What is Term Insurance – Benefits, Premium Waivers, and Joint Term Insurance

Term Insurance, like all insurance plans, is a contractual policy between the insured policyholder and the insurance company. It is also called Term Life Insurance as it is one out of the many types of life insurance policies. This coverage policy safeguards the family of the insured if the latter passes away in an untimely demise. The insurers pay the claim amount if the policyholder dies before the term of the policy ends.

How Term Insurance Works?

As all insurance plans function, term insurance also distributes the risks and the costs among various insurance holders. The policyholder pays the premium while living to avail of the policy coverage for the family after own death. The insured can pay through regular month-wise payments, yearly, as well as one-time payments. It allows flexibility of payments. This policy provides coverage to the dependent family, either through a one-time payout or at a fixed rate of periodic payments for a limited duration of time.

There are no benefits for the policyholder as long as s/he lives. Term insurance is essentially a life cover and not a savings or investment plan. Also, there is no benefit if s/he outlives the tenure of the policy and neither the policyholder nor the family gets any amount. There is no maturity date of the policy but only the coverage to the family post the insured’s death.

The eligibility age or age of entry to buy term insurance is as low as 18 years. Thus, more and more youngsters can buy the term protection plan. Buying the term policy early helps in gaining a large lump sum of insurance amount at low premiums.

Features

The very basic feature of term insurance is to provide life insurance to the policyholders. Therefore, the dependent families will be given financial security in the event of their deaths. Hence, it is called the death benefit. The other features of such a policy are:

• It provides financial security through insurance claim money. So, this helps the family to overcome liabilities, expenses and achieve other goals
• Policyholders can upgrade the premium amount by updating the policy. They may need to change the policy to suit the financial needs of the family
• In case, the policyholder lives longer than the term period of the policy, then it expires. The family will not receive the money (sum insured) in case the previous policyholder dies after the expiry of the term
• It is in contrast to other life insurance plans like endowment plans or pension-cum-insurance plans. In those plans, there is a dual benefit. The family of the insured receives insurance money if the policyholder passes away. Also, if the insured lives past the term of the policy, the policyholder receives the amount upon maturity
• Term insurance plans may not provide insurance money to the insured if s/he outlives the term. However, it is one of the most common insurance plans as it is affordable with low premiums
• Some term insurance plans now cover up critical illnesses and terminal illnesses of the insured. It is important to check with the insurance company and its policies. Check if they provide covers for medical purposes. If yes, then what diagnosed illnesses are covered up. See if you are eligible for the payout

Difference between Term Insurance and Life Insurance

Term insurance is a type of life insurance plan and hence the difference lies in the comparison of the former with other types of life coverage plans. Life insurance policies are of many types like ULIPs, pension/retirement plans, endowment plans, whole life insurance plans, and money-back insurance plans. But, all these other plans are savings/investment-cum-insurance plans. Term insurance is necessarily an insurance policy only and does not offer any returns on the premium amount or payment on maturity. It only pays out to the family in the event of the death of the insured.

Benefits

It is difficult for the family to deal with the death. But it is worse when the sole earner or the primary breadwinner for the family passes away. So, the term insurance can take care of finances for your family in your absence. The benefits are:

• It can take care of daily expenses, short-term as well as long-term goals
• Term insurance money can make up for pending payments. If you owe a loan amount, credit card bill, or any such liability. Then, it will be an additional burden to the dependent family who already lost an earning member. Without insurance, matters will be worse for the grieving family
• Term insurance is a life insurance plan that carries tax benefits of Section 80C of the Income Tax Act, 1961. Hence, you are tax-exempt up to Rs. 1.5 Lakh annually
• Although term insurance is not an investment/savings plan, it can take care of lifestyle and health issues in later years. Not all but some term insurance policies payout for diagnosis of certain illnesses
• It is affordable and quite a common insurance instrument. It is because you can build a sizeable insurance corpus by paying small premium amounts

Premium Waivers

In some cases, the company waives off the premium if the policyholder has a loss of income caused by a mishap. Also, the insurer can also give a waiver if there is a disability due to the accident. It is for a limited time period. The basic policy of term insurance often attaches additional benefits of premium waivers. These add-on advantages include critical illness coverage, accidental death coverage, etc., which are known as ‘insurance riders’.

Joint Term Insurance

You can buy a term insurance policy for your spouse as well as hold a joint plan with your spouse. It is a relatively new concept. A surviving partner may claim the full or partial insurance amount of the spouse that passed away. The surviving partner may have to pay his/her own premium. Alternatively, there can also be a waiver for future premiums depending upon the arrangement of the policy. It matters who is the primary policyholder.

Wrapping it up:

Term insurance is often considered to be the simplest and purest form of life coverage plan. It is a coverage that comes at a relatively low rate of premium. Many insurer companies often provide life covers up to 99 years of age in these policies.