TERM INSURANCE

WHAT IS TERM LIFE INSURANCE?

Term insurance is the simplest and oldest form of assurance and provides for payment of the sum assured on death,

provided death occurs within the policy tenure or term. Should the life assured survive to the end of the term then the cover

ceases and nothing is payable. 

Term insurance is not investment. It is expenditure. Like the premiums you pay for your car you do not get any 'benefit' if the event for which the cover is taken does not happen and

there is no claim. What you buy in term insurance is peace of mind and risk cover when it is basically needed. In life

insurance term policies you get tax benefit on the premiums paid and tax-free payment to your beneficiary in case of death. 

Thus, the purchase of term insurance is comparable to purchase of property or car insurance where the premiums are paid every year. In its purest form term insurance covers risk and risk only for one year and can be renewed every year by

paying increasing premium and this form is called annual 'Renewable Term Assurance'. 

Term life insurance is just life insurance, and nothing more. Almost 100% of the premiums

you pay are used to cover the cost of the insurance. For this reason, term insurance

policy holders are not eligible to participate in profits earned by the insurer on investments.

No surrender values accrue under term insurance plans. A term insurance plan will not acquire a paid-up value, unlike say endowment

plans, if discontinued at any point of time. Loans against these policies are not available. Term policies do not participate in profits of the

insurer. 

TYPES OF TERM INSURANCE: SEVERAL VARIATIONS OF THIS PUREST FORM ARE AVAILABLE. 

Level premium term insurance is one where the premiums payable throughout the selected term remain the same for a pre-fixed sum assured. This eliminates the problem of paying increasing premiums year after year. It is generally available for periods ranging from 5 years to 30 years.

Convertible term insurance is where the life assured initially buys a pure term insurance policy with the option to later convert it into a plan of his choice e.g. permanent insurance like whole life or endowment. For instance, the policyholder can convert a term insurance policy after 5 years into an endowment plan for 20 years. In that case the premium changes and the policyholder is charged level premium as per the newly selected term and plan. 

Term insurance with return of premiums comprises risk cover and savings element. In this policy the premiums paid are returned to the life assured if he/she survives the policy term. Premium for this policy is normally higher than for pure term insurance because some portion of the premium you pay is used up for risk cover and the balance - savings component — is invested in order to be able to return the amount you pay to you at the end of the policy. The insurer earns some return on investing the savings component of the premiums you pay. This return plus the savings component itself are later used by the insurer to return the full premium paid, back to you at the end of the policy. 

Term insurance with guaranteed renewal is a plan where at the end of the initial term, the policy can be renewed for a chosen term say, another 5 or 10 years, without any further proof of insurability e.g. medical examination

Decreasing term insurance is where the sum assured steadily decreases year after year to match the decreasing insurance need. Such a policy is normally taken where the life assured has taken a large loan, e.g. a housing loan. Here the risk is of the person dying before being able to fully repay the loan. Therefore, the sum assured of the policy is usually taken as equal to the amount of loan to be repaid so that in case of demise of the loanee before he/she is able to repay the full loan, the sum assured or insurance proceeds can be used for this purpose. The policy term is equal to the time period in which the loan is to be repaid. As the outstanding loan amount decreases with repayment installments the sum assured under the policy also declines to match the outstanding loan amount. 

Term Insurance as a rider: Term insurance benefit is also available as a rider to other basic insurance plans such as endowment plan, as value addition. For example, say a person has taken a 20 year endowment insurance policy. However, in the fifth year of this policy he feels that he should have higher death cover for the next 10 years as his children are young and would need greater financial support in case of his demise. In such a case, he can take a 10-year term insurance plan for the required additional cover amount as an add-on/attachment/endorsement to the basic endowment policy such that both policies run together. In case of the person's death during this 10 year term his beneficiaries would get the sum assured under both the basic endowment policy as well as the add-on term insurance policy. 

E-term insurance: Of late, several insurers have started offering pure term insurance policies online or 'e-Term Insurance' at very reasonable rates. Policies sold online are cheaper because agent commissions get cut out. 

Source : http://economictimes.indiatimes.com/your-money/what-is-term-life-insurance/articleshow/49169208.cms

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