What Nobody Talks About Term Insurance: Convertible Term Plans
There are different types of life insurance plans available these days. Among them, the most popular ones include the endowment plans and the term insurance plans. The term plans are much in demand simply because they offer a large cover at a low cost. People from all walks of life find it easy to buy term insurance and to keep their loved ones protected. However, as a person ages, his or her life situation changes and the requirements form term insurance change as well. A 65-year-old widower, whose kids have become financially independent, doesn't require a term coverage of INR 25 lakhs anymore. At such times, the convertible term plans come in handy. These are plans that can be converted to whole life insurance plans after a period of time. Take a look at this article to know more about the convertible term plans and why you should consider getting such a plan.
What is term insurance?
Term insurance is a form of pure life cover. You pay the premium and in return, the insurance provider offers to pay a sum assured to your nominees if you die within the policy period. If you survive the entire tenure of the plan, you do not get anything in return and the policy terminates.
What is a convertible term insurance plan?
A convertible term insurance plan is a type of term plan where you can get the policy converted into an endowment or whole life plan after a certain period lapses. For example, you buy the policy for 20 years, the first 15 years it will be a regular term plan. The premium will be low and if you die, your nominee will receive the sum assured. For the last 5 years, you can get the plan converted into an endowment plan and enjoy the benefits such as a return component.
Features of a convertible term insurance plan
There are certain features that make a convertible term insurance plan unique and different from a regular term insurance plan. They are:
- Basis of conversion -
Usually, the conversions are available under two schemes. Under the first scheme, the conversion option is already included in the policy when you purchase it. Under the second scheme, you need to get the option as an add-on cover by paying a slightly higher premium. However, to kick start the conversion, you need to inform the insurance provider. In other words, the term plan will not automatically become an endowment plan unless you formally request the insurer to convert it. And you can only put in the request if the conversion option is available under the policy.
- Premium -
The premium of a convertible term insurance plan is a little bit higher than the regular term insurance plans. However, when you convert a term plan into an endowment plan and the benefits increase, the premium doesn't change and this proves to be a huge benefit.
- Underwriting -
At the time of conversion, no fresh underwriting is done. Even though the policyholder is older and may have a riskier profile, the coverage continues on the same terms and conditions as before.
- Tax benefits -
All the standard tax benefits under Section 80C of the Indian Income Tax Act are available in the convertible term insurance plans as well. You get a yearly tax rebate of up to INR 1.5 lakhs for the term insurance plan you pay.
- Add-on covers -
All the regular life insurance riders such as the critical illness rider, the disability rider, the waiver of or rider, etc are available along with the convertible term insurance plans too.
Benefits of buying a convertible term insurance plan
You get several benefits when you buy a convertible term life insurance plan. First and foremost, you get to enjoy the benefits of a return component and the maturity benefit when the plan comes to an end. Then, you get these added features without having to pay a higher premium. Also, you get a higher and better cover at an older age without having to undergo any medical evaluation. This is a major benefit as if you were to buy a new life cover at such a stage of life, you would probably have to pay a much higher premium.
If you plan to buy term insurance, do check out the convertible term insurance plans. Most of the leading life insurance companies in India offer convertible term plans. Run a comparison between the available options and then choose your ideal cover.