Regular Term Insurance Plans
Convertible Term Insurance Plans
Term Return of Premium (TROP)
Decreasing And Increasing Term Plans
Joint Term Insurance Plans
A regular term insurance plan is a no-frills insurance plan that provides coverage against a specific set of risks on payment of a pre-decided premium amount. These plans offer no benefits upon maturity. Premium payments can be made periodically or they can be paid at once (single pay). The options for insurance cover can go as high as the insurer is willing to underwrite and the policy tenures can be as high as 20 years. When the policy matures, the insurance cover ceases, as does the need to pay premiums for such a cover.
This is the most basic form of life insurance protection. Regular term insurance also comes with low premiums and high sum assured. This ensures that the policyholder can receive maximum benefits from the plan in a cost-effective manner.
A convertible term plan allows the policyholder to convert his/her policy into a permanent one during the policy tenure. Some insurers provide this as an additional benefit rider while others offer the same as a standalone plan. As far as the terms and conditions have been met, converting a term life policy into a permanent policy should not be a difficult process.
The key features of convertible term insurance are described below:
  • Even before a policyholder converts the term insurance into whole-life insurance, the policy will be more expensive. The coverage offered by a standard term insurance policy and that by a convertible policy may be the same. However, the convertible insurance plan will have higher premiums, owing to the built-in cost attributed to the conversion facility.
  • Another advantage of a convertible term insurance plan is that the life assured is not usually required to appear for a medical examination while switching the plan from term to permanent. This is particularly useful because if the life assured’s health has waned after buying the convertible plan, he/she will still be able to avail whole life coverage that would not have been possible otherwise.
  • If the policyholder pays all premiums on time he/she can keep the policy in-force with the option of conversion later on in life.
  • You should buy a convertible policy now if you are unable to afford whole life insurance. In the future even if you are able to buy whole life insurance, your health may disqualify you from doing so. In effect, you choose the affordable insurance now while also creating a path to the lifetime option in case your insurance needs and health condition changes over time.
  • When buying convertible insurance make sure that you are aware of the time frame within which you should convert the plan. You should keep a close eye on this aspect and also on the investment part of the plan.
  • When you have a convertible term insurance policy, every year that you wait to convert will make the conversion rate go up by 10%-15%. This is because you will be moving up into higher rate bands as you grow older. If you are sure that you will be going for a conversion, it is better that you do it while you are young and in a low rate band.
Difference between convertible and renewable life insurance:
While buying term insurance plans, you may have come across schemes that are “renewable”. There is a misconception that the two are synonymous. The fact is that renewable and convertible policies are two different products.
If a policy is referred to as being renewable it means that the plan can be extended even after the end of the term. The premiums for renewal of the policy may however be much higher than the original premium. On the other hand a convertible policy provides you the ability to switch from term insurance for a specific duration to whole life insurance. Renewable plans usually do not offer this option.
TROP plans are standard term life insurance plans with a slight variation in the method of providing survival benefits. On survival, policyholders are returned the total amount of premiums paid by them during the policy tenure, excluding tax. Such a method ensures that the money spent on the policy is returned to you after a specific interval.
Key features of Term Return of Premium plans are:
  • Just like a regular insurance plan, a TROP offers a refund of the premium upon the policy’s maturity, provided that the policy holder survives till that date.
  • A TROP plan generally allows policyholders to add riders or benefits to their existing plans to increase the coverage.
  • TROP plans have a slightly higher premium amount compared to regular term insurance due to the premium repayment facility.
  • Term Return of Premium plans offer you tax benefits on the premiums paid, under Section 80C of the Income Tax Act. These plans also enable you to enjoy tax benefits on the payouts from the policy under Section 10(10D).
  • Some insurers offer returnable TROP plans. This means that if the policyholder opts to discontinue the premium payment and return the plan, the premiums that have been paid till date will be reversed. However, there will be deductions pertaining to medical examination costs and stamp duty charges. You should discuss this facility with your insurance advisor before investing in a TROP plan.
  • The policyholder has the option to stop paying premiums towards a ROP plan after a predefined duration, usually 3 years. The policy will then move into paid-up status. The death and maturity benefits in this case will be reduced by a ratio of total premiums paid to the total premiums payable under the plan.
Trops Versus Fixed Deposits:
There have been debates on the returns offered by TROP plans. There is a general belief that TROP policies have inflated premiums with respect to the survival benefits offered. Many compare TROP schemes to fixed deposits as well.
