The first thing to understand is what a term insurance plan is all about. It is basically a life insurance plan that offers a life cover paid out to the nominee of the insured person upon his untimely or accidental death. The sum assured will be paid even if a single premium has been paid. Term plans are a way to protect the family of the main earning member from facing financial issues in the event of the member's sudden death. These policies are for various terms, and the premium depends on the quantum of the sum assured and the term of the policy.
Which particular policy will suit your needs depends on several factors. The first is what kind of premium you can afford to pay annually. The premium has to be paid annually. However, you can opt to pay on a half-yearly, quarterly, or annual basis, depending on your cash flow situation. In fact, it is advisable to take several smaller value policies instead of a single large policy. The benefits are that the premiums are smaller and can be staggered over several months. This means that a large amount of premium does not become due. Sometimes the necessary funds may not be available to meet the premium amount. This leads to a default in the premium payment. Delays will mean interest payments. In a severe financial crisis, the premium payment of a large amount may become difficult to pay. Therefore check to see what premium is affordable first.
The second issue is the term of the policy. Generally, the minimum is about 5 years. If you foresee the requirement of lump sum funds for a particular purpose at a certain time in the future, it is wise to take a tenure which repays at that time. This may be for the education of siblings, or marriage of a daughter or purchase of property etc. remember that the longer the term, the lower the annual premium and the larger the returns.
Once the premium amount affordable is decided, it is time to look at some of the types of term insurance plans available.
There is the basic plan which means that you continue paying the premium, and at maturity, you get a return which includes interest and a bonus. On the death of the insured before maturity, the sum assured is paid to the heirs or nominee of the insured person.
There are term insurance plans which offer money-back benefits. This means that the insured gets a certain amount after a period of time. This, of course, reduces the ultimate value of the policy at maturity. But if there are requirements for these sums at certain periods for various needs, then this plan can be opted for.
Certain term plans have the option to convert a regular term plan into a pension plan if the insured so desires. This can be done during the tenure of the plan.
Then there are plans where the sum assured can be increased on a yearly basis with the premium remaining the same. However, such term plans attract a higher rate of premium.
Therefore, the best term plan is the one which has an affordable premium, a favourable term and ultimately repays a good sum at maturity of the policy. However, if there are requirements for funds at intervals, the money-back plan is suitable. Check to see what maturity value is offered and the quantum of premium that needs to be paid.
