ for smokers and non-smokers?
The types of term life insurance plans remain the same for smokers and non-smokers, but the underwriting process and premiums may differ. Smokers are more likely to pay face higher premiums due to increased health risks as compared to non-smokers.
5. Are there specific types of term insurance designed for families?
Yes, family term insurance plans are designed to cover multiple members under a single policy. These offer financial protection for the entire family.
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