Several term plans come with the flexibility of being converted into an endowment policy or a pension fund with monthly annuities, thus becoming more attractive to people
Amit Jaiswal, Chief BALIC Direct Officer, Bajaj Allianz Life Insurance
One of the simplest forms of life insurance is term insurance, which guarantees that the insurer pays a sum of money to beneficiaries when the insured deceases, in exchange for the premiums paid during his/her lifetime.
New investors tend to look for simpler and safer investment options, hence it is not surprising that term plans are massively popular with this group.
The duration of such a policy can range anywhere from 15 to 40 years or even more, and the person buying this plan can choose the period that is suitable to them. The premium is based on the individual’s age at the time of commencement of the term plan and total sum assured.
To get an idea of the amount of annual premium one would be required to pay, customers can use the online term insurance premium calculator available on the websites of most insurance companies. In the unfortunate event of the policyholder’s
death, the nominee is entitled to receive the sum assured.
However, if a policyholder survives the full term of the term insurance, then they are eligible to receive the entire sum assured plus interest in the form of bonuses. Some companies even offer special allowances, gifts, and a loyalty addition over and above this amount.
Why are term plans becoming popular?
Term plans come with various features and flexible options for customers to choose. Be it the addition of clauses as per the policyholder’s requirements or the option to reduce the payable premium amount, there is more than one reason why these plans suit people belonging to different professions.
Some term plans come with a death clause, but give policyholders the freedom to add additional clauses such as accidental death, permanent disability, critical illnesses, and even a pension clause after attaining a certain age.
Certain other types of term plans have the money back feature, where a percentage of the sum assured is paid back to the policyholder after every 5 to 10 years. These periodic paybacks are exempt from income tax under section 10 of the income tax act.
This option is a blessing as it allows the policyholder to use this amount for any major expenses, such as a child’s education or marriage, or even funding a business. Some term plans also come with the option to reduce the amount of premium payable.
Some professionals have wealth, but also have outstanding dues and debts.
For such people having to pay a lesser premium reduces their financial burden, as it ensures they do not need liquid cash to make an investment but at the same time can secure their financial future via a life insurance policy.
Several term plans come with the flexibility of being converted into an endowment policy or a pension fund with monthly annuities, thus becoming more attractive to people.
The insurance company may revise the premium in such cases, but the policyholder enjoys the benefits of an insurance policy tailored to their changing needs.
Professionals with high paying salaries are usually keen to make provisions for future savings, especially after retirement, to be able to meet their life goals. Some professionals who can afford to defer the survival term of term plans, instead prefer to
convert their term plans into whole life policies. This means that the survival benefits are waived and the maturity amount will be paid to the nominee or the legal heirs after the death of the policyholder.
How term plans have transformed to meet everyone’s needs The fact that term plans are now loaded with flexible options to suit the customer’s specific needs, has spurred the growth of new term products with enhanced features and benefits.
Besides the death clause, new term plans now cover as many as 64 major illnesses and diseases. Further, even if a term plan is for more than 40 years, policyholders are exempt from paying any premium beyond the age of 60 years.
Professionals retiring at this age can avail the benefits of such term products. Some of the newer term plans allow people to skip a few premiums after paying them consecutively for ten years, thus giving them some breathing space for a year or two.
It won’t be a stretch to say that purchasing a term plan without further delay is a wise investment for securing one’s future and also of the loved ones. Adjourning the purchase not only keeps our loved ones unprotected, but also turns into a more
significant expense later as the cost of the premium increases with age.