FAQ - Term Insurance

Q.
What are the types of Term Insurance Covers available?
Ans

A Term Insurance plan is purchased by most of the individuals to provide a financial security to their family in the event of an unfortunate event. Primarily there are 2 types of term insurance cover available – First being the Regular Term Insurance Plan and the second being the Term Return of Premium Plan (TROP). However, there are other types of plans also available. Let us look at the below list of Term Plans and the variants available:

Regular Term Insurance Plans:

A Regular Term Insurance Plans does not offer any maturity benefit. Generally, they offer a premium payment term which can be single-pay or periodic pay. The customer needs to decide the term for which the policy needs to be active and on the basis of the underwriting guidelines. They have the option of choosing the cover for as high as 20yrs term. However, once the policy matures, the cover shall cease and no benefit will be paid to the insured.

Term Return of Premium:

A TROP or Term Return of Premium plan basically act like a Regular term plan but with maturity benefit. Under this plan, at the time of maturity the premium paid by the insured will be returned back.

Let us understand with an e.g.: If you are paying a premium of Rs. 12,000 p.a. (exclusive of S.T.) for a period of 20yrs for a sum assured of Rs. 50 Lakhs, then the insurance company shall repay Rs. 2.40 Lakhs at the end of 25yrs only if you have survived the period.

A TROP policy is beneficial for those who would like to get some returns on the premium paid. However, the premiums charged under a TROP policy is quite on the higher side as compared to the regular term plans available. 

Decreasing Term Plan:

Such Plans are usually offered with Mortgage products or Loans. As the liability on the outstanding loan amount decreases every year, the sum assured also decreases.

For instance, if you buy an insurance cover for Rs. 60Lakhs for a term of 20yrs, the cover will decrease by 5% each year. In such situations, after 10yrs the coverage amount will be reduced to Rs. 30 Lakhs instead of Rs. 60 Lakhs.

Premium charged under a Decreasing Term Plan Cheaper. 

Increasing Term Plan:

This plan works opposite to the “decreasing term plan” offered. As the individuals age increases the cover also increases, but the premium remains constant. Such Plans are defined on the basis of the rising inflation. There is a possibility that the policyholder may be underinsured or does not have a sufficient insurance coverage. To overcome such fears, an increasing term cover at a pre-determined rate will be helpful for such customers.

For an instance, at the inception of the policy, the policyholder has opted for a cover of Rs. 60 Lakhs and increasing rate of 5% each year. So, after a period of 10yrs, the cover would be Rs. 90 Lakhs.

The premium charged for Increasing Term Plans is higher as compared to Decreasing Term Plan cover.

Group Term Insurance Plan:

A Group Term Insurance Plan is generally beneficial for a group/ company who would like to cover their employees towards any unfortunate occurrence. This coverage will provide a benefit to the nominee, in the event the insured dies during the defined period. The plan offered by the employer acts like a key component under the employee benefit section. Benefits offered under a Group Term Plan are:-

  • Financial Security for the family members in the event of an unfortunate death of the family members.
  • Lump Sum Benefit offered at an affordable cost
  • Single master policy issued to the group administrator

Different Policy offered under a Group Term Insurance Plans are:

  • Employer – Employee group
  • Microfinance Institutions
  • Non-Banking Financial Institutions
  • Banks
  • Professional groups, etc.

 

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