6 Types of Term Insurance

An essential part of any financial portfolio is term insurance. Insurers provide various types of term insurance plans to meet the varying needs of policyholders.

Let us learn about the six types of term insurance to be better equipped to choose the best one for us.

What is Term Insurance?

In its purest form, term life insurance is an agreement between the insured and the insurance company. The insurance company will pay the insured person's family a specific amount if the insured dies untimely during the policy tenure.

Term insurance gives your family members an essential form of financial security against life's uncertainties. In the unfortunate event of your demise during the policy period, your family will receive a sum assured, or life cover, based on the level of coverage you bought for yourself.

Types of Term Insurance

Term insurance is an essential part of a financial portfolio. To help you choose the best term insurance plan for yourself, you must know about all the six types of term insurance.

Level Term Plan

The most common type of term life insurance available to customers is the level term plan. In the simplest form of term life insurance, the level term plan provides the most basic form of coverage.

• The sum assured remains the same throughout the policy term. If something happens to the policyholder, the death benefit would be paid to the beneficiaries or nominees.
• You will remain protected for the policy's life (sum assured), pay the same premium, and receive the same benefits throughout the policy’s life.
• Usually, insurers offer level-term plans to their clients based on their insurance requirements and budget.

TROP (Return of Premium)

Term insurance with return of premiums (TROP) is a form of term insurance that provides a life cover to a life assured, similar to other term insurance policies. However, TROP offers a maturity payout different from that provided by a standard term insurance plan.

• A return of premium option in a term plan allows the policyholder to receive a refund of the premium amounts if they survive the policy term, excluding taxes and some other charges.
• In case of death, TROP provides death benefits to the nominee or beneficiary of the policyholder. A TROP plan offers dual benefits under a single-term policy.
• TROP plan is suitable for individuals who are looking for a way to save and have life insurance at the same time.
• Anyone who needs a life insurance policy to provide financial support to their family in the event of their death can also buy this plan.
• Under this plan, the policyholder receives survivor benefits as well as a refund of the premium (less some costs) that was paid to the insurance company by the policyholder.

Increasing Term Insurance

As their name implies, increase term insurance plans with increasing sum assured rise in value from the amount decided at plan inception.

• A term insurance plan with an increasing sum assured guarantees an annual increase in the sum assured.
• The sum assured is calculated after considering inflation and your increasing financial needs that may arise occasionally over the years.
• It is important to note that such a policy allows you to increase the sum assured at any given time while the policy is still in effect.
• You can benefit from growing term plans at various stages of your life to meet multiple financial goals.
• You can increase your term insurance coverage after significant life events (for instance, marriage, a child's birth, etc.).
• The premium for the policy usually increases with the increase in coverage.

Decreasing Term Insurance

The decreasing term life insurance policy is a type of term insurance plan where the plan benefit reduces over the life of the policy.

• Since the death benefit under this plan reduces with time, the premium payable for it also reduces simultaneously.
• In case of the policyholder’s death during the policy term, the beneficiaries get the death benefit amount applicable at that time, considering the decreasing nature of the benefit.
• This plan is an excellent insurance plan for people who are looking for an affordable life insurance
• You can choose this plan if you expect your loved ones, like your children completing their education and getting a job, to depend less and less on you in the coming years.

Convertible Term Insurance

A convertible term insurance plan is a basic term life insurance plan that can be converted into another plan at a later stage.

• You can convert a convertible term plan from a simple term plan to any other type of life insurance plan in the coming years.
• This plan is an excellent option to cater to your changing financial goals and needs with time.
• By buying convertible life insurance, you can purchase a low-cost, basic coverage plan now and keep your options open for enhanced coverage options.
• You can convert the policy when you maintain the policy conditions, such as paying your premiums on time.
• A conversion may or may not require any new medical screenings or additional testing, depending on the insurer.
• However, a conversion in this plan is not automatic, and you must forward a request for the same to your insurer.

Term Insurance with Riders

An add-on benefit to a term plan is called a term rider. It enhances the base coverage of the plan. These are optional along with the base plan.

• You can avail of additional coverage and benefits through these riders, which are available for a nominal additional premium.
• With these riders, you can protect yourself against many eventualities, such as critical illness, disabilities, and more.

By adding term insurance riders to your base term plan, you can customise it to fit all your insurance needs at a lower price than buying different plans to suit different needs. For example, under a term plan with a critical illness rider, you get financial assistance to pay for your medical bills and treatments in peace, so you can concentrate on recovering.

Conclusion

Buying a term plan will help you prepare for various contingencies in life. When buying a term insurance plan, ensure that your family's financial needs are covered by the sum assured you choose. You can use an online term insurance calculator to determine the coverage you need for your term insurance policy.

The type of term insurance plan you choose depends on your insurance needs, budget and life stage. For example, if you expect your financial responsibilities to grow with you, you will need a plan that allows you to increase the coverage as and when required.

On the other hand, if you are slowly completing your responsibilities towards your family and do not expect to have extensive financial liabilities in the future, you can opt for a plan that allows you to decrease your coverage.

Understanding the term plan options available to you will help you make an informed decision when you buy a term insurance plan.