Level Term Plan
Level Term Insurance Plan
Level Term Insurance Definition
What exactly is a level term insurance plan? It is nothing but a regular form of term plan where the coverage amount remains constant throughout the policy period. Whether the claim is made after two policy years or 20 policy years, the beneficiaries will get the exact same death benefit. A level term insurance plan is the most popular and commonly sold variety of term insurance worldwide. There are some excellent level term insurance plans available in India as well. Take a look at this article to know all about the level term plans, how they work, what their benefits are and what are the best options available to you. Read on to get all the details.
Key Features of Level Term Insurance Plan
A level term plan has the same coverage throughout the entire tenure of the plan. The coverage does not change. The premium also remains the same for the entire tenure.
In fact, a level term plan is the purest form of term insurance plans.
Let us look at the features of a term insurance plan:
- Pure life cover -
The term insurance plans with a level cover offer a pure life cover. This means, you only get a single benefit out of the term plan - your family receives the death benefit when you die. It is a no-frill life cover that offers financial protection to your family if you die within the policy. If you outlive the policy period, there is nothing to expect in return.
- Economical -
Term plans are very economical. They offer wholesome coverage at some of the cheapest rates possible. As a result, people from all walks of life can afford to get term insurance and keep their loved ones financially protected. You can get a term life cover of INR 1 crore by paying a premium of only INR 500 a month or so. The plans are cheaper for young and fit people so you should ideally look to get a level term plan early on in life.
- Coverage for a temporary period -
Unlike a whole life insurance plan, a level term insurance plan only offers coverage for a fixed number of years. You can buy a level term plan for periods such as ten years, twenty years or thirty years. It is ideally designed to protect you for your earning years. Most people above the age of 60 do not have term plans.
- Fixed premium -
The level term insurance plans have a fixed premium for the entire tenure of the policy. Unlike the increasing or decreasing term plans, there is no alteration in the premium rate for as long as the policy is active. This helps you to have a very good life cover at a very affordable rate.
- No return component -
As stated, there is no return component in a level term insurance plan. If you live beyond the expiration date of the policy, you cannot expect to get a maturity benefit or even your premium returned to you.
- Tax benefits -
There are many tax benefits available in term insurance. First and foremost, you get a tax rebate under Section 80C of the Indian Income Tax Act for the premium you pay towards your level term insurance plan. A maximum yearly sum of INR 1.5 lacs is available as a tax discount here. Then, if you die and your family receives the sum assured, they do not have to pay any tax, as the proceeds from a level term insurance plan are completely tax-free in India.
- Option to choose payout -
When you buy term insurance, you need to choose the type of payout your family will receive after you die. There are three options available. You should choose an option that will be of optimal use to your family. Understand their financial needs, their financial knowledge, etc and then make the correct choice. The available options are:
- The lump-sum payout, where the entire amount is paid in a single installment after which the policy is terminated.
- The staggered payout, where the death benefit is broken up in small installments and paid to the beneficiaries at regular intervals.
- A combination of the two, where first a lump sum is paid to the beneficiaries right after the demise of the policyholder. The remaining part of the coverage amount is divided into installments and paid over a period of time.
Benefits of Level Term Insurance
There are several benefits that a level term insurance plan has to offer. Here a few of them:
- Easy and cheap life cover -
The biggest advantage you get when you buy a term plan is the high sum assured by paying a low premium. This is a unique benefit of term insurance that allows you to keep your life covered, even if you are on a tight budget.
- High sum assured -
You can get a high sum assured amount when you buy term insurance. The sum assured in a level term insurance plan can be as high as 20 times that of your annual income. This is a huge amount and helps you to keep your loved ones protected at all times. Of course, you have the flexibility to choose a lower sum assured as well. You should assess your needs and then get a cover that is adequate for your family.
- Extremely simple to buy -
The level term insurance plans are easily available online. You can just go online, compare the different options and make a purchase then and there. All of the leading life insurance companies in India offer term insurance plans online. If you are young and healthy, you may not even have to undergo a health check-up, which makes it even simpler to get the plan.
- Helps to save tax -
As mentioned above, the premium you pay towards your term insurance plan is tax-free. This is a good and effective way for you to save tax and reduce your tax burden.
The premium paid towards a level term plan is deductible under section 80C of the Income Tax Act till INR 1.5 lakhs a year.
- Easy to understand -
Since a level term insurance plan is a very straightforward form of life insurance, it is a very easy-to-understand insurance product. The terms and conditions are lucid and anyone can understand them. This makes it simple for you to understand the clauses of the policy before you buy the cover.
