Level Term Insurance

What is Level Term Insurance?

With the emergence of the Coronavirus pandemic in India and across the world, term life insurance is experiencing increased acceptance among people. Term insurance is available in various forms to suit customer needs. Understanding the different types of term insurance is essential before browsing for suitable plans. This article focuses on Level Term Insurance, often considered one of the simplest and most affordable term insurance options.

A Level Term Insurance Plan guarantees fixed premiums for the coverage amount decided at policy inception. This essentially means that the Sum Assured under the policy and the premium payable against it remain constant throughout the tenure of the policy. It is a pure risk cover, and upon the death of the policyholder, the beneficiaries are entitled to receive the death benefit without any deductions (such as in the case of Decreasing Term Insurance) or increments (as in the case of Increasing Term Insurance).

Features of Level Term Insurance

• Premium amount is fixed throughout the policy term.
• Sum Assured remains constant.
• Death benefit is payable if it occurs within the policy term.
• There is no maturity benefit.
• Policy period can range up to 10, 20, or 30 years.
• Tax benefits under Sections 80C and 10(10D).

How Does Level Term Insurance Work?

Level Term Plans are standard term covers that charge a fixed premium to insure you for a specific period. The premium amount is decided by insurance providers based on factors such as age, annual income, medical health, and other needs and liabilities.

The working of a Level Term Insurance Plan is straightforward. The following pointers should guide you through the process:

• Decide the coverage amount (Sum Assured), policy term, and death benefit payout option.
• Pay premiums on a monthly, quarterly, half-yearly, or annual basis.
• Upon your unfortunate demise, the death benefit is paid out to the beneficiaries as a lump sum amount or in installments.
• If you survive the policy term, the insurer is not liable to pay any benefits, unless you chose the ‘Return of Premium’ option at policy inception.

Example of Level Term Insurance

As an example, let’s consider Aryan who bought a level term insurance policy for a Sum Assured of ₹20 Lakhs. He chooses a policy tenure of 30 years and pays the corresponding premium amount on a monthly basis. In the event that Aryan dies under unfortunate circumstances, Aryan’s mother, who is the primary beneficiary, is required to intimate the insurance provider and raise a claim. Upon successful verification of the claim, the insurance company is liable to pay the death benefit of ₹20 Lakhs to Aryan’s mother.

Why Should You Choose Level Term Insurance?

Level Term Insurance offers numerous benefits. In addition to being affordable, it is simple to understand with no hidden costs or surcharges. The following points highlight the various advantages of such insurance plans:

Advantages of Level Term Insurance

• Assured Financial Protection

  Your dependents can use the payout from level term life insurance to cover financial commitments. This can help your loved ones and family members manage ongoing bills, college fees, loan/mortgage payments, or any other financial obligations you may have.

• Constant Premium Amount

  The policy’s premium does not change. The life insurance company is legally prohibited from increasing your premium during the policy term. Even if your health significantly changes, the insurance company is required to protect you for the agreed amount until the policy matures. People prefer such policies because they help in adhering to a budget. With fixed premiums, the life assured knows exactly what they need to pay every month, quarter, or year.

• Tax Benefits for the Insured

  Policyholders of Level Term Insurance can enjoy tax benefits under Sections 80C and 10(10D) of the Income Tax Act, 1961. Furthermore, the death benefit received by the beneficiaries is tax-free.

• Affordable and Easy-to-Understand

  Buying term insurance is extremely cost-effective and affordable for individuals. Purchasing a term plan is no longer a tedious task; one can easily buy an online term plan based on their requirements.

• Enhanced Protection Through Riders

  Additional optional benefits such as critical illness, accidental death/disability, or Accelerated Sum Assured are also available under the term insurance policy. These benefits can be added to the term plan by paying an additional premium amount. Examples of additional riders include Critical Illness Rider, Waiver of Premium Rider, and Accidental Death, Permanent/Partial Disability, and Dismemberment Rider.

Level Term Insurance: Comparison with Other Term Plans

Disadvantages of Level Term Insurance

While Level Term Insurance offers several advantages, it also has certain disadvantages:

• Premium Increases on Renewal: When you renew, premiums might increase, especially as you get older, making it pricier in the long run.
• No Cash Value or Investment Component: Unlike other life insurance policies, Level Term Insurance does not accumulate cash value. This means you will not receive any returns if no claim is made during the policy term.
• Limited Term Coverage: As this insurance is for a limited term, coverage ceases upon expiry. You will need to purchase a new policy, and the premium rate may be higher due to increased age.
• Potential Renewal Complexities: If you develop health problems or age significantly, renewing the policy can become more challenging, difficult, and costly.
• Limited Flexibility: The sum assured is fixed for the policy tenure. If your requirements change over time, you may need to invest in another policy or rider.

Conclusion

Level Term Insurance is a simple and affordable form of life insurance that provides financial security to the insured's family. It typically comes with policy tenures of 5, 10, 20, or 30 years. The insured can choose the policy tenure based on their financial goals. Consistent premiums and coverage make it convenient for budgeting. Additionally, it offers tax benefits, and coverage can be enhanced with optional riders.

However, before making a decision, it's crucial to consider its disadvantages, such as potential premium increases upon renewal and the absence of cash value or an investment component. Weighing the pros and cons against your specific requirements and financial goals is essential.