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Your Guide to Understand Term Insurance and ROP

dateKnowledge Centre Team dateDecember 06, 2020 views180 Views
Your Guide to Understand Term Insurance and ROP

The unexpected nature of life makes it necessary for one to prepare for the future and ensure the financial safety of their family. We can never be sure how long we will live, but caring for our family is something that we can do even in the afterlife. A term insurance policy ensures that the financial needs of your family are fulfilled even after the sole income-earner of the family meets a premature death.

Term insurance plans are like a salary that your family gets even when you are not there to earn it. Most Indian families have a primary bread-winner that holds the financial responsibilities of the family. When they die or are met with an accident, the family is bound to suffer through various problems, including the one with the most hurdles; financial issues. Salary cannot cut in such conditions. Understanding the benefits of a term insurance plan can help you ensure that your family lives comfortably.

The Working of the Term Insurance Plan

  • You will need to assess your current financial condition, the number of members in your family, your age, health history, and other such factors. According to these factors, you will need to select a premium that is feasible for you to pay regularly. Usually, the premium for term insurance plans is paid annually.
  • Once you have confirmed the term insurance plan for you, you will need to make sure that you pay your premium at regular intervals.
  • In case of the demise of the policyholder before the maturity of the term insurance plan, the company will pay the coverage amount to the beneficiary mentioned by the policyholder.
  • If the policyholder is alive once the plan has matured, the company does not provide any financial payment. Though according to the plan selected by you, there can be other benefits added to the plan at the end of the term.
  • At the end of the term, the policyholder can choose to renew the policy. This way, they can keep paying the premium till they reach the maximum age that is defined by the insurance company.

Features of a Term Insurance Plan

Now that you have understood how the life term insurance plan works, you should know the benefits it can provide you. One should remember that these policies only cover the risk of death.

  • They have low premiums.
  • You can choose the level of coverage as per your needs. There is usually no limit assigned to the coverage by the insurance provider.
  • The coverage period can go up to 30 to 35 years, depending on how long the policyholder wants the coverage to last.
  • One thing to note that if one fails to pay premiums or discontinues the policy, they will not revive any benefits.
  • There are no bonus or add-ons values provided in a term insurance plan. After the demise of the policyholder, you will get the exact amount as guaranteed at the beginning of the policy.

Kinds of Term Insurance Plans

You are not bound by just one set of rules when it comes to term insurance policies. There are various kinds of policies that are customized to suit the requirements of different policyholders. The bank and the insurance provider understand that each household is different from their separate needs. Thus, they offer the following kinds of term insurance plans.

Level Term Plans

These are the simplest form of term insurance plans. There are no additional benefits and no complicated terms and conditions attached to such term plans. You will receive the exact sum that was guaranteed at the beginning of the term insurance plan. The sum is paid only in the condition of the policyholder’s demise before the maturity of the plan.

Increasing Term Plans

These policies have a higher amount of premiums. When you get an increasing term plan, the insurance provider adds a set amount of interest to your amount. For example, the policy may detail that you will get 5% additional interest upon your premium. Once the policy has matured, or upon the death of the policyholder, the insurance provider will provide the amount as calculated after adding the interest compounded annually.

Decreasing Term Plans

These term insurance plans are offered as loan redemptions for those who need help to pay off their personal or other loans. The amount assured at the end of the term will be decreased each year by a certain amount. It works in the opposite way of the increasing term plans.

Term Insurance with Return of Premium or TROP

Other term insurance plans do not have any maturity benefit. If the policyholder is alive even after the end of the term, there are no benefits in the usual term insurance plan. Though, with a Return of Premium, you can get maturity benefits even in that case. In case the policyholder outlives the plan, they will be refunded their premiums back. The plan provides not only financial security but ensures that you get assured benefits at the end of the term.

Group Term Insurance Plan

When a group of people signs up under the same term insurance plan, then it will be categorized as group insurance. These plans are usually offered for no more than a year. All the members that are registered under the plan are covered by a master policy. In such plans, if one of the members dies during the term, then the other members will get the benefits of the plan as assured. These plans need to be reviewed each year, and the premiums need to be paid as a group, in specific ratios.

How to Select the Perfect Term Insurance Plan for You?

You have now gone through the details of term insurance plans. Though, when you look out for one that addresses all your needs and fulfils your future financial requirements, you will find that you need to consider various factors. These factors can be self-judged, or you can take the help of an advisor or consultant to find the best term insurance plan for you.

  • The term insurance plan should be flexible when it comes to choosing the amount of premium that you will need to pay. Most term insurance plans give you the option to choose the amount of the premium as per your current financial condition and your future financial needs.
  • The premium of the policy should be low and affordable. Paying the premiums should not put a huge dent in your pocket.
  • Always read through the terms for coverage once the plan matures. The scope of coverage should be so that it provides you protection even if the term does not end.
  • Some people may need their returns in the form of lump-sum, while others may need it to be provided regularly, like a salary. The term policy should provide you with options to customize coverage needs.

