Want to buy a life insurance policy? You must first know the types of term plans on offer

In today’s uncertain world, one needs to recognise the pivotal role a term insurance plan plays. But this is beneficial only if you purchase the right one.

There are several such plans.

Pure term plan: This is the purest form of term insurance. The plan is designed to provide coverage for a predetermined period. In case of the policyholder's untimely demise, the nominee is permitted to receive a death benefit that could be either a lump sum or a recurring amount.

Rhishabh Garg, Head of Term Insurance, Policybazaar.com, says, “Pure term plan puts the grieving family at financial ease and lets them take care of immediate and future financial obligations. It is, therefore, advised to go for a high sum assured, not only bearing in mind the current situation but also the inflation for decades to come to fulfil life goals comfortably.”

Since it is a pure-risk plan, the policyholder is not eligible for any maturity benefit if they outlive the policy term. “These plans are highly affordable and provide high coverage against life's uncertainties. If you are looking for a plain, simple term plan, you should opt for this,” said Garg.

TROP (term plan with return of premium): Unlike pure term plans, these come with the option of return of premium, as the name indicates. These plans were formulated to address the concern of premiums going in vain if the policyholder survives the term.

Under TROP plans, in case of a policyholder’s unfortunate demise, their nominee will receive the designated sum assured. On the other hand, if she survives the term, the sum of all the paid premiums will be returned to them (policyholders) at the time of maturity. However, these are less affordable than others in the term insurance category. They come at about 1.8x to 2x the cost of regular-term plans.

Sunil Sharma, President-Chief Actuary & Chief Risk Officer, Kotak Mahindra Life Insurance Company Limited, says, “TROP is meant for people who believe they are in extremely good health and may not necessarily get the benefit from the pure term policy after surviving to the end of the term. Such customers see more value in TROP product as they provide the sum assured on death and return of premiums paid if the policyholder survives to the end of the term. While it’s the personal choice of the policyholders, it may be worth noting that for the same TROP premium, you can buy a much larger sum assured of the pure term product.”

Special-exit value term plan: This comes with a premium return at no extra cost. The industry has devised an innovative, cost-effective alternative to TROP plans to solve premium affordability. This new term insurance category aims to provide a return of premium features at a lower cost. These new-age plans come at the price of a regular term plan and are available for buyers under 45.

“The policyholder has a one-time option to exit the policy when they feel their financial obligations are done with and get all their paid premiums back minus GST. On the contrary, the nominee shall be paid out the death benefit if the policyholder dies prematurely. Therefore, this is a financially prudent plan on all fronts and ideal for every kind of buyer as this provides high coverage along with affordability,” said Garg.

Incremental term plan: This type of policy can increase the sum assured amount at a fixed rate every policy year. The increment rate is determined at the time of policy purchase and added to the base policy cover every year. Suppose the plan is bought for 30 years, and if the policyholder passes away in the 20th year, the nominee shall be eligible to receive the incremental amount accumulated in those 20 years.

Independent term homemaker plan: Till about a couple of years ago, the homemakers, who make up a significant segment of our society, were not empowered with the decision to buy a term policy independently. They had to rely on their spouse's income and term policy where they could have shared ownership of a joint life policy.

Garg said, “Several insurers offer term plans to homemakers who can buy them at liberally relaxed mandates—a household income of Rs 5 lakh and a high school level education—to be precise. The sum assured for these plans can range between Rs 50 lakh to Rs 1 crore, which adequately covers their dependents in case of their demise.”

Point to note 

Apart from this, other plans like Saral Jivan Bima are designed to ensure that even the economically weaker sections of society are not left out of the protection umbrella.

Besides, Amol Joshi, Founder of Plan Rupee Investment Services, says, “Pure term plan is the only variant you should buy—that too annual premium mode. Take a quotation for both options and see that the TROP premium is substantially higher than the pure-term plan. This higher premium difference is invested for the length of policy duration & paid as a return of premium in the event of no claim. There is no need to pay this higher premium. Rather, invest this component separately to get similar or better results in the long-term.”

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