Types of Life Insurance Policy
Term life insurance is the most affordable type of life insurance available. It is designed to meet temporary life insurance needs; providing protection for a specified period of time, the term. For example, a term of 10, 20 or 30 years. This type of life insurance makes sense if you have financial needs that will diminish over time, such as a home mortgage or a child's tuition. Each year, a premium is paid to cover the risk of death during that year. Term life insurance has no cash value. The only way to collect anything is to die before the term life insurance expires. If death occurs, the life insurance beneficiary generally collects the death benefit of the life insurance policy, free of income tax. *Death benefit
The amount of money paid or due to be paid when a person insured under a life insurance policy dies. This amount does not include adjustments for outstanding policy loans, dividends, paid-up additions, or late premium payments.
Term Insurance Policy
* A term insurance policy is a pure risk cover policy that protects the person insured for a specific period of time. In such type of a life insurance policy, a fixed sum of money called the Sum Assured is paid to the beneficiaries (family) if the policyholder expires within the policy term. For instance, if a person buys a Rs 2 lakh policy for 15 years, his family is entitled to the sum of Rs 2 Lakh if he dies within that 15-year period. * If the policy holder survives the 15-year period, the premiums paid are not returned back. The advantage, apart from the financial security for an individual’s family is that the premiums paid are exempt from tax. * These insurance policies are designed to provide 100 per cent risk cover and hence they do not have any additional charges other than the basic ones. This makes premiums paid under such life insurance policies the lowest in the life insurance category.Term life insurance covers the insured for what is usually a relatively short period of time. All of the money from the premium is used to pay for the insurance itself. Therefore, at the end of each term, the policy must be renewed. The policy does not accrue equity for the insured. There is no penalty for not renewing a term life policy because the insurance company is not in possession of an asset. If the insured dies during the term of the policy, the policy pays off at its face value. Term life policies are generally tax-free and may even allow for a partial payout upon diagnosis of a terminal disease.
For young people, term life insurance is often the cheapest option. However, the price will increase as you age because health problems show up over time, and, for the simple reason that the older you are, the higher the chance that the insurance company will have to pay a settlement. Another downside is that if health problems materialize and your policy is non-renewable, your premiums may increase or you may no longer qualify for insurance. This problem can sometimes be avoided by paying higher rates for renewable term life, allowing you to renew the same policy without re-qualifying. A policy may also be designated convertible, which means that the insured can convert the policy to permanent life at a later time.
Another choice related to term life is the option for level or decreasing term. Level term pays the same amount of money upon death at any point during the policy. Decreasing term pays less and less as the term progresses. The latter is most effective for protection against a mortgage or any other steadily decreasing financial obligation. Level term life is not to be confused with level premium term life, which specifies that premiums will not increase over the course of the term in exchange for slightly higher premiums early in the term.
People choose term life when they need insurance for only a short period of time, or they need insurance, but cannot afford the premiums associated...
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