After retiring from his job, Shambhunath, 65, wanted to purchase a term insurance policy, which would provide death benefits to his family. But he had a history of lifestyle diseases like diabetes, hypertension and elevated cholesterol levels. As the diseases would be found in the medical check-up prior to finalising the policy, Shambhunath was perturbed. He desperately wanted to leave something for his family. Then, one day, during morning walk, he met his friend Raghu. When he expressed his concerns to Raghu, the latter told him about guaranteed term life insurance, which did not have any health requirements. A day later, Shambhunath took the policy.
Before understanding guaranteed term life insurance, one must know about term life insurance. A term insurance is a specifically designed life insurance policy that protects an individual’s family and provides them financial security in case of any eventualities. Like most insurance plans, an individual pays a premium for a given term. If the individual passes away during that term because of an accident or due to health reasons, the nominee is assured a death benefit equal to the value of the plan.
Differences between term insurance and guaranteed term life insurance:
- Health qualifications: In a term insurance policy, the premiums are calculated on the basis of the health conditions, the life expectancy and the age of the individual. Insurers often ask the individual to conduct a medical check-up prior to finalising the policy. But in the case of guaranteed term life insurance, there are no medical exams or health questions. Even if any policyholder has a debilitating health condition, one can purchase this policy. A major benefit of guaranteed term life insurance is that an individual cannot be rejected on the grounds of health. An individual neither requires to be in perfect health conditions, nor is the insurer compulsorily required to conduct a thorough medical examination.
- Premium: The amount of premium is decided after analysing a slew of factors, including the age and health condition of an individual in the case of a term insurance policy. This makes the premium affordable. In the case of guaranteed term life insurance, however, an individual requires to pay more premium as prior medical tests were not conducted. This makes the insurance plan more expensive.
- Death benefits: Guaranteed term life insurance pays lesser death benefits to the family as against regular term insurance policies. In most cases, the death benefits are little more than the expenses required to cover those incurred in conducting the last rites of a policyholder. But, as conducting the last rites of a deceased in India is often expensive, this policy would provide the requisite financial resources to the family.
- Graded benefits: In the case of a regular online term insurance , a lump sum amount is paid to the family after the demise of the policyholder, but there is a graded benefit clause in the case of any guaranteed term life insurance plan. This means that the beneficiaries would not receive a full death benefit until the individual’s policy has been in force for a specific length of time. This may range from 1 year onwards. Some insurance companies limit the death benefit to 25% of the assured amount if death occurred in the first year of policy ownership, 50% in the second year, 75% in the third year and 100% in the fourth year. This practice prevents immediate large payouts for critically ill individuals who may wish to sign up for a policy just in time for their loved ones to receive a death benefit.
Benefits of guaranteed term life insurance: Individuals with health ailments can purchase this policy. But there are other benefits as well. The key benefits of a guaranteed term life insurance, include a simplified writing procedure, and tax-free death benefit to the policyholder’s family. Death benefit pay-outs to the nominee are exempt from tax under Section 10D.It is a valuable financial instrument for the elderly as an individual, who is otherwise ineligible for regular term insurance plan can avail this policy, and provide some financial resources to the family as death benefits.
Conclusion: If an individual has health ailments, and can not avail a regular term policy, guaranteed term life insurance is the best choice. Before taking a final decision, one must read the details and fineprint of the policy documents of different insurance companies to assess the benefits of the guaranteed term life insurance plan. Many insurance companies provide additional riders to the policy like accidental death benefits. One must also consider other key features like lifetime coverage, where premiums are required to be paid up to a certain age along with earlier payouts if the policyholder is diagnosed with a terminal illness. You can also opt for Future Generali Flexi Online Term Plan , which is not a guaranteed term plan, but a cost effective solution to your term insurance needs.