It is understood that fixed deposits (FDs) yield higher returns in comparison to TROP plans. While TROP policies pay back the full premium as survival benefit, there are no interests or other incentives offered. On the other hand, an FD account returns the principal amount and compounded interest at maturity, which is far higher than the survival benefit under a TROP plan.
But the vital life insurance coverage that TROP policies provide the life assured should not be ignored.
The insurance market is flooded with various types of policies that it often becomes difficult for the buyer to choose the best suited plan. Decreasing and increasing insurance policies are two of the commonly used terms in the insurance realm. Let’s take a look at the features and benefits of the aforementioned policies:
Decreasing Term Insurance: In this type of policy, the sum assured on death as well as the premium decreases at a certain rate throughout the policy term. Such plans are generally offered by financial institutions to insure the property held as collateral against the loan offered. It is an additional safety component which ensures that the bank will get back the amount released as loan, in case of worst scenario. The duration of the policy term can vary between 1 and 30 years.
The essence of decreasing term insurance is that a person’s requirement for high insurance coverage decreases with age, as certain liabilities do not exist beyond a point. Decreasing term insurance plans are not suitable for individuals who have no other form of life coverage. If you buy only one life insurance package, it should be a pure term insurance policy, as it would offer you a death benefit throughout the tenure.
While the main advantage of choosing decreasing term insurance is that it can be used for personal asset protection, small businesses also use these plans to insure indebtedness for startup expenses or operational costs.
Increasing Term Insurance: Under increasing term insurance plans, the insurance coverage increases at specified durations when the policy is in full force. It evaluates risks on par with the rising costs at any given time in the future and compensates accordingly. The cover usually keeps increasing till the time it attains a value which is 1.5 times higher than the original cover.
  • Increasing term life insurance policies are configured to offer respite from inflation. It also ensures that the death benefit is substantial when it is finally paid out to the nominee.
  • One of the main disadvantages of the increasing term insurance plan is that the premium increases according to the benefit. Hence, these policies get more expensive over time.
  • Increasing term insurance is less common than other forms of term insurance.
  • These plans are particularly suitable for couples who plan to have a child in the near future and would like to save up for the same.
As the name suggests, joint term insurance plans are those schemes which allow the person insured to cover his/her spouse under the same policy. It is a comprehensive financial protection solution with multiple benefits for couples. It basically ensures that the family equilibrium remains intact during hardships, or in the worst case, during the absence of one of the two or both. These policies are well suited for married couples with dependent children.
Key features of joint term insurance plans include:
  • Some joint life plans pay out on the basis of the first claim. This implies that if one of the insured members die, the sum assured is paid out and the policy ends immediately.
  • Certain joint life insurance plans offer payment at the death of each insured member.
  • Some joint life policies offer payout to the surviving member at the first death. The surviving member also receives a regular payout in the form of an income for a fixed duration.
  • Joint-life term insurance plans offer tax benefits on premiums paid and payouts received, under Section 80C and 10(10D) respectively.
  • Some plans provide additional payments if the death was caused in an accident. In-built terminal illness coverage is also offered by some plan
Joint Life Term Plans Versus Individual Term Plans:
If you and your spouse are looking to buy term insurance and are confused about the product that you should buy, you can go through this checklist to identify the right plan for you:
  • A joint-life cover will provide insurance for both spouses under the same terms and conditions. On the other hand, if you choose to purchase separate individual term plans, the policy terms and conditions and cost can be selected by each spouse on the basis of his/her insurance needs.
  • Suppose you purchase a joint-life policy with a single death payout. In the unfortunate event of an accident in which you and your spouse face death, the policy will only pay a single death benefit to your nominee. However, if you both were insured under individual term insurance plans, then the nominee would receive two separate death benefits. There is a significant difference between both options on the financial front.
  • After the first death benefit payment, the coverage under some joint-life term plans terminates. This leaves the surviving spouse without insurance coverage. Also, purchase of insurance later in life may cost more due to the age of the surviving member or him/her having developed health issues. This problem will not crop up if individual term plans were taken.
  • In the case of a joint policy, if the couple chooses to get divorced, complications would arise in the plan coverage and premium payments. This issue is avoided if term plans were taken.
  • The premium for joint-life term plans are usually lesser than that for individual policies. So, if you are on a tight budget, it is advisable to take joint life coverage. Moreover, the ease of policy management and simple documentation are additional factors that make joint-life plans an attractive option.
