How to make Smarter Decisions with your Term Insurance Plans

Term Insurance, as the name suggest is life insurance for a fixed term or time period. Term life insurance offers protection that is limited in time. This means one will have cover or protection for a predetermined period. This period would be pre-determined number of years as per the requirement of the individual. At the end of this predetermined period the contract will end and one will no longer be covered or have life insurance. In a Term Insurance plan, the premium amount paid on inception will remain same for the policyholder throughout the premium payment term. Term life insurance is considerably cheaper than the traditional life insurances. This is so because of two major reasons, the primary one being that in term insurance policies there is no saving component, that is neither you will receive your paid premium back nor any interest on the same. The other factor being that one is only covered for a limited number of years and as term insurance is popular amongst young professionals and that the risk of dying young is much lower than the risk of dying at a later age the premiums are low.

What is Term Insurance?

Term insurance can be described as life insurance that guarantees a lump sum payment of capital to the nominee or dependent at the time of untimely death of the life insured. Simply put, term life insurance can be termed as a contract or deal between an individual and the insurance company. In return for regular payments called premiums, the insurance company will pay a benefit to the person of one’s choice called nominee or beneficiary a pre-decided amount in case of one's untimely death while the policy is in force. In the event that one is still alive at the end of the date of the contract, then the contributions will have been paid at a loss since no capital is paid back to the beneficiary or self. The same applies if the insured terminates the contract before it expires. So, term insurance can also be termed as non-refundable insurance. To comply with the terms of the contract, the insured must just continue to pay timely premiums. The premiums can be paid monthly, every three months, bi-annually or annually.

Importance of Term Insurance

Most people who take out term life insurance do so to ensure that their premature death does not have any serious consequences for the financial and emotional security of those close to them. These days one not having any dependents is relatively rare. Most people have to care about their spouse, partner or children and shield them from any liabilities, mortgage or debt payments even after they are gone. With term insurance one can fulfill these responsibilities for their loved ones and more. Term life insurance protects against any heavy financial burden on one’s family if one loses life all of a sudden and is no more around to take care of his/her family. With term insurance one can ensure that their loved ones have the money they need to cover living expenses, take care of any loan payments, and take care of housing, food and children's education costs when they are not around. If one is self-employed or a small business owner term life insurance become that much more important as being self-employed also means that one does not have the benefit from the life insurance and health insurance which are usually paid by the employers.

Why You Need Term Insurance

Term life insurance not only provides financial security for one’s loved ones after one is gone. It can help them maintain their lifestyle in the event of the death of the insured. The sum received could therefore provide the liquidity required to pay liabilities or loans, manage day to day expenses or invest and create alternate stream of income. Term life insurance provides insurance for a specified period that one chooses. Thus term insurance is ideal for people who have temporary insurance needs, such as to cover risk associated with long-term mortgage payments. There are few situations and scenarios where buying a term life insurance absolutely makes sense such as if one has dependents, one is planning to get married or start a family or if one has heavy loans and liabilities to take care of.

Benefits of Term Insurance

The primary benefit of term insurance is that it is much more affordable than traditional life insurance policies. The premiums one has to pay are just a fraction of what one pays when compared to traditional life insurances. Thus a term insurance is pocket friendly and doesn’t have much impact on one’s day to day living and expenses. Also as the premiums are low especially for young professionals one can get insured for relatively high amount. This ensures greater financial security for the family and the loved ones. With most term insurance polices the death benefit which is paid is tax-free thus the designated beneficiary will receive the full amount which has been guaranteed by the term insurance policy as per the applicable Income Tax Laws . Another advantage is that the premiums which are to be paid are fixed for the term of the policy. Many term insurance policies provide additional benefits such as additional features such as medical illness cover and much more.

When you should buy it?

The absolutely best time to buy it then would be is now in the following situations. The first situation is if one has dependants, spouse or children which are dependent on your income. Second would be when one is getting married. Marriage can bring about big changes in one’s life. The priorities change and it is the time to reassess one’s personal goals and dreams. As a couple, understanding relationships with each other is critical to planning for a secure future. The third time would be when one purchases their dream home. Buying a home is one of the most important purchases that one will ever make. For most people this acquisition results in high financial obligations for the next 20 years, or even longer. Thus term life insurance makes perfect sense. Birth of a child is another important scenario where one must opt for term insurance. Children are also one of life's greatest responsibilities until they reach the age where they are able to provide for themselves. Young children are totally dependent on their guardians for their well-being. As a parent, one of the most important responsibilities is making sure that one’s children are safe if anything happens to oneself.

Why one should buy at a younger age

For young people and in the early years of the term life insurance contract, the insurance cost or premiums to be paid are much lesser. So, it is advisable to lock the contract when the premiums are low and one will be getting the best deal for long term cover many a times with additional benefits. The cost of term life insurance increases with age. If one submits the application after the next birthday, one will likely pay more for the same amount of insurance. Also at a later stage in life especially after 50 years of age the cost of insurance increases significantly. Starting early also ensures that you are covered with fixed premiums which are guaranteed for an extended period of time which is the tenure of the policy.

How to Calculate the Term Insurance Premium

The term insurance cover required by different individuals will vary depending upon their goals, needs, liabilities and the premium they want to pay. Factors such as stage in life one has reached, situation one is in, goals and finances of every family these factors are different for different people. So, it is important for one to work out what will work for him and suit him best. One should understand factors such as insurance amount, what premium one needs to pay, duration of the cover and more before opting for a policy. To help one assess the requirement, best policy and deal there are interactive term insurance calculator available online. Use these term insurance calculators to determine how much term life insurance one may require for his/her peace of mind in just a few moments. With these online term life insurance calculators one may determine if one needs term life insurance and if so, how much would be appropriate, also then one can get an estimate of premium to be paid right away.