Decreasing Term Insurance Plan

In today's uncertain world, securing the financial future of our loved ones is more crucial than ever. Life insurance provides a protective shield against financial hardships, and one popular option in India is decreasing term insurance. This type of policy is designed to address specific financial needs and offers unique advantages. In this blog, we will provide a comprehensive guide to understanding and utilizing decreasing term insurance effectively. By investing in a suitable decreasing-term insurance plan, you can have peace of mind, knowing your loved ones will be financially protected. Let's explore decreasing term insurance.

Understanding Decreasing Term Insurance Plan

Let us understand the decreasing term insurance plan in detail here:

Definition and Key Features

• A decreasing term insurance plan is a type of life insurance policy where the sum assured decreases over time.
• The policy offers financial protection to the policyholder's beneficiaries in case of the insured's demise during the policy term.
• Premiums for decreasing term insurance plans are generally lower compared to other types of life insurance policies.

Working Principle

• The sum assured decreases annually or at predetermined intervals over the policy term.
• The decreasing sum assured is designed to align with the decreasing financial liabilities of the insured, such as a home loan or other debts.
• The coverage amount is structured in a way that the payout can help repay the outstanding loan amount, ensuring the financial stability of the insured's dependents.

Benefits of Decreasing Term Insurance Plans in India

The benefits of decreasing term life insurance plans in India are:

• Affordability:
  • Decreasing term insurance plans offer a cost-effective option for individuals seeking life insurance coverage. The premiums for these plans are generally lower compared to other types of life insurance policies, making them more accessible for a wider range of people.
• Customised Coverage:
  • One of the key advantages of decreasing term insurance is its flexibility in providing coverage tailored to specific needs. Policyholders can customise the coverage term to align with the duration of their financial liabilities, such as a home loan or other debts.
  • The decreasing sum assured ensures that the coverage amount is in line with the outstanding loan amount, providing adequate protection throughout the repayment period.
• Financial Security:
  • The primary purpose of a decreasing-term insurance plan is to provide financial security to the policyholder's beneficiaries in the event of their demise.
  • The decreasing sum assured is structured in a way that it can be utilized to pay off the outstanding loan amount, ensuring that the financial burden does not fall on the family or dependents.
  • This financial security brings peace of mind and reassurance to the insured and their loved ones.
• Simplified Underwriting Process:
  • Decreasing term insurance plans often have simplified underwriting processes, making it easier and quicker to obtain coverage.
  • The simplified process may involve fewer medical examinations and documentation requirements, making it a convenient choice, especially for individuals with pre-existing health conditions or those seeking a hassle-free application process.
• Tax Benefits:
  • Like other life insurance policies, decreasing term insurance plans offer tax benefits in India. The premiums paid towards the policy are eligible for tax deductions under Section 80C of the Income Tax Act, 1961, up to a specified limit.
  • The death benefit received by the nominee is also tax-exempt under Section 10(10D) of the Income Tax Act.
• Additional Riders for Enhanced Coverage:
  • Decreasing term insurance plans often provides the option to add additional riders for enhanced coverage. These riders can include critical illness riders, who offer coverage for specific critical illnesses, providing financial support if the insured is diagnosed with any covered ailment.
  • Accidental death benefit riders can also be added to provide an additional payout to the nominee if the insured's death is caused by accident.
• Ease of Premium Payment:
  • Most decreasing-term insurance plans offer flexible premium payment options. Policyholders can choose between regular premium payment modes, where premiums are paid annually, semi-annually, quarterly, or monthly, based on their convenience.
  • Some plans also provide limited premium payment terms, where premiums are paid only for a specified period while the coverage continues for the entire policy term.

Eligibility and Coverage Factors

The eligibility details and important factors of decreasing the term plans are:

Eligibility Criteria

The minimum and maximum entry age vary between insurance providers, usually ranging from 18 to 65 years. Policy terms and premium payment terms also vary, typically ranging from 5 to 30 years.

Factors Affecting Coverage and Premiums

• Age and health condition of the insured individual.
• Policy term and premium payment term selected.
• Sum assured, and any additional riders opted for.

Additional Riders for Enhanced Coverage

• Critical Illness Rider:
  • Adding a critical illness rider to a decreasing term insurance plan can provide additional protection against specified critical illnesses. If the insured is diagnosed with a covered ailment, the critical illness rider offers a lump sum payout. 
• Accidental Death Benefit Rider:
  • An accidental death benefit rider enhances the coverage of a decreasing term insurance plan by providing an extra payout if the insured's death is caused by an accident. This rider ensures that the nominee receives an additional sum assured, in addition to the regular death benefit, if the insured's demise is a result of an accident. 

Comparison with Traditional Term Insurance Plans

Let’s look over some factors that differentiate traditional term insurance plans from decreasing term insurance plans:

Conclusion

In conclusion, decreasing term insurance plans are an effective and tailor-made financial tool for individuals with specific financial obligations such as loans. These plans not only provide peace of mind by securing your dependents' financial future but also offer tax benefits, customization, and additional riders for enhanced coverage.

While the world may be unpredictable, your financial protection doesn't have to be. Investing in a decreasing term insurance plan ensures that you are taking an active step towards mitigating financial risks for your loved ones, even in your absence. It's a small price to pay for lifelong reassurance.

FAQs

1. Can I customise the coverage term of a decreasing term insurance plan?

Yes, most decreasing-term insurance plans offer flexibility in choosing the coverage term. You can select a coverage term that matches the duration of your financial liabilities, such as the loan repayment period. This allows you to tailor the plan to your specific needs and ensures that you have sufficient coverage during the critical loan repayment phase.

2. What happens if I have multiple outstanding loans? Can I cover them all with a decreasing-term insurance plan?

While a decreasing term insurance plan can provide coverage for outstanding loans, it is typically designed to cover one specific loan. If you have multiple loans, you may need to consider separate decreasing term insurance plans for each loan or explore comprehensive term insurance plans that provide coverage for all your financial obligations.

3. Can I add riders to a decreasing term insurance plan?

Yes, many insurance companies offer additional riders that can be added to a decreasing-term insurance plan. These riders provide extra coverage for specific needs such as critical illness, accidental death, disability, or waiver of premium. Adding riders can enhance the overall protection offered by the policy, but it may increase the premium amount accordingly.

4. Is it possible to convert a decreasing term insurance plan into a different type of insurance policy?

Conversion options vary among insurance providers, and it is important to check the policy terms and conditions. Some decreasing-term insurance plans may offer conversion options at the end of the policy term. This allows you to convert the policy into a different type of insurance plan, such as a traditional term insurance plan or a whole life insurance plan, without the need for additional underwriting or medical examinations.

5. What happens if I miss premium payments for a decreasing term insurance plan?

If you miss premium payments for a decreasing term insurance plan, it may result in a policy lapse, which means you lose the coverage provided by the policy. However, some insurance companies offer a grace period during which you can make the premium payment without any penalty or policy lapse. It is important to understand the grace period provided by your insurance provider and ensure timely premium payments to maintain the continuity of coverage.