Regular Term Insurance Plans
A regular term insurance plan is a no-frills insurance plan that provides coverage against a specific set of risks on payment of a pre-decided premium amount. These plans offer no benefits upon maturity. Premium payments can be made periodically or they can be paid at once (single pay). The options for insurance cover can go as high as the insurer is willing to underwrite and the policy tenures can be as high as 20 years. When the policy matures, the insurance cover ceases, as does the need to pay premiums for such a cover.
This is the most basic form of life insurance protection. Regular term insurance also comes with low premiums and high sum assured. This ensures that the policyholder can receive maximum benefits from the plan in a cost-effective manner.
A convertible term plan allows the policyholder to convert his/her policy into a permanent one during the policy tenure. Some insurers provide this as an additional benefit rider while others offer the same as a standalone plan. As far as the terms and conditions have been met, converting a term life policy into a permanent policy should not be a difficult process.
The key features of convertible term insurance are described below:
  • Even before a policyholder converts the term insurance into whole-life insurance, the policy will be more expensive. The coverage offered by a standard term insurance policy and that by a convertible policy may be the same. However, the convertible insurance plan will have higher premiums, owing to the built-in cost attributed to the conversion facility.
  • Another advantage of a convertible term insurance plan is that the life assured is not usually required to appear for a medical examination while switching the plan from term to permanent. This is particularly useful because if the life assured’s health has waned after buying the convertible plan, he/she will still be able to avail whole life coverage that would not have been possible otherwise.
  • If the policyholder pays all premiums on time he/she can keep the policy in-force with the option of conversion later on in life.
  • You should buy a convertible policy now if you are unable to afford whole life insurance. In the future even if you are able to buy whole life insurance, your health may disqualify you from doing so. In effect, you choose the affordable insurance now while also creating a path to the lifetime option in case your insurance needs and health condition changes over time.
  • When buying convertible insurance make sure that you are aware of the time frame within which you should convert the plan. You should keep a close eye on this aspect and also on the investment part of the plan.
  • When you have a convertible term insurance policy, every year that you wait to convert will make the conversion rate go up by 10%-15%. This is because you will be moving up into higher rate bands as you grow older. If you are sure that you will be going for a conversion, it is better that you do it while you are young and in a low rate band.
Difference between convertible and renewable life insurance:
While buying term insurance plans, you may have come across schemes that are “renewable”. There is a misconception that the two are synonymous. The fact is that renewable and convertible policies are two different products.
If a policy is referred to as being renewable it means that the plan can be extended even after the end of the term. The premiums for renewal of the policy may however be much higher than the original premium. On the other hand a convertible policy provides you the ability to switch from term insurance for a specific duration to whole life insurance. Renewable plans usually do not offer this option.
TROP plans are standard term life insurance plans with a slight variation in the method of providing survival benefits. On survival, policyholders are returned the total amount of premiums paid by them during the policy tenure, excluding tax. Such a method ensures that the money spent on the policy is returned to you after a specific interval.
Key features of Term Return of Premium plans are:
  • Just like a regular insurance plan, a TROP offers a refund of the premium upon the policy’s maturity, provided that the policy holder survives till that date.
  • A TROP plan generally allows policyholders to add riders or benefits to their existing plans to increase the coverage.
  • TROP plans have a slightly higher premium amount compared to regular term insurance due to the premium repayment facility.
  • Term Return of Premium plans offer you tax benefits on the premiums paid, under Section 80C of the Income Tax Act. These plans also enable you to enjoy tax benefits on the payouts from the policy under Section 10(10D).
  • Some insurers offer returnable TROP plans. This means that if the policyholder opts to discontinue the premium payment and return the plan, the premiums that have been paid till date will be reversed. However, there will be deductions pertaining to medical examination costs and stamp duty charges. You should discuss this facility with your insurance advisor before investing in a TROP plan.
  • The policyholder has the option to stop paying premiums towards a ROP plan after a predefined duration, usually 3 years. The policy will then move into paid-up status. The death and maturity benefits in this case will be reduced by a ratio of total premiums paid to the total premiums payable under the plan.
Trops Versus Fixed Deposits:
There have been debates on the returns offered by TROP plans. There is a general belief that TROP policies have inflated premiums with respect to the survival benefits offered. Many compare TROP schemes to fixed deposits as well.
