As characterized by the name, Term Insurance provides financial coverage to a policyholder for a specified amount of time or the number of years as set in the original plan. When the insurance ends or the years are completed, the amount that has summed up till then is paid to the beneficiary as a benefit amount.
If the policyholder dies in the process when his Term Insurance is active, the amount obtained after adding up all his premiums plus extras is paid to his dependents in the form of a death benefit. Term Insurance can be obtained rather easily when compared to its counterpart that is Whole Life Insurance. The premiums are also cost-effective in case of term insurance in most cases.
Reading an article is easy but once you practically enter the market to choose a term insurance policy, you’ll be presented with an array of plans that will overwhelm you. The purpose is to secure the future of your loved ones and everybody wants to do it most economically. To find the most suitable policy, you’ll need to get into a bit of detail. Below, we’ve assembled the types of Term Insurance Policies along with the key features so that you exactly know what you are in for whence you enter the market.
Read more: What is Whole Life Insurance
Types of Term Insurance Policies
The market is flooded with plans that win your heart right when you hear them but choosing what sounds nice to hear isn’t always the right strategy. You should run down a list of your requirements and your interests before pointing at a label. Here are some types of term insurance designed to meet the applicant’s suitability:
Standard Term Insurance
The basic form of Term Insurance that guarantees life protection to the beneficiaries of the insured in case he dies accidentally in the term of his insurance. The insurance pays a lump-sum amount as a death benefit to whoever the insured has stated as the beneficiary.
Group Term Insurance
Group Term Insurance is related more to the business community providing financial coverage to the members of a firm, association, business, company or a society. The benefits provided are all the way the same as the standard term insurance except for the coverage. Coverage is generally higher in the case of Group Term Insurance.
Term Return of Premium
Preferred by a lot of individuals, Term Return of Premium is a specific type of Term Insurance that returns the summed up premium amount if the policyholder lives through the term. Also termed as the survival benefit, it is a great investment for people looking both for excess money and financial coverage. This type of Term Insurance is more popular in the youth who want purposes fulfilled by the time they are in their forties.
Flexible Term Insurance
By flexible, we mean increasing or decreasing depending on what you choose. In an increasing term plan, the policyholder gives the respective company the authority to increase the coverage after calculating the necessary risks involved along with the rising costs at that time.
The policy coverage is set to reach 1.5 times the original value. However, with this plan, the monthly premiums also increase with time. The increasing term insurance is generally opted by the growing business who with time can afford to pay more premiums. The decreasing term insurance is followed by banks or individuals pay the mortgage and other loans. As they establish financially and make more and more mortgage payments, final coverage decreases with time along with the premiums because the need for it decreases gradually as well.
Convertible Term Insurance
Convertible term insurance is more of a standard term insurance or slightly better. It gives the policyholder an option to convert the term insurance into whole life insurance at any time in term years. Generally, when the applicants go for whole life insurance, they have to go through a lengthy medical exam and family history to get in the program. However, when you convert from term insurance to whole life insurance, there is no need to submit a medical proof – previous submissions will do the job for you.
Read more: What is the Cost of Dying in the US?
Key Features of Term Insurance Plan
The main aim of any insurance plan is to provide financial coverage to the beneficiaries of the policyholder in case of an unfortunate event. The purpose of term insurance is the same. However, there are some key features that you might need to know before you sign up those pile of documents:
One of the key features of term insurance is the minimum premium rates for the applicants. As the monthly payments are marginal, the policyholders are not burdened by the cost to pay every month. Also, the policyholder can apply for a larger coverage for the same amount of premiums just with the increased number of years.
Age of Entrance
The minimum age defined by any company to purchase term insurance is 18 years and can go on up till 60 years. However, the premiums rates go higher as well. Therefore, the best way to secure a good deal is buying the deal is between the 20s and 30s when the monthly payments are marginal and remain well under your budget even if it’s low.
Whichever company you visit, one of the very first questions they ask is about your age. That is because the age determines the coverage to be paid at the end and defines the premiums to be paid monthly. All of this process is specified by the risk analysis that comes with the age of the individual. The best policy is to procure a whole life coverage that is given at a mature age of about 65 to 70 years. If a company offers a wider range of maturity age, then be sure to pay higher premiums as the final benefit paid will be more as well.
Maturity benefit is the survival benefit as discussed in the Term Return of Premium. If the policyholder is following any other policy than TROP, he won’t get any maturity benefit.
Two conditions determine the tenure of the term insurance. If the premiums are kept constant throughout, then term policy will range from 5 to 15 years. If the premiums are variable with the age factor, then the minimum age defined is 5 years and the maximum can be 25 onwards till the end of life.
Increase in Coverage
There occur certain events in life that come with responsibility and need for more money. In that case, the policyholder has the option to increase his final coverage. The events can be any like getting married, having kids or preparing for their college. You can decide the percentage of the increase according to your needs and you’ll be rewarded in the long run. But do remember, the increase in coverage comes with the increase in premiums as well.
Payable Death Benefit
The death benefit can be paid in a couple of ways. Either the total amount added up till the end of tenure is paid to the policyholder or in case of his death during the tenure, the total amount will be calculated based on the premiums paid and will be handed over to the beneficiaries. Getting the death benefit is not always necessary. In case the policyholder wants to withdraw money at some specific time, hey may do so by choosing to get paid in intervals through the policy.
Some may call it a perk and some may think of it as a stress pill. The term insurance policy is renewed each year. The reason why it is compared with a stress pill is that the premium rates increase each year because the policyholder has aged. If a person is already surrounded by bills, the annual increment may give him a shock. The perk is that the agreement terms can be updated according to the insurance flexibility and the coverage to be paid is thus guaranteed.
One of the best features that come with term insurance is the tax exemption that’s why we have put this one in the last. The countries with high taxation impose tax law on every item and it’s hardly possible to sneak out from that tax web.
However, the policyholders pursuing the term insurance are exempted from all kind of taxation charges under Section 80 and 10 according to the US constitution. If it feels like a small relaxation to you then think again. In a long chase, if you add up the tax charges only – that would have made half the total benefit you would have got by the time the policy ended.
Not only the benefit amount but also the premiums paid come under the tax benefit under Section 80D of the US legislation provided that the premiums paid are specifically for critical illness insurance (extra coverage provided in case of medical emergencies).