It's an Insurance only product without the complexities and high costs associated with traditional permanent policies. Term plans have no investment component and provide insurance cover only. Term life insurance is the original form of life insurance and is considered to be pure insurance protection because it builds no cash value. This is in contrast to permanent life insurance such as whole life, ULIP, Endowement plan etc. If you have a family or dependents, term insurance is a must. Term insurance provides death protection to the owner of the policy or to the beneficiary / beneficiaries named in it should the insured die within the term of the policy. No other policy will offer you as much value for money as this one. Let's say your current age is 30 years and you bought a term insurance policy for Rs 25 lakh. The term of the policy is for 20 years. If you pass away during this period, your family will be richer by Rs 25 lakh. But, if you outlive your policy, all your premiums (money that you pay to the insurance company to maintain your policy) would have gone down the drain. Term plans have many attractive features.
Term plans provide life cover for different periods or terms at the lowest possible premium. For instance in the above illustration a person can get a Rs 25 lakh cover for an annual premium of Rs 5,505 for 20 years, a coverage that will cost him about Rs 1,12,850 and Rs 197,300 in endowment and money-back policies, respectively.
Term plans are especially beneficial for young people with dependents. Low premiums set you free to invest in high-growth assets such as equity, equity mutual funds, real estate etc.
Income and assets are generally not high in the early stages of one's career or marriage, but there may be dependents to care for. Later on, as assets build up, one can withdraw from this facility. As the premium is low, it is easier to keep the policy running even during career breaks. The drawbacks of term plan are as under:
Cover is for a fixed term.
The cost of cover increases with the insured's age.
There are no bonuses and no cash value to accumulate within the policy.
The policy lapses unless the premiums are paid.
