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Term plan offers security in case of unforeseen tragedy

A family comprises of a person who works and earns and others who are dependent on him.

BankBazaar.com CEO Adhil Shetty explains benefits and facts to be kept in mind before opting for such a plan

A family comprises of a person who works and earns and others who are dependent on him. They may not have means of earning and it becomes responsibility of the breadwinner to secure himself and family members in case of any unforeseen tragedy. Life insurance comes as a respite to provide maximum protection to them. There are various life insurance products available and term plan is one of them. Term plans, also called term assurance, provide coverage of life only for a short and specific duration till the premium is paid. If the person dies due to any reason during this tenure, the death coverage is offered to the beneficiaries.

Most of the term plans have their premium rates fixed and are based on the age of the insured and health factors as well as other factors like gender, vices like smoking or alcohol. If the tenure of the policy completes, then it lapses and no benefits are provided to the insured. It can also be bought online which can help in saving time and money on premiums.

Why choose a term plan?

Term plans usually give maximum coverage for the lowest premium amount. As there is low premium, the free fund can be used effectively in high-return solutions like equity mutual funds. It offers maximum life insurance coverage as well as returns. Term plans can be used effectively if their benefits are understood well. Some significant ways of using term plans sensibly are:

* Term plans should be chosen in a way that its cover can be increased, decreased or stopped based on the situation. It is recommended to opt for term plans without return of premium as they are the most economical options. It would be ideal to buy new term plans with different critical stages of life like marriage and birth of a child. It can be bought for a maximum duration of 30 years or till the age of 65. It is better to opt for term plans when still young as the premium is much lower then. However, the duration and coverage should be reviewed often with the income increasing with age and experience and also accumulation of funds and assets. It can be further revised with the build up of assets and lesser liabilities like children working and settling.

* The term plan can also be used to take care of the home loan in case there is sudden death of the insured. Usually the home loan repayment is done by the insured and it lasts for most of the working life. In case of a death, then the family members will have to take care of the repayment of the home loan or lose possession of the home. In such a case, term plans help as they are of low-cost a high coverage and can take care of the rest of the home loan.

* Term plans can be used for taking care of short-term loans. Short-term term plans can be used to manage car loans or purchase of business equipment. The term plans can be stopped as soon as the tenure of the short-term loans gets over.

Buying a term plan

One can buy a term plan from insurance firms, agents or even online. A comparative analysis must be done before choosing the a plan based on policyholder?s age, gender and other factors. Most of the insurance companies provide information on their company websites. Information can also be collected from authorised agents.

Therefore, term plan is suitable for those who do not want to merge their investment objectives with risk objectives. In case of policyholder?s death, the family members can get the sum assured. Though the premium is quite low for high coverage, it can be increased or decreased at the end of each term.

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First published on: 27-10-2012 at 00:12 IST
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