Types Of Term Insurance

Standard Term Insurance

Standard term insurance is the most simple and straightforward term plan. The life assured pays the premium as per the mode decided at the time of policy purchase. The premium payment frequency can be annual, half-yearly, quarterly or monthly. The premium amount and life coverage (sum assured) are fixed at the time of selection and purchase. The policy period can be anywhere between 5 to 40 years as per the current age and the maturity period opted.

Note: In case, the life assured passes away during the policy period, the insurance company pays the sum assured to the nominee as per the payout opted by the policyholder.

There is only death benefit under the standard term plan. There is no maturity benefit or survival benefit offered that means if the life assured outlives the policy term, there is no payout.

Example of a Standard Term Insurance Plan:

Let's see the below two sample premium rates for men and women buying a standard term insurance. Let's say, a 30 years old non-smoker opts for a term plan with a sum assured of Rs.50 lakh with a maturity age up to 65 years.

The sum assured and the premium amount stays fixed throughout the policy period. The payouts are as opted by the policyholder.

Age Gender Term Sum Assured Annual Premium (Range) 30 year Male 35 years Rs.50 lakh Rs.4,500 – Rs.6,700 30 year Female 35 years Rs.50 lakh Rs.3,900 – Rs.6,000

Term Return of Premium (TROP)

In the Term Return of Premium (TROP), if the life assured survives till the end of the policy term, the insurance company pays back all the premiums paid.

Example of Term Return of Premium (TROP)

If you pay Rs.7,000 p.a. for 25 years for a cover of Rs.50 lakhs, and if you outlive the policy period, you would get an amount of Rs.1,75,000 (exclusive of applicable taxes).

The premiums of TROP are usually higher than the standard term plans.

Increasing Term Insurance Plan

This plan is similar to the standard term insurance plan with regards to premium payment, and policy term, except, under the Increasing Term Insurance cover with the increasing age, the life cover also increases.

Increasing term plan helps in matching inflation and therefore has been structured accordingly. The coverage of this type of plan increases up to 1.5 to 2 times the original cover. You can lower your stress of remaining under-insured by purchasing this type of term plan. Your life cover increases at a pre-determined rate in this plan.

Your sum assured (coverage) will increase over a number of years. In most of the increasing term plan, the sum assured will increase on every policy anniversary. The increment could be 5% or 10% on the base coverage.

Example of Increasing Term Insurance Plan:

Let's say, a 30 years old non-smoker opts for an increasing term insurance plan with a sum assured of Rs.1 crore. Every year the coverage will increase by 5% on the base coverage, subject to the maximum increase in the coverage offered by the insurance company.

Age Gender Term Sum Assured (Opted) Effective Sum Assured Payouts 30 year Male 35 years Rs.1 crore If the Life Assured dies in the 5th year from the inception of the policy, the effective sum assured is Rs.1.25 crore @5% p.a. At the time of Claim, the Effective Sum Assured is Paid

Life Stage Event Term Insurance Plan

In Life Stage Event Term Insurance Plan, on your significant life stage milestone, you can increase the coverage.

If opted, your sum assured (coverage) and premium increases with each life's milestone, first marriage, first child, a second child, etc.

Event The increment in the Sum Assured as % of Original Total Sum Assured Marriage (First Marriage Only) 50% Birth of 1st Child 25% Birth of 2nd Child 25%

In case, the life assured passes away during the policy period, the insurance company pays the effective sum assured to the nominee as per the payout opted by the policyholder.

Convertible Term Plan

A convertible term plan allows you to convert your term insurance plan into a whole life insurance or an endowment plan. You can switch your term plan into a whole life plan at a later stage in your life. Charges may be applicable at the time of conversion from a term plan to an endowment or a whole life plan.

Joint Life Term Plan

A joint life term insurance covers you and your better half in a single policy. You and your spouse are covered against the risk of unexpected death in one single term insurance policy.

As a married couple you can now cover yourself and your spouse under a joint life term plan.

How does a Joint Term Insurance plan work?

You pay a combined premium, and both the individuals are covered under a joint term plan. The term period is fixed at the time of buying a policy, and if during the policy period any of the partners die unexpectedly, the surviving partner being the nominee gets the life cover amount.

Example of a Joint Life Term Plan

A married couple purchases a joint term life plan with coverage of Rs.1 crore each for a policy term of 30 years.

The husband is 30 years old, and his wife is 28 years old. In case of any unfortunate event, if the husband dies in the 5th year from the inception date of the policy issuance during the policy period, the surviving partner will receive the sum assured of Rs.1 crore as a lumpsum. But the policy will continue and the insurance company will pay a lump sum of Rs.1 crore on the death of the surviving partner during the policy term to the nominee and terminate the policy. In this way, the total payout will be Rs.2 crore.

Note: The premium and payouts are indicative. These may vary from insurer to insurer.

Single life or Joint Life Term Plan

Points of Difference JOINT TERM PLAN TWO SEPARATE TERM PLAN Who is covered? Both the partners are covered in a single policy. Needs two different term plans to cover both the partners. Life Coverage Depending on the annual income of the policyholder – sum assured can be same for both the partners or maximum 50% for the spouse. Both the partners are covered on the same terms. Sum assured may vary for each partner. Each spouse can select as per the needs and annual income. In case any of the partners dies during the policy term? Full payout of the sum assured, and the plan continues for the surviving spouse, depending on the planning scheme or the surviving partner who is no more insured, may need to buy another term plan. Full payout of sum assured and policy of that life assured terminates. The surviving partner stays covered under his term plan. What if both the partners die? Single payout of sum assured or respective sum assured to the legal heir(s) depending on plan. The double payout from both the term insurance policies to the legal heir(s). Suitability 1. It is suitable for middle age couples, as buying two different policies in middle age may have higher premiums which are not advisable. 2. It is also suitable for couples not having much age differences. 3. Preferably, for couples living the same lifestyle, as smoker or non-smoker, else the premium would be higher for both even when one of the partners doesn't smoke. 1. It is advisable to opt at a young age, as the premium will be lower. 2. It is also suitable for couples having a big age gap between them. Because then the overall premium paid will be far lower and will be as per the age and sum assured. 3. It is suitable if any of the partners is not a non-smoker, in which the premium and sum assured could differ. Who should buy? If any of the partners is a homemaker or have a low income, one should opt a joint term plan. If both the partners are working and are contributing to the family’s income should opt for two single term plans covering each individually.

Group Term Insurance

Group term plans are life coverage plans for employees of businesses, companies, or any large group of people associated together, which provides life cover to all the members of the group. Group term insurance plans are same as individual term plan, except they are meant and priced for a group as a whole, and the premium changes every year. As soon as an individual leaves the group, he/she will not be a part of a group term plan.