Once you are the breadwinner of your family, you can ensure that all their financial needs are taken care of. Along with the presence of your loved ones, it is equally important to safeguard their future. Purchasing life insurance is one way to ensure that, in your absence too, your family has enough funds to lead a good life. However, paying hefty premiums on traditional life insurance may seem difficult for most people. This is where one can purchase term insurance.
A term plan is a type of life insurance where your life is insured for a fixed time period. Within that period, in case of your unfortunate demise, your family will get the sum assured from the insurance company. The premiums you pay for your term plans are fixed, making it easier for you to accordingly make financial decisions. The biggest advantage of term insurance is that they have low premiums for high coverage. Also, it is the purest form of life insurance and has no other investment or saving component attached. When you choose to buy term insurance, there are certain terms and conditions the insurance company may provide. While they may slightly vary from company to company, in a nutshell, they are usually the same.
What are the terms and conditions of a term plan?
Knowing the terms and conditions before buying a term plan is important, as it enables you to make an informed decision. Here are some terms and conditions of a term insurance plan:
Usually, if you cannot pay your premiums, your term insurance lapses. However, there is a grace period that an insurance company offers where your policy continues even if you have failed to pay the premium. This period gives time to the policyholder to arrange funds for the premium in case one faces a sudden financial difficulty or unexpected uncertainty. Also, when you are buying term insurance, use a term plan premium calculator to ensure that the premium amount you choose is something that you can easily afford in the long run too. If an individual cannot pay the premiums before the grace period ends, the term insurance will lapse.
When you buy insurance, you are sure about it. However, as time progress, you may start having doubts about your term plan as a financial instrument. If you wish to discontinue your policy, you can return your policy to the company. Insurance companies here, provide you a free-lock period, which is basically giving you time to think about it. Returning insurance is not a small decision as it affects the future of your family. During this period, you can reflect and even seek financial advice before making your decision regarding the term plan. The free-look period ranges anywhere from 15 to 30 days. If you decide on returning your policy, the insurance company will refund the premium after deducting the proportionate risk premium for the period for which they provided you with life cover.
In case the policyholder of term insurance has died because of suicide, there is a suicide clause that comes into the picture for term insurance. If the demise was within 12 months from commencement of the policy or 12 months from the renewal of the policy, the nominee receives payments that were made on premiums. The nominee will receive 80% of the total premiums that were paid by the policyholder or the surrender value as on the date of the policyholder’s demise, whichever is greater.
Exclusions under accidental death
In case of your sudden demise because of an accident, the insurance company will pay you full compensation provided your term insurance is active during that period. However, there is some accidental death where the insurance company might refuse to provide any cover. These situations include:
- Being involved in an illegal activity
- Participation in hazardous activities
- Driving under the influence of drugs or alcohol
- Being involved in an activity of criminal intention
- Participation in extreme sports
Once you are well aware of the terms and conditions of term insurance, it is the time to choose one. There are a plethora of insurance companies providing term insurance. Use a term plan premium calculator to compare their premiums and coverage. While comparing different quotes of the insurance companies, take their reputation and settlement ratio into consideration as well.