Term insurance, which is essentially life insurance, usually has many varieties. This is basically used as a life cover and comes in many different forms and tenures. There are plans with a tenure of 5 years, and there are plans for tenures up to 20 years. These are the normal tenures offered.
The term insurance, which is the one you need, depends on several actors. The first is what is the premium you can afford to pay each year? This is the first step. Once the premium has been decided, after careful checking, then the sum assured can be calculated Calculating the sum assured has several factors which must be considered. The first is the age of the applicant. The younger the applicant is, the lower the premium. Therefore if the applicant is young, then the premium can get a higher sum assured. Older people will have to pay a higher premium, and this means a smaller sum assured will have to be accepted. While the premium can be paid quarterly, half-yearly or annual, it is necessary to see whether this amount of money is available each year. A young person who has started working has a long working life ahead of him, and he can therefore be more or less sure of paying the premium for the entire term. Older people need to be careful. The other factor is what sort of term should the insurance be for. If a young person in his twenties or early thirties is the applicant, he can take a long tenure and a policy with a shorter tenure. The thing is to figure out the exact goals which the applicant has in mind. The normal term insurance plans are basically a life cover, with a fixed premium to be paid every year. Tenures are usually from 5years to 20 years. The only feature of this policy is the life cover. Depending on the age of the person, this sort of cover can be used as an instrument to save money and get a lump sum at a specific time in the future. This can be for higher education expenses of siblings or marriages. Both these need large sums, and a policy which matures at about the time when these events are due makes sense. For older people, however, the term must be decided on the basis of short term needs. A lump sum after 5 years may be of use for various things. This depends on the age of the applicant. Nowadays, term insurance is available for people up to the age of 65 years. At that late age, a short term policy makes sense or a policy which offers a pension plan. Term insurance is a savings, and at maturity, the amount receivable includes interest and bonus. Therefore the amount at maturity is larger than the total premium paid. The younger the applicant, the more the benefit. However, there is the ULIP or unit-linked insurance plan for younger people. This is a plan whereby the applicant gets a life cover and has an opportunity to invest in market instruments. Therefore there is a dual benefit. The applicant decides the investment portion, and the insurance company uses that portion to invest in the market on behalf of the applicant. This means that the premium can ct as an investment vehicle as well as a protective life cover. However, this sort of insurance is more beneficial to younger applicants. Tax relief is also a part of this term insurance plan.
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