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6 Types of Term Insurance Plans in India

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Types of Term Insurance Plans in India

Life Insurance is the basic step in the financial planning. This is an integral part financial portfolio. Life insurance comes in different forms, one such type is Term Insurance Plan. Insurance companies are coming up with various types of term insurance plans. Each term plan variant has its own unique pros and cons.  This article would provide various types of term insurance plans in India that are offered by insurance companies and to whom these are suitable.

What is Term Insurance Plan?

Term Plan is an agreement between the insurance company and life insured where in case of unfortunate death of the life insured, the insurance company would pay sum assured to the nominee or the family members.

In simple terms, it provides only life risk coverage. There are no survival benefits or maturity benefits in term plans in simple term plans. However, new term plans that are issued comes back with some returns.

Term Insurance plans have become famous owning to its simplicity and easy to understand.

6 Types of Term Insurance Plans in India

It is important to understand various types of term plans so that one can take the right plan as per their choice.

#1 – Simple Term Plan or Level Term Plan

This the basic or simple form of term insurance, which comes with low premium. Under this simple plan, in case of death of the life insured, the sum assured is paid to the nominee or the family members.

The sum assured and insurance premiums would remain constant through the tenure of the policy term.

This simple term plan can be opted by anyone who is looking for risk coverage with low premiums.

#2 – Increasing Term Plans

In this type of term plan, sum assured would increase year on year, while the premium would remain constant through the policy term.

Generally, this type of term plan comes with little higher premiums compared to simple term plan, as the sum assured would increase on an annual basis.

This type of a term plan is useful when one starts their career with small salary where they are single. Later, one gets married and have kids and income and expenses also grows, they want to have high sum assured.

#3 – Decreasing Term Plans

This is exactly opposite to increasing term plan.

In this kind of term plan, the sum assured would keep reducing on an annual basis, while term insurance premium would remain constant through the policy term.

This type of term insurance plan is useful when you take high amount of personal loan / home loan where you are paying on EMIs and the loan value would keep reducing year on year. During the initial period the loan amount is high and you might need high term plan to cover any risks, but later when you keep paying EMIs, the loan amount keeps reducing and you might need a lower term plan to cover the risks.

One should note that though the term plan sum assured would keep reducing, the insurance premium would remain constant through the tenure of the policy. Since there is a reduction in sum assured year on year, such plans would come with lower premium compared to simple term plans.

#4 – Convertible Term Plans

In this type of term plan, it would be a simple form of a term plan in initial years, but later get converted to endowment plan or whole life plan.

If someone expects any financial priorities to change in coming years, they can consider such plans.

As an example, if you are risk-averse person (no to risk), however you expect to take some risks in coming years, depending on your financial status, then you can take such plans.

#5 – Return of Premium Term Plans (ROP)

Generally, term plans do not have maturity benefits or survival benefits. However, in this type of term plan, it offers a return of premium (ROP).

Whatever insurance premiums are paid during the tenure of the term plan are paid back as maturity benefit of the life insured.

This return of premium (ROP) term plan is useful if you are expecting some maturity benefits at the end of the policy tenure.

Generally, the premiums are higher for such Return Of Premium (ROP) term plans.

#6 – Term Plans with Riders

Insurance companies started offering term plans with riders in the recent few years. In this type of term plan, it comes with rider options such as accidental death benefit rider, critical illness rider, permanent disability rider etc.  However, all these riders come with small additional premiums.

Such plans offer features like premium waiver benefit in case of any critical illness and life insured need not pay premiums for the rest of the policy term, but still have risk coverage.

In case of accidental death coverage rider, due to the unfortunate death of life insured due to accident, the nominee would get accidental death benefit (which is generally 50% of sum assured or 100% of the sum assured) beyond the sum assured.

These days people are getting attracted towards such plans which provides additional financial security.

Which Type of Term Plans should you choose?

There are no universal rules about the suitability of such term plan.  Each type of term plan has its own unique features, pros and cons. This is an individual choice based on their need and affordability.

If you are in the initial phase of your career, start with a simple term plan. You can add another term plan (simple or with additional features) in the future based on your need.

Suresh KP

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