It is understood that fixed deposits (FDs) yield higher returns in comparison to TROP plans. While TROP policies pay back the full premium as survival benefit, there are no interests or other incentives offered. On the other hand, an FD account returns the principal amount and compounded interest at maturity, which is far higher than the survival benefit under a TROP plan.
But the vital life insurance coverage that TROP policies provide the life assured should not be ignored.
The insurance market is flooded with various types of policies that it often becomes difficult for the buyer to choose the best suited plan. Decreasing and increasing insurance policies are two of the commonly used terms in the insurance realm. Let’s take a look at the features and benefits of the aforementioned policies:
Decreasing Term Insurance: In this type of policy, the sum assured on death as well as the premium decreases at a certain rate throughout the policy term. Such plans are generally offered by financial institutions to insure the property held as collateral against the loan offered. It is an additional safety component which ensures that the bank will get back the amount released as loan, in case of worst scenario. The duration of the policy term can vary between 1 and 30 years.
The essence of decreasing term insurance is that a person’s requirement for high insurance coverage decreases with age, as certain liabilities do not exist beyond a point. Decreasing term insurance plans are not suitable for individuals who have no other form of life coverage. If you buy only one life insurance package, it should be a pure term insurance policy, as it would offer you a death benefit throughout the tenure.
While the main advantage of choosing decreasing term insurance is that it can be used for personal asset protection, small businesses also use these plans to insure indebtedness for startup expenses or operational costs.
Increasing Term Insurance: Under increasing term insurance plans, the insurance coverage increases at specified durations when the policy is in full force. It evaluates risks on par with the rising costs at any given time in the future and compensates accordingly. The cover usually keeps increasing till the time it attains a value which is 1.5 times higher than the original cover.
  • Increasing term life insurance policies are configured to offer respite from inflation. It also ensures that the death benefit is substantial when it is finally paid out to the nominee.
  • One of the main disadvantages of the increasing term insurance plan is that the premium increases according to the benefit. Hence, these policies get more expensive over time.
  • Increasing term insurance is less common than other forms of term insurance.
  • These plans are particularly suitable for couples who plan to have a child in the near future and would like to save up for the same.
As the name suggests, joint term insurance plans are those schemes which allow the person insured to cover his/her spouse under the same policy. It is a comprehensive financial protection solution with multiple benefits for couples. It basically ensures that the family equilibrium remains intact during hardships, or in the worst case, during the absence of one of the two or both. These policies are well suited for married couples with dependent children.
Key features of joint term insurance plans include:
  • Some joint life plans pay out on the basis of the first claim. This implies that if one of the insured members die, the sum assured is paid out and the policy ends immediately.
  • Certain joint life insurance plans offer payment at the death of each insured member.
  • Some joint life policies offer payout to the surviving member at the first death. The surviving member also receives a regular payout in the form of an income for a fixed duration.
  • Joint-life term insurance plans offer tax benefits on premiums paid and payouts received, under Section 80C and 10(10D) respectively.
  • Some plans provide additional payments if the death was caused in an accident. In-built terminal illness coverage is also offered by some plan
Joint Life Term Plans Versus Individual Term Plans:
If you and your spouse are looking to buy term insurance and are confused about the product that you should buy, you can go through this checklist to identify the right plan for you:
  • A joint-life cover will provide insurance for both spouses under the same terms and conditions. On the other hand, if you choose to purchase separate individual term plans, the policy terms and conditions and cost can be selected by each spouse on the basis of his/her insurance needs.
  • Suppose you purchase a joint-life policy with a single death payout. In the unfortunate event of an accident in which you and your spouse face death, the policy will only pay a single death benefit to your nominee. However, if you both were insured under individual term insurance plans, then the nominee would receive two separate death benefits. There is a significant difference between both options on the financial front.
  • After the first death benefit payment, the coverage under some joint-life term plans terminates. This leaves the surviving spouse without insurance coverage. Also, purchase of insurance later in life may cost more due to the age of the surviving member or him/her having developed health issues. This problem will not crop up if individual term plans were taken.
  • In the case of a joint policy, if the couple chooses to get divorced, complications would arise in the plan coverage and premium payments. This issue is avoided if term plans were taken.
  • The premium for joint-life term plans are usually lesser than that for individual policies. So, if you are on a tight budget, it is advisable to take joint life coverage. Moreover, the ease of policy management and simple documentation are additional factors that make joint-life plans an attractive option.
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