Term Insurance

Continuing further from the previous article on Life Insurance, let’s today discuss about the Term Insurance.
Term insurance
Term Insurance is the simplest and cheapest type of life insurance policies available in the market, and is known as term insurance because you have the option to choose how long you want to be covered for, say, 5, 10, 15, or 20 years (this duration is known as the term).

Term insurance only pays out if you die within the term you've agreed. If you live longer than the term, you get nothing. As a couple, you can also take out term cover in both your names, with the policy paying out if either of you die during the term.

Things to look out for while buying term insurance
While it is easy for anyone to think about term insurance, it is equally important that you understand what you are buying. Consider the following questions:

• What type of policy do you buy? For example,
1. family income benefit (a policy which pays out regular income, like every month, instead of a lump sum),
2. increasing policy (where cover and premium will rise over the years),
3. decreasing policy (where cover and premium will fall over the years),
4. renewable policies (which let you renew and extend the original term).

• Check for exclusions in the policy - in other words, there may be certain conditions and situations when the policy won't pay out. For example, most do not cover death due to alcohol or drug usage or suicide cases. You might not be covered while taking part in risky sports like car racing. If your health is poor when the policy starts, some causes of death might be excluded or you might be refused cover altogether.

• Premiums shown are usually fixed for the whole term. There are also contracts where premiums are reviewable after a certain period, usually five years.

• How flexible is the contract? Can you reduce or increase cover easily as your circumstances change? Are there extra charges for doing this? Does cover stop immediately if you miss a payment or is there a period of grace?

• By paying extra, you can usually include a waiver of premium. It pays the premiums if you can't work because of a long-term illness so that your cover is not interrupted.

• If you want to change insurer, check the level of premiums for the new contract before switching (premiums may have gone up because of older age or because you have developed medical conditions). Also check the new level of cover compared to the previous one. Different benefits may be available, and different exclusions may be applied – for example you may not be covered for medical conditions that have developed before the switch even if these were covered under the previous contract. If you do decide to change, make sure you do not cancel your original cover until you are fully covered by the new contract.

• The policy can be set up under trust. This means that in the event of death, proceeds of the policy are paid directly to dependants of your choice. Provided a trust is set up properly, there may be benefits to doing this. However, using a trust may not be suitable for everyone and because of the complexities we recommend you seek financial and legal advice.

In the next article, let’s discuss some more details about Term Insurance