Term Insurance : What is term life insurance? - PowerPoint PPT Presentation

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Term Insurance : What is term life insurance?


Term insurance is the simplest and oldest form of assurance and provides for payment of the sum assured on death, provided death occurs within the policy tenure or term. – PowerPoint PPT presentation

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Title: Term Insurance : What is term life insurance?

Term Insurance
What is term life insurance?
  • Term insurance is the simplest and oldest form of
    assurance and provides for payment of the sum
    assured on death, provided death occurs within
    the policy tenure or term. Should the life
    assured survive to the end of the term then the
    cover ceases and nothing is payable. 
  • Term insurance is not investment. It is
    expenditure. Like the premiums you pay for your
    car you do not get any 'benefit' if the event for
    which the cover is taken does not happen and
    there is no claim. What you buy in term insurance
    is peace of mind and risk cover when it is
    basically needed. In life insurance term policies
    you get tax benefit on the premiums paid and
    tax-free payment to your beneficiary in case of
  • Thus, the purchase of term insurance is
    comparable to purchase of property or car
    insurance where the premiums are paid every year.
    In its purest form term insurance covers risk and
    risk only for one year and can be renewed every
    year by paying increasing premium and this form
    is called annual 'Renewable Term Assurance'. 

  • Term life insurance is just life insurance, and
    nothing more. Almost 100 of the premiums you pay
    are used to cover the cost of the insurance. For
    this reason, term insurance policy holders are
    not eligible to participate in profits earned by
    the insurer on investments.
  • No surrender values accrue under term insurance
    plans. A term insurance plan will not acquire a
    paid-up value, unlike say endowment plans, if
    discontinued at any point of time. Loans against
    these policies are not available. Term policies
    do not participate in profits of the insurer. 

Types of term insurance Several variations of
this purest form are available. 
  • Level premium term insurance is one where the
    premiums payable throughout the selected term
    remain the same for a pre-fixed sum assured. This
    eliminates the problem of paying increasing
    premiums year after year. It is generally
    available for periods ranging from 5 years to 30
    years.Convertible term insurance is where the
    life assured initially buys a pure term insurance
    policy with the option to later convert it into a
    plan of his choice e.g. permanent insurance like
    whole life or endowment. For instance, the
    policyholder can convert a term insurance policy
    after 5 years into an endowment plan for 20
    years. In that case the premium changes and the
    policyholder is charged level premium as per the
    newly selected term and plan. 

  • Term insurance with return of premiums comprises
    risk cover and savings element. In this policy
    the premiums paid are returned to the life
    assured if he/she survives the policy term.
    Premium for this policy is normally higher than
    for pure term insurance because some portion of
    the premium you pay is used up for risk cover and
    the balance - savings component is invested in
    order to be able to return the amount you pay to
    you at the end of the policy. The insurer earns
    some return on investing the savings component of
    the premiums you pay. This return plus the
    savings component itself are later used by the
    insurer to return the full premium paid, back to
    you at the end of the policy. 
  • Term insurance with guaranteed renewal is a plan
    where at the end of the initial term, the policy
    can be renewed for a chosen term say, another 5
    or 10 years, without any further proof of
    insurability e.g. medical examination

  • Decreasing term insurance is where the sum
    assured steadily decreases year after year to
    match the decreasing insurance need. Such a
    policy is normally taken where the life assured
    has taken a large loan, e.g. a housing loan. Here
    the risk is of the person dying before being able
    to fully repay the loan. Therefore, the sum
    assured of the policy is usually taken as equal
    to the amount of loan to be repaid so that in
    case of demise of the loanee before he/she is
    able to repay the full loan, the sum assured or
    insurance proceeds can be used for this purpose.
    The policy term is equal to the time period in
    which the loan is to be repaid. As the
    outstanding loan amount decreases with repayment
    installments the sum assured under the policy
    also declines to match the outstanding loan

  • Term Insurance as a rider Term insurance
    benefit is also available as a rider to other
    basic insurance plans such as endowment plan, as
    value addition. For example, say a person has
    taken a 20 year endowment insurance policy.
    However, in the fifth year of this policy he
    feels that he should have higher death cover for
    the next 10 years as his children are young and
    would need greater financial support in case of
    his demise. In such a case, he can take a 10-year
    term insurance plan for the required additional
    cover amount as an add-on/attachment/endorsement
    to the basic endowment policy such that both
    policies run together. In case of the person's
    death during this 10 year term his beneficiaries
    would get the sum assured under both the basic
    endowment policy as well as the add-on term
    insurance policy. 

  • E-term insurance Of late, several insurers have
    started offering pure term insurance policies
    online or 'e-Term Insurance' at very reasonable
    rates. Policies sold online are cheaper because
    agent commissions get cut out. 
  • Source http//economictimes.indiatimes.com/your-

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