Term life is insurance is the most basic form of insurance where only the life of the policyholder is covered. A term policy usually has no savings component and so it is known as a pure insurance tool. Term life insurance is one of the most popular and widely sold insurance products around the world simply because it provides a high cover at a low rate, making it very affordable for people.
What makes term life insurance so affordable?
When we buy life insurance, we have to pay the premiums at regular intervals. The premiums that we pay get divided into 3 parts:
- Mortality charges
- Administrative charges
The mortality charges are paid to the insurance company in return for the risk they take to insurance our lives. The administrative expenses go towards paperwork, office work, etc and the remainder of the money is invested in various financial tools to reap profits. However, in a term plan, since the investment factor is absent, this chunk of money is not required. As a result, the premium is only paid for the mortality and administrative charges, making it considerably low.
Who needs a term plan?
Simply put, everyone needs a term plan! Since term plans are both inexpensive and useful, it makes a lot of sense to buy them. A term plan is well suited for a person who is the lone breadwinner of the family. He can buy the plan and if he dies unexpectedly, the death benefit will provide financial relief to the family. Then, term plans are also good for people who have a high net worth and need a large cover for themselves. Term life insurance is also suited for a young, single person who doesn’t have any dependent family members. So it can clearly be seen that everyone needs and benefits from term life insurance.
Are there any variations of term life insurance?
Nowadays, we do have a number of variations of term life insurance. They include:
- Increasing term plan, where the cover increases by 5% each year
- Decreasing term plan, where the cover decreases each year, till it reaches the minimum limit
- Joint term plan, where along with the primary policyholder, his spouse or business partner’s life is also insured
- Level term plans, where the coverage remains constant throughout the policy period
- Return of premium plans, where the premium paid is returned at the end of the policy if the policyholder survives the policy period. This, however, is a more expensive term plan.