Securing the future of your loved ones is undoubtedly on your priority list. While there are many ways to go about doing this, purchasing life insurance is one of the preferred ways to ensure that even in your absence, your family has the financial resources necessary to carry on and keep up with their life goals. Now, if you’ve have ever looked around for life insurance plans and compared the policies from different life insurance service providers, you would have no doubt come across term insurance plans.
You may have even heard a great deal about the term insurance benefits you get to enjoy by buying a term plan. However, if you are still not sure what exactly this kind of insurance is, and why it is more affordable than other types of life insurance, this guide can help you out. Let’s begin by trying to understand the answer to the most fundamental question - what is term insurance?
Term insurance meaning: What is term insurance?
Term insurance is the purest form of life insurance. As the name makes it quite evident, the life cover offered by the term insurance plan is valid for a specific period, which is the policy’s tenure. In return for the coverage provided, the insurer charges a nominal amount from the policyholder. This is the term insurance premium.
In the unfortunate event of the policyholder’s/life assured’s demise during the tenure of the plan, the insurance company pays the term insurance benefits or death benefits to the nominees of the policyholder/life assured.
How does term insurance work?
So, now you know the answer to the basic question - what is term insurance? However, to get a clearer idea of what this kind of life cover is all about, it is necessary to understand how term insurance works. What better way than to take an example to understand the workings of a term plan?
Let us assume that a policyholder is interested in purchasing a high life cover for his family, in return for affordable premiums. In that case, a term plan is one of the preferred choices. Therefore, he purchases a life cover for himself of, say Rs. 1 crore for a period of, say 20 years. The insurance company charges him a term insurance premium as the cost for this life cover. He continues to pay this premium each year, over the tenure of the plan.