You can compare various term insurance plans offered by various providers and choose one that suits your needs the best. There are various tools, and apps available online that can help you compare the premium and benefits of these plans. Make sure that you take your current and future needs into consideration before signing up for any plan.

Documents Required While Buying a Term Insurance Plans

It is one of the biggest questions for term insurance buyers. What documents will they need to provide while buying a term insurance plan? These documents are as follows.

  • Age proof
  • Identity proof
  • Address proof
  • Income proof
  • Proposal form
  • Colored passport-size photographs.

A Deeper Guide to Term Plan with Return of Premium

The biggest concern of most life insurance plan buyers has been the failure to get any returns or benefits if they fail to make a claim before the end of the term. The solution to this problem is to get a term plan with a return of premium. Through ROP, you can get assured returns, exactly equal to the premiums paid by you, at the end of the term. The payment stands regardless of whether the policyholder could make a claim or not.

Here are some of the benefits of getting the Term Plan with Return of Premium

Maturity Benefits.

The definition of ROP stands as its biggest benefit. You do not need to worry about getting zero returns at the end of the term. You will not lose your premiums even if there are no claims. In such cases, the policy works as a means of saving.

Continuation of Policies.

There are times when we fail to make it through a premium or sometimes when we simply forget. You will not have to lose your previously paid premiums over a single missed premium. With ROP, you can choose to continue your policy even after a failed or missed premium payment.

Tax Benefits.

As per the Section 80C of the Income Tax Act, 1961, premiums paid to an ROP are exempted from tax. Thus, when you get a return of a policy plan, you do not just ensure your financial security, but also you get tax-exempted returns once the plan matures.

Make sure that you take all the features of a term insurance plan under consideration. Carefully choose the amount of premium that you can pay and the kind of coverage you wish for your beneficiary.

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Frequently Asked Questions (FAQs) for Term Insurance

This being a term plan doesn't offer any payout after maturity or expiration date.

Each insurance company has its own term insurance premium calculator. If you want to check out the premium quote, go for the iSelect Star term plan calculator. It gives a premium amount based on your age, gender, habits, education, and annual income.

You can purchase an iSelect Star term plan anytime between 18 to 70 years of age.

It depends on your needs. For example, if you want to cover a child's education or wedding expenses, you have to include them in your coverage. Your premium will be calculated accordingly.

If your key purpose is to give your Family financial protection, go for the term insurance plan. And if you want some savings, in the end, go for a traditional life insurance plan.

Go for at least 12 times cover than your annual income. Or you can go as far as 20 times coverage as per your needs.

The right time is when you don't have anything to keep your Family safe from financial storms, and they rely on you for financial needs.

If you are unable to make the payment or suffering from a terminal illness, a term plan pays a part of the sum insured to treat your disease.

Term insurance riders are attachment or endorsements made, while taking the term insurance policy, as a supplementary coverage to policyholders. Apart from the core death benefit, term insurance riders offer below-given additional benefits:

  • Accidental Death Rider When a person suffers from a terminal illness, his/her family ends up spending a significant amount in treatment and medical expenses. Accelerated death rider pays a part of the sum insured in advance to cover such costs and save the family from running out of cash.
  • Accidental Disability Rider If the policyholder can't pay the premium because of an accident or permanent disability, a sudden disability this pays the premium on behalf of the policyholder till completion of policy term or for a defined duration.
  • Critical Illness Rider If the insured person gets a heart attack, cancer, or any other critical illness, this rider pays a lump sum on valid diagnosis.
  • Premium Waiver Rider If the policyholder is unable to make payments due to income loss or disability, a premium waiver rider waives off all future premium payments. And the term policy remains active until the expiration date.
  • Income Rider: The rider ensures that your family receives regular income + sum insured in case of unfortunate demise of life insured.

Anyone can go for life insurance as it offers some savings after the maturity date, but it doesn't cover the protection of your family . The best term insurance plan is solely designed for taking care of loved ones if something happens to you. Term plans act as a shield between your family and sudden financial fall. They make sure that your family lives a healthy life even after you. With a little amount paid per year, you can be worry-free from the family's financial conditions.

Questions that you need to ask while buying Term Insurance?

  1. 1. Amount of premium you have to pay based on your age, habits, education, and monthly income
  2. 2. The total number of benefits covered in the term plan. Do they include benefits that you care about the most?
  3. 3. How to save money on tax if you pay for the term plan?
  4. 4. Do they offer regular income options?
  5. 5. Can you change the coverage and premium in the future?
  6. 6. Does the claim consider valid if death occurs outside India?
  7. 7. Which kind of death is not covered by insurance?
  8. 8. Can NRIs take term insurance? If yes, what are the conditions?
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