TERM INSURANCE
We prioritize insurance planning is a must because it is protection to the life cover risk. It will help you understand whether you are under-insured or over-insured and the existing policies can be earmarked in the financial planning structure.
Life insurance is important to people who want to protect their family from financial distress after their death. It can be used to provide financial security for loved ones.
The proceeds from a life insurance policy are paid to the beneficiary on a tax-free basis, which provides a lump sum that can be used for a number of purposes. Depending on the type of policy chosen, life insurance can also provide a savings component for the policyholder.
Term insurance is a type of life insurance that provides coverage for a specified period, or “term,” such as 10, 20, or 30 years. It is designed to offer financial protection to the policyholder’s beneficiaries in the event of their death during the term of the policy.
Key Features of Term Insurance:
- Temporary Coverage: The policy is valid for a set period (e.g., 10, 20, or 30 years).
- Affordable Premiums: Term life insurance typically has lower premiums compared to permanent life insurance (like whole or universal life), because it only provides death benefit protection and does not accumulate any cash value.
- Death Benefit: If the insured person dies within the policy term, the beneficiaries receive a lump sum payout (death benefit) which is typically tax-free.
- No Cash Value: Unlike permanent insurance, term insurance does not build cash value or offer investment options. It’s purely focused on providing financial protection.
- Renewability and Convertibility: Many term policies can be renewed after the term ends, though premiums may increase based on age. Some policies can also be converted into a permanent policy without the need for a medical exam.
Types of Term Insurance:
- Level Term Insurance: The death benefit remains the same throughout the term of the policy.
- Decreasing Term Insurance: The death benefit decreases over time, typically designed to match a decreasing financial obligation, such as a mortgage.
- Increasing Term Insurance: The death benefit increases over the life of the policy, often to account for inflation or increasing financial needs.
Advantages of Term Insurance:
- Cost-Effective: Due to its simplicity and lack of cash value component, term insurance generally has lower premiums compared to permanent life insurance policies.
- Simple to Understand: Term insurance is straightforward—pay the premium, and if you die within the term, your beneficiaries receive the death benefit.
- Flexible Coverage: Term insurance can be tailored to meet temporary needs, such as covering the duration of a mortgage, a child’s education, or other financial obligations.
Ideal for:
- People who want affordable, short-term coverage for specific financial needs, such as covering a mortgage or providing for children until they become financially independent.
- Individuals who only need life insurance for a certain period but don’t require lifelong coverage.
Overall, term insurance is a simple, affordable way to provide financial protection for loved ones, but it may not be suitable for those seeking long-term or permanent coverage with a cash value component.
