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Term Insurance.

What is term insurance and how it works

Term insurance

Term Insurnace

Term Insurance / Whole Life Insurance Policy

You cannot avoid death as it is inevitable, needs no invitation, can arrive anytime and catch you unguarded. This is where life insurance comes in to effect to cover for your premature death and provides cover for dependents of you so that your family won’t suffer financially after your premature death.

People generally insure their lives so that the cover that dependents of policyholders will get will easily replace policyholders’ income.

Term insurance is a type of a life insurance which has gained popularity over past couple of years due to its low premiums and high cover.

How Term Insurance / Whole Life Insurance Works

Term insurance is a form of life insurance that provides cover for policyholder for a specific period of time, often called as term. Amount of premiums to be paid during whole term is fixed and will remain unchanged throughout the term’s duration. Premiums that you will pay will be based on your age & health and when you die the insurance company would pay death benefits to beneficiary named in your policy. However, if you die after the expiration of policy, neither you nor your beneficiary will receive anything. It is totally up to a policy holder to consider what term will be better to cover his his/her needs. You can opt for a period of 1, 5, 10, 15, 20, 25 and 30 years to cover risks over such periods.

Things to consider before taking term insurance policy

Do not rush in to select a term insurance policy, instead take your time and consider following facts before taking up a term insurance policy:

  • Decide what cover amount you want to get paid in case of your death.
  • If you have a young family to take care of, then plan your term insurance for a long duration.
  • Premiums tend to get higher as you get older so plan your insurance at earliest to avoid large sum of premiums.
  • You may consider paying extra costs to avail benefits of serious illness cover or index linking.
  • Advantages Of Term Insurance / Whole Life Insurance

    Some advantages of term insurance are as follows:

    • It will cost less on your premiums and premiums will be fixed over whole term.
    • Term insurance policies are renewable.
    • Term insurance policies can be easily converted into cash value insurance if your insurance requires change.
    • Term insurance policies are brought to meet certain monetary obligations, for example payment of mortgages.

    Disadvantages/pitfalls of term insurance

    Main disadvantages of term insurance are:

    • Most important disadvantage of a term insurance policy is that it provides cover only for a specific period of time. No benefits can be availed beyond this term.
    • Premiums will be fixed over a period but when you will renew your policy or take up a new policy for a different term then premiums will shoot up significantly.
    • A non healthy person will have to pay a higher sum of premiums than a healthy person due to increased probability of death in them.

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