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Which term insurance is best for you?

  3/23/18 8:53 AM

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There are various types of insurance products in the market. Traditionally, term insurance provides life cover for a defined period. In case of death of the policyholder during this period, the beneficiary is entitled to the sum assured.

An important feature is non-payment in case of maturity of a term plan, i.e. if the insured survives. Hence, term plans are relatively cheaper. Further, online term insurance is 30-40% cheaper than offline term insurance. Offline term insurance is not promoted by insurance agents due to the low costs involved.

There are various types of term insurance available in the market.

Single premium term insurance:

Lump sum premium is paid once over the term of the insurance policy. Single premium term insurance plan is best suited for investors who are unwilling to make multiple payments. Investors who tend to be careless with payments can avail such a term plan.

Limited payment term:

Limited payment term involves premium payment for a limited number of years, i.e. 5-10 years. However, life cover is available even after payment of premium. Such term plan helps to spread costs over a period of time.

Staggered pay-outs:

As the name suggests, periodic payments are made to the beneficiaries in case of death of the insured. To simplify, a single payment of amount assured isn’t made – instead, multiple payments are made. Such payments may be annual, semi-annual, etc. Staggered pay-outs term plan is useful when beneficiaries have low financial literacy.

Increasing cover policy:

Under increasing cover policy, insured has an option to increase the amount of cover. Amount of cover can be adjusted according to the inflation prevalent in the economy. Insured can increase the amount of life cover to compensate for an increase in inflation and vice-versa.

Return of premium policy:

The major setback of term insurance is non-payment on the maturity of the policy. In order to do away with this disadvantage, the return of premium policy was introduced. Under this policy, the entire premium paid is returned at the end of the policy. However, the amount of premium is relatively higher compared to other term plans.

Term insurance can be customized as well. Various features can be embedded in a term insurance. For example, accidental rider can be incorporated in a term plan. In case of death of insured due to an accident then beneficiaries are entitled to a higher compensation.

Further, term insurance can be availed for a critical illness as well. This would include illnesses where chances of survival are relatively lower. Such insurance is relatively more expensive.

Term insurance has a lot to offer in terms of innovation and customization. It is an interesting investment avenue which should be tapped onto by every investor!

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