5 lesser-known features of term insurance

5 lesser-known features of term insurance

Term insurance is just like life insurance. The only major difference is that while life insurance covers the policyholder all their life, term insurance protects for a fixed duration. If the policyholder or the insured passes away within that period, the insurance company pays the beneficiaries the claim amount. Term insurance plans are available nationwide at several insurance companies and financial institutions, so one can easily sign up for them.

Why purchase a term insurance plan?
Like permanent life insurance, term insurance offers several benefits, making it a good investment option. The biggest reason to buy a plan is that it provides financial stability to the family and dependents after the policyholder’s passing. All one has to do is visit an insurance provider, choose a suitable policy, and pay a regular premium. Then, in case of an untimely death, the company will compensate the beneficiaries.

A policyholder can rest assured that their family will continue to have access to finances and maintain their standard of living after their passing. The loved ones can use the money to pay their daily expenses, like groceries and utility bills, and even pay off debt. This peace of mind is why many get a term insurance plan.

Features of term insurance one may not be aware of
Tenure flexibility and high coverage are the two most well-known features of term insurance. Policies are usually available for 10, 15, 20, and 30 years. Some companies even offer term insurance plans for less than 10 years and longer than 30 years. Individuals can also choose one-year plans that are renewable every year.

The other popular feature is high coverage. Though term life premiums are lower than permanent life insurance plans, one can still get a high coverage amount. This helps beneficiaries maintain their standard of living and use the money to pay for life events like college tuition, weddings, buying a home, or clearing a debt.

While high coverage and tenure flexibility are simple features of term insurance that are easy to understand, one can also find many other benefits and add-ons that make the policy more attractive. Here are some features of term insurance one may not know:

Payment flexibility
Most life insurance companies ask customers to pay premiums at regular intervals, such as annual or quarterly premiums. But for term insurance plans, individuals may pay according to their financial situation. One can pay premiums as a lump sum or choose a customized payment schedule.

If the policyholder is alive by the end of the term insurance plan’s tenure, they are not eligible for payouts, and all the premiums they have paid so far may be wasted. That’s why most term insurance plans offer the convertibility feature. A policyholder can convert their term insurance into a permanent plan at a revised cost and new premium slab.

Decreasing term insurance
The payout typically remains constant throughout a term insurance plan. This is a disadvantage for people who may become more financially stable over time and need a lower payout later. So, if a policyholder feels their liabilities may decrease, they can choose a decreasing term insurance plan. The benefit amount keeps reducing as the policy advances.

Tax benefits
One of the biggest attractions of life and term insurance is that the lump sum payment is tax-free. So, beneficiaries receive the entire coverage amount without any deductions.

Riders are optional benefits a policyholder can buy at an extra cost to ensure the plan offers the maximum benefit. Some riders one can add for a term insurance plan include:

– Guaranteed insurability rider
Policyholders can buy this add-on if they think they will incur additional expenses a few years later. The rider lets one buy additional insurance on specific dates without taking an exam or answering health questions all over again.

– Term extension rider
This rider allows one to extend the policy’s tenure. That means individuals can continue to receive the benefits beyond the maturity date.

– Return of premium rider
This is another lesser-known feature of a term insurance plan. If the policyholder lives past the plan’s tenure, they are usually neither eligible for payments nor premium refunds. But some plans may offer a return of premium rider, in which the company refunds the premium if the policyholder outlives the plan tenure.

– Accelerated death benefit rider
This rider allows the policyholder to withdraw a portion of the coverage if diagnosed with a terminal or life-threatening illness. The amount may help cover living expenses and medical expenses.

– Accidental death benefit rider
If the policyholder passes in an accident, this rider can provide additional benefits. For example, the amount paid will be higher than the payout amount expected due to death by natural causes.

– Child term coverage
If the policyholder loses a child, this rider pays a small portion of the coverage amount to help cover funeral expenses, medical bills,, and income loss.

– Critical illness coverage
Some term insurance plans offer coverage for terminal illnesses, which may not get better but become fatal as time passes.

Individuals should research all the features before buying term insurance. One should choose a tenure based on age, income, and long-term financial goals and consult an expert if necessary.