Lesser-known Facts About Term Insurance Policies

A term insurance plan is the simplest form of life insurance. It is very easy on the pocket. And, it is the best way to keep your family financially protected in your absence, especially if you are the only earning member.

You may already be aware of all these aspects. But, did you know about some unique facts about a term plan - how you can increase the cover amount while the plan is active, how you and your spouse can jointly own a plan, how you can ensure the claim amount reaches your family first instead of any creditors, etc.?

If not, here’s a list of 5 lesser-known facts about Term Insurance Plans!

You Can Increase the Cover Amount While the Plan is Active

As you grow older, your financial responsibilities will keep on rising - you’ll get married, have children, take loans, etc. If you own a term plan, you can upgrade its coverage to accommodate your family’s growing needs. How? With the help of the increasing cover option. The increasing cover option is specifically designed keeping in mind the growing responsibilities in one’s life and the increasing inflation rate.

With this option, your term insurance cover will keep on increasing gradually at specific intervals until it reaches a maximum limit. This option will help you counter inflation and ensure that your family is adequately covered, at all times.

Example: Madhav, 40 years old, buys a term insurance policy with a sum assured of Rs. 50 Lakhs and for a duration of 20 years. He chooses the increasing cover option with a 10% increase each year to inflation-proof his cover. The cover will increase until it reaches a maximum limit of 2X the base cover.

So, the cover amount will be Rs 50 Lakhs in the first year, Rs. 55 Lakhs in the second year, Rs. 60 Lakhs in the third year, and so on.

You Can Cover Your Spouse Under the Same Policy

Did you know that you and your spouse can jointly own a term insurance plan? Such plans are known as 'joint life term insurance’ and cover both you and your spouse under a single plan.

Here the sum assured is available under the plan in two ways -

• Separate Sum Assured Here, the cover amount for both you and your spouse will be separate under the plan.
  • If you pass away during the policy period, your spouse will receive the claim amount.
  • And, if your spouse also passes away during the policy period, your nominee shall receive the claim amount.
• Sum Assured Is Shared Here, the cover amount for both you and your spouse is the same. If either you or your spouse passes away during the policy period, the surviving spouse will receive the claim amount. Once the payout is made, the policy will expire.

You Can Customise Your Premium Payment Duration

You buy a term plan for a very long duration and generally, you are required to pay the premiums till the end of the duration. It's a long-term payment commitment. You may, however, wish to pay off all your premiums in a lesser number of years to avoid being burdened by premium payments for a long time.

In this case, you can choose the limited pay option. Limited pay allows you to finish off your premium payment liability in fewer years. You can still enjoy the insurance cover and its benefits till the end of the policy period.

Limited pay options include 5-pay (pay premiums in 5 years, 10-pay (pay premiums in 10 years), and so on. For instance, if you opt for a policy period of 30 years at policy purchase and pick the 10-pay option, you can finish off paying the premiums during the first 10 policy years and enjoy the benefits for 30 years.

Example: Maheep, a 30-year-old, buys a term insurance policy with a sum assured of Rs 1 crore with a policy duration of 40 years. She wants to retire by the age of 50 and wants to finish her premium payment responsibility by that time So, she chooses the 20-pay limited pay option, which lets her finish her premium payments by the time she retires.

You Can Ensure Your Claim Amount Reaches the Right Hands

Rising expenses have led to more people availing loans and EMI options to purchase expensive things like property, vehicles, electronics, etc. If you have taken a loan and unfortunately pass away, the entire burden of repaying the same will fall on your family’s shoulders. The situation seems direr if you are the primary bread earner and your family has no other source of income.

A term insurance plan offers your nominee a death benefit if you pass away during the policy term. This sum of money will help them settle outstanding loans and liabilities, without having to worry about their daily expenses and lifestyle changes.

But, there’s a legal caveat. The claim amount will first go to the creditors to repay your existing loans. And, sometimes, other family members may swoop in to get their hands on the claim money as well based on succession laws.

All this can be prevented if you are married and male - and have appointed your wife as the nominee. How? By purchasing your plan under the Married Women's Property Act.

What is the Married Women's Property Act?

Married males can purchase term insurance plans under the Married Women's Property (MWP) Act by agreeing to an additional clause. This will ensure that the claim amount is paid to your wife first before it goes to someone else. They can decide how to use the claim amount to meet their financial needs.

You Can Customise Your Claim Payout

You might have heard stories of lottery winners going bankrupt after losing all of their winnings to gambling, poor stock market investments, etc. A large claim payout is no different. If you pass away during the policy tenure, the term insurance claim amount will be paid as a lump sum, in one go to your family. And, they may be unsure about how to deal with it.

If you don't want your family to lose the claim money through poor investment decisions and be left without financial support for their actual needs - you can customise how they receive the claim. Here are the most common claim payout options available -

• Lump-sum Payout Option Your family will receive the entire claim amount all at once. It is a good option if you have existing debts or liabilities that need to be settled. You can also select this option if your nominee is financially well-versed and you think they will be able to manage a large amount of money.

<li><strong>Monthly Income Payout Option</strong>
Your family will receive the claim amount in monthly installments. Choose this option if the cover amount will be used for your family's day-to-day needs such as paying grocery bills, electricity bills, etc. This option will be ideal if you think your nominee will not be able to manage a large amount of money.</li>
 
<li><strong>Lump-sum With Monthly Income Payout Option</strong>
This option is a combo of lump-sum payout with monthly income payouts. The insurer will pay a portion of the claim in a lump sum and the rest in instalments on a monthly basis for a specified period of time. You can choose this option if your nominee is not financially well-versed and you have small debts. </li></ul>

Guaranteed Claim Payout After Your Policy Completes 3 Years

If your term insurance policy completes three years, an insurance company cannot investigate or reject a death claim on grounds of -

• Fraud
• Misstatement
• Suppression of facts

This is as per Section 45 of the Insurance Act. So, it is guaranteed that your family will receive the claim amount (if you pass away while the plan is active) - as long as all your premiums are paid on time and your policy has been in force for three years continuously.

Looking to Buy Term Insurance?

If you are planning to buy a term insurance policy, here are two ABSLI Term Plans you can consider -

ABSLI Life Shield Plan

This term plan offers a death benefit to your nominee in case you pass away during the policy period. Additionally, the policy offers limited pay, return of premium option, increasing and decreasing cover options, multiple riders, etc.

ABSLI DigiShield Plan

A big advantage of this plan over other term plans is that it gives you a whole life option (up to 100 years of age). In the event you pass away during the policy period, a death benefit is paid to your nominee. The plan also comes with a return of premium option that will pay back all your premiums (minus the taxes) if you outlive the plan’s duration. Furthermore, it offers a limited pay option and an increasing cover option. The policy includes a variety of essential riders as well.

Wrapping Up!

A term plan is an ideal option as it financially safeguards your family with the right coverage. It gives you the opportunity to avail a high sum assured for a cost-effective premium that will secure your family’s financial future - should you pass away while the plan is active. Make sure you consider your needs and budget before you invest your money - to avoid any hassles later.