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The Long Read
Everything you *need to know* is right above this. Scroll down, only if you'd still like to read more (honestly, why?)
There are four types of term insurance plans available:
Pure protection plan
Protection plans with changing cover
Protection plans with value at the end of the term
Protection plans covering more than one person
It’s nothing but your regular term insurance plan. They are also called pure protection plans because their objective is to provide financial protection in the form of insurance money when you pass away during the policy duration.
There are two types of pure protection plans:
Whole life plan
What is a term plan? This is the simplest form of term insurance. Here's how it works:
You are covered by your policy for a fixed duration, for example, 10-40 years
Your family gets the policy money only if you pass away during this period
You will get nothing in return if you survive this policy duration
What is a whole life plan? In this option, you are covered by your insurance plan till 99 years of age. You also get the full life cover if you survive the policy tenure. Sounds like a great option? Find out if you should opt for a term insurance plan that covers you till 99 years.
What if you get a term insurance policy but the life cover feels inadequate over time? Solution - Protection plans with changing cover!
Let’s examine the available options closely -
Flexible term plan - in this option, you can increase or decrease your life cover every year as per your requirement. But interestingly, your premiums may or may not change.
Term plan with life stage benefit - With every life milestone like a wedding, childbirth, or home ownership, your financial responsibilities increase. Won’t it be great if your term insurance life cover keeps up too?
Term plans with life stage benefits offer the option of increasing your life cover at every life stage. But here, your insurance premium will also increase with an increase in the life cover.
Pure protection term insurance plans do not offer any maturity value at the end of the policy tenure. Your nominee only gets the insurance money if you pass away during the tenure. If you outlive it, you get nothing.
But that is not the case in these types of term insurance plans. Let’s look at the available options in detail:
Term with Return of Premium (TROP) Plan - If you opt for this, you will get back only the premiums you have paid during the policy tenure without any investment return. Know more about TROP Plans.
Convertible term plan - With this plan, you have the option to convert your regular term insurance plan into an investment plan. This means at the end of the policy tenure, you get the life cover along with some investment returns. Know more about convertible term plans.
As the name suggests, this type of term insurance plan covers multiple people. You can choose from the following:
Joint life term plan - It covers you and your spouse. You may not need to buy an individual term plan if you opt for this, but we recommend you buy one anyway
Group term plan - It is offered by your employer and it covers every member in your organisation. But you must not rely entirely on this plan and get an individual term plan as well.
There’s no definite answer to this. The type of term insurance you buy is dependent on your needs. For example, if you are just looking for an affordable way to protect the financial future of your loved ones, a pure protection term plan may suit your needs.
If you’re looking for a term plan that provides you with returns, you can consider getting a TROP (Term Plan with Return of Premiums), that will return the premium you paid if you outlive the policy duration.
But remember, TROPs are relatively more expensive than pure term plans and your premiums are paid back without any returns. Had you invested the additional higher premium amount elsewhere, you may have gotten returns on them.
While having a group term plan is a great employment perk, you can’t rely on it to protect your family financially if you pass away because:
It may not offer you an adequate life cover to secure your family’s financial future
You may not be able to customise the plan according to your needs
The plan may not cover you if you leave the organisation
So, along with a group term plan, consider getting an individual term plan as well, and get it as soon as possible. If you wait till the time of leaving your organisation, you may have to incur higher premiums (since you’d be older by then and you may also face certain health issues by then).
A zero cost term plan is a plan in which you get the option of getting your premiums back (minus GST) at a certain point during the policy period. The return point is decided by your insurer. If you choose to get your premiums back at that point, then your policy will no longer be active.
There’s an indirect way to use your term plan to help in passing down your wealth. You can stay covered up to 99 years. By that time, the chances of you passing away are high. The term plan payout can then be passed down to your loved ones.
This will depend on your insurer and the type of term plans they sell. Not all insurers may be offering all types of term plans.
Yes, you can buy multiple term plans, either from the same insurer or different insurers. In fact, you may want to do this if your current term plan does not fulfil your life cover need.
You just need to note that the sum of life covers of all your life insurance policies cannot exceed your Human Life Value (HLV).
The HLV is typically a value beyond which a person cannot be insured. For example, if your HLV is ₹ 1 crore and you already have a policy of ₹ 80 lakhs life cover, the next term plan you buy can offer you a maximum of ₹ 20 lakhs life cover only.
It’s advisable to stick to one term plan that fulfils your term insurance needs. Having many term plans can make it difficult for you to manage them and your loved ones may have to file multiple claims.
If in case one plan doesn’t meet your term insurance needs, then buy only those many term plans that are necessary and not more.