Most people nowadays go for a term plan to get a life cover for protecting their loved ones. What is a term plan? It is a type of life insurance where you get a sum covered for a fixed period. When compared to other types, term plans have low premiums and high coverage. When you buy a term plan, it is important to be aware of the choices you have, as there are different term plans available. Read on to understand what a decreasing term plan and its benefits are.
Meaning of decreasing term insurance
Decreasing term insurance is a type of life insurance, where, as the policyholder grows older, the coverage decreases. Individuals choose this insurance with the view that as they age, their liabilities and dependencies decrease. Hence, they might not need a huge life cover in the later stages of life. With decreasing term insurance, since the life cover decreases over time, the premium is lower than a standard term plan.
Components of a decreasing term plan
Decreasing term insurance is quite simple to understand. Here are the components of decreasing term insurance that differ from regular term insurance:
Decreasing life cover
When you buy a decreasing term plan, you need to know well that the sum covered by your life insurance company is going to reduce overtime. The reduction can happen either annually or monthly. By the end of the tenure of the term plan, the sum assured will reduce to zero. It is essential to be well-aware of this while choosing the tenure and sum covered in your plan.
Choose an adequate sum cover
As your sum cover is going to reduce overtime, ensure that the amount you choose is sufficient over the course of time. Take into consideration the duration that it will take for you to repay your outstanding debts and then choose a tenure and sum assured accordingly. Buy a term insurance plan such that in the case of your unfortunate demise, your loved ones should have sufficient cover for your dependencies and liabilities.
Affordable premiums
Since your coverage is reducing over the years, the premiums that you pay on a decreasing term plan are less than the standard ones. Use a term insurance premium calculator online to find the premiums and coverage that different insurance companies offer. Also, remember that when you opt for decreasing term insurance, your premium does not decrease over time. It is a fixed amount that was decided since the beginning of the policy.
Perks of choosing a decreasing term plan
A decreasing term plan strikes the balance that a policyholder needs between sum assured and financial needs. It adopts through the different stages of the life of the insurer.
A balanced coverage
The coverage a policyholder chooses depends upon their income, liabilities, and dependencies. As you age, usually the liabilities decrease over time, and income increases. Hence, the coverage that you choose in your youth will not be needed at an older age. It offers optimum coverage in different stages of your life. If most of your family members are financially independent, a huge cover may not be needed.
Affordability
Since the sum coverage of a decreasing term plan reduces over time, the premiums are quite lower compared to a regular term plan. It is an affordable option to go for as you can get sufficient coverage for low premiums. The premium is also constant throughout the tenure so you can plan accordingly. Use a term insurance premium calculator for getting an estimate on the premiums based on your age, gender, health conditions, income, and other factors.
Helps in managing liabilities
In your earlier years, you may have taken loans and debts to improve the quality of your life. Be it buying a house or your child’s education, these loans may cease to exist over the years. Hence, when you buy term insurance, you may need insurance that covers these liabilities. However, over time, you may require a lesser cover as your debts reduce. A decreasing term plan ensures that your debts do not bother your family.
Just like standard term insurance, decreasing term insurance also offers tax benefits under section 80C of the Income Tax Act. The premiums that you pay on your decreasing term insurance are exempt from taxes. Also, ensure that you choose an insurance company that has a credible track record and holds an excellent reputation.
