Term Insurance Policy- A Life Saver at a Low Cost

Term insurance is out of the devices; which people must consider when they wish to provide instant security for their family after their demise. Though term life insurance is not the most effective kind of life insurance for all the death benefits needs of a policyholder, it could still be useful in various situations.

Since a term insurance policy isn’t only one product, but rather has several variations on one general theme, different kinds of term plans are needed for different needs of the client.

Always remember, term life insurance, more than the other kinds of insurance, is purely death protection with very little to no lifetime or ancillary benefits. Hence, the 2 overriding considerations in using the term life insurance, irrespective of the particular application are as follows-

• Will my coverage last till the time I need it?
• Will only death protection be sufficient for my needs?

In simple words, when it comes to term insurance, just like any other decision regarding sufficient coverage, the product should match with the issue. Although some of the advisors and agents think that whole life plans are always better than term life plans and have a more important role to play in the financial planning of the client. However, that is not the case. Before moving ahead, let us see what the term insurance means exactly.

What does term insurance mean?

Term insurance policies are the easiest and most economical kind of life insurance. These are the types of life insurance policies that promise to make payment of a benefit only when the insured person passes away during the policy tenure. Usually, there is no maturity benefit to be paid under the policy. Therefore, term insurance plans are known as pure protection plans.

Here we have listed the reasons why you should consider to buy a term insurance policy.

Reasons to buy term life insurance

1. Best death benefit at a low premium outlay

A term insurance plan lets an individual obtain the best death benefit at the lowest possible premium at the time of the policy issuing first. But this doesn’t mean that term life insurance necessarily is the least expensive type of insurance across the entire duration of the required coverage.

Since the insurance premiums rise at the time of each renewal, during the later stages, the cost of the premium will exceed the level premium, which would have been a simple whole life plan issued at a similar age to the original term plan.

2. Term insurance policy is a great alternative for short-term and temporary requirements

A term plan is a great alternative for your temporary life insurance requirements. Generally, a term plan is the best option if you need protection for less than 10 years. On the other hand, some type of cash value life cover policy would be the best option if you need the protection for 15 years or more.

In case the duration of the required protection is between 10 & 15 years, the best option is based on the facts and situations of the case. As a rule of thumb, term life insurance will be a better option than any cash value insurance plan at age of issuing age of 45 years and below, & worse at the older issuing ages in case the length of the requirement of protection is somewhere between 10 & 15 years.

3. Younger customers may get more coverage at a lower instant cost

Younger people may get substantial face coverage amount at a comparatively lower instant cost, probably higher than their instant requirements, and hence guarantee that they will be having the essential coverage level when family obligations and needs increase in the future, even though this means they get uninsurable.

4. Conversion benefits of convertible or renewable plans offer higher death protection in the future

The conversion benefit of convertible and renewable term plans allows the policyholders to enjoy a higher death coverage than they can afford otherwise and later lets them lock-in their insurance premiums and maintain cash values when their capability of paying insurance premiums increases.

5. Option to combine term insurance plans for serving the specialized requirements of individual policyholders

You can combine different kinds of term insurance policy- decreasing, increasing, and level as riders with other kinds of permanent insurance for creating a package, which meets the special death protection, affordability, and savings needs of a person.

6. Payment of the proceeds to the beneficiary without any delay

The proceeds from life insurance are not included in the probate estate unless that estate is named under the beneficiary or nominee of the insurance plan. Hence, the beneficiary(s) can receive the proceeds without a delay that is caused by the estate’s administration.

7. Takes care of confidentiality

The insurance company does not make any public record of the amount of death benefit or about the person who will receive the death benefit (in case it is paid to somebody apart from the estate of the deceased). This will help in preserving the confidentiality of the nominee or beneficiary of the insurance plan.

8. Term insurance policy can be used as collateral for a loan

A life insurance plan can be utilized as security or collateral for personal loans. Although generally, lenders prefer permanent kinds of plans because of their cash values, term insurance is usually enough in case the borrower falls under a good credit risk & there are high chances that the repayment of the loan will be done unless he/she passes away.

Major Difference between Term Plans and other Types of Life Insurance Plans

Other categories of life insurance such as money back or endowment plan include an element of saving in them. They promise to make payment of either death benefit in the case of death of the insured during the policy tenure or a maturity benefit in case the insured survives the policy term. On the other hand, term insurance does not include any saving element whatsoever (except in the case of return of premium plans). They make payment of a benefit only in the case of demise and maturity value is generally zero.

Another major factor that differentiates term insurance policy from other kinds of life insurance is the high coverage at an affordable insurance premium. Only term insurance can give you enough coverage without actually disturbing your budget. Other life insurance plans such as endowment plans have higher insurance premiums. In case you opt for a high amount of sum assured in a traditional plan, the insurance premiums may become unaffordable.