How Does Term Insurance Work

Term insurance plan or a term insurance policy is a life insurance product which guarantees payout to the nominees upon death of the insured. In return to this guarantee, a fixed amount of premium is deducted at specific intervals. Buying a term insurance plan during the current COVID 19 outbreak is a necessity. 

All term insurance plans & companies are regulated under IRDAI, (Insurance Regulatory and Development Authority of India).

How does a Term Insurance Plan Work?

Term insurance is a simple insurance instrument option that offers many benefits. Understanding how it works can help you see why it’s an essential investment for you and your family. Here are the key points about how a term plan functions:

• When you invest in a term insurance policy, you agree to pay premium charges to the insurer.
• This premium can be paid as a lump sum amount or as periodic payments.
• If you choose to pay your premium periodically, you can do so on a monthly, quarterly, semi-annual, or annual basis, depending on the plan you opt for.
• In return, the insurer offers you a protective life cover.
• In case the policyholder passes away during the term of the plan, the insurer shall pay a sum assured, also known as death benefits, to the beneficiaries of the insured person.
• If the policyholder survives the term of the plan, no benefits are paid out by the insurance provider.

Who Should Buy a Term Insurance Plan?

Read on to learn more about the goals you should be setting with your term insurance policy in line with your increasing age.

• The Young and Unmarried
  As a young and unmarried adult who is earning their living for the first time, it may be important to think of your responsibilities towards yourself and your parents. Especially if your parents are close to retirement and might not be too well disposed towards taking care of their own health, you might be keen on doing the best you can for them. Your term plan, at this stage of your life, is expected to ensure that your parents are taken care of in case anything happens to you.
• Those who are Newly Married
  Once you are married and on your way towards starting a new family, your priorities are likely to change. While you would still want to ensure your parents’ well being in case something happened to you, your responsibilities would now expand to include your new spouse. When you start a new family, additional responsibilities may also crop up as you take loans to buy a new home or car. Your term insurance policy may now extend to ensure that your spouse is not left with a huge burden of debt in case you are no longer around to help repay the loans. Additionally, you might want to help your spouse get term insurance as well at a reasonable rate. 
• Those who have Young Children
  Children change the structure of any family from the minute they are born. The parents start focusing on their responsibilities towards the child, and begin to dream about the child’s future. At this point in your life, you will want your term insurance plan to be more inclusive and wide enough that it can help your child achieve their dreams in the long term.
• Parents of children in High School
  The cost of education is enormous and continues to be on the rise. Higher education is especially expensive and as a parent, it is natural that you want to be prepared to spend a large amount ensuring your child can study whatever they wish to and follow their dreams comfortably. No parent wants to stifle their children’s dreams owing to a lack of funds and with the ideal term insurance plan, you can make sure that your children are never compromising on reaching their goals.
• Those nearing Retirement
  Retirement is a time of your life that you need to begin planning for early on in your life. Ideally from the time you begin working, you should start setting aside funds that will come in useful when you retire. However, even if you haven’t, there is no cause for worry. All hope is not lost if you have opted for a term plan which increases coverage with changing stages of your life.

Conclusion

The concept of term insurance is to provide coverage for a family in times of duress, especially when the income generator is absent. The primary intention is to keep the family stable and happy, and ensure they can meet basic expenses and fulfill their dreams. Furthermore, as the head of the household, you can lead a peaceful life knowing your family's future is secure, even in your absence.

Also Read: Why Term Insurance Is Important

What Is Term Insurance Policy