- Riders are available -
Like in all other forms of life insurance, in level term insurance too, you have the option of adding a few riders to your base plan. The term insurance riders make the policy more custom-made for you and cater it directly to your needs. This makes it all the more beneficial. The riders are available at an added cost. The critical illness rider, the waiver of premium rider and the accidental death benefit rider are some of the common riders you can buy along with a level term insurance plan.
These benefits prove just how useful it is to have a term insurance plan. A level term insurance plan offers all of the above-mentioned benefits and so you should definitely consider getting a level term insurance plan if you have not done so already.
What is Covered?
You can only expect to get some basic covers under a level term insurance plan. They include:
- Life cover - You get a very good term life insurance coverage when you buy a level term insurance plan. This is an excellent form of life insurance as you get a high cover at a very low price. You get to create a fund for your loved ones and ensure they don't fall into finally trying times after your demise. This is the best possible coverage you get when you purchase a level term insurance plan.
- Add-on covers - Apart from the base life cover, you can also get some add-on covers, also known as riders, with the level term insurance plans. These riders allow you to increase the scope of the cover. You can buy the critical illness rider, the accidental death benefit rider and the waiver of premium rider, among others. You must note here that you have to pay an extra premium if you opt for riders along with your level term insurance plan.
These are the helpful covers that make a term life plan very beneficial and handy.
What is Not Covered?
There are a few things that you do not get when you have a level term insurance plan. They are:
- Maturity benefit - The maturity benefit, that is available on other types of life insurance plans, upon the completion of the policy period, is not present in a level term insurance plan.
- Return of premium - You do not get a premium return if you outlive the tenure of the level term insurance plan.
- Claim because of suicide - If the policyholder dies within the first year of the plan by committing suicide, the death benefit will not be paid out to the beneficiaries.
- Claim because of unnatural death - If a claim is made after the policyholder’s death due to unnatural causes, then too, the claim won't be honoured.
Keep these points in mind before you buy a level term insurance plan so that you and your family can avoid disappointment later on.
How Does Level Term Insurance Plan Work?
A level term insurance plan works in a very simple and straightforward way. You buy the plan, pay the premium, buy some riders, enjoy the tax benefits and if you die, your family makes a claim and receives the death benefit. If you outlive the policy period, the plan simply terminates and the contract between you and the insurance provider comes to an end. Let us take a more detailed look:
- Buying the plan - The process of buying a term plan with a level coverage is extremely easy. You can go online and buy the plan directly from the insurance provider’s website. You can also buy the plan from an insurance aggregator’s portal. Alternatively, a level term insurance plan can also be bought offline through a life insurance agent. Once you buy the plan, you need to [ay all the premiums on time in order to keep the life cover active.
- Riders - You can add term insurance riders to your insurance cover. These will help you to increase the scope of the coverage. Riders push up the overall cost of the policy, so make sure you only choose the riders that are of greatest use to you.
- Claim Process - The term plan claim process is very straightforward. First of all, the nominee needs to inform the insurance provider about the demise of the policyholder within 24 hours of his/her death. Then, the claim form needs to be filled and submitted, along with the required documents.
- Tax Benefits - There are some tax benefits to receive from a level term plan. The premium you pay for such a plan is tax exempted, up to a maximum yearly sum of INR 1,50,000. Then, the death benefit received is also tax-free. This makes the term plans very beneficial.
Who Should Opt for Level Term Insurance?
There are many people who benefit from term insurance. Some of them are:
- A person with dependents - If you are a person who has many dependent family members, such as a spouse, kids, parents and parents-law, you could benefit from buying a level term insurance plan. If you are the sole breadwinner of the family, your family will need a source of income after your death. A term plan can come in handy at such a time.
- A young parent - Young parents, thinking about the future of their kids, should positively opt for a level term plan. If anything were to happen to the parent, the children would still have the support to carry on with their education and their lifestyle, thanks to the sum assured received from the level term insurance plan.
- A housewife - A housewife does many jobs at once. From taking care of the house to raising kids, her contribution to the family is immense. If she does, the family will have to hire a housekeeper, a cook, a nanny, a driver, etc. These will require a lot of extra money and so the proceeds from a term plan will come in handy.
- A person with a large loan - If you have a large loan, take a term plan to cover it. If you die, your family can use the death benefit to clear the loan. They will not have to bother about arranging for the loan themselves in such a scenario.
If you fall in any of the above categories, you should surely opt for a level term insurance plan.
Which is better: Level or Decreasing term plan?
|Level Term Insurance||Decreasing Term Insurance|
|Coverage||There is a fixed life cover. From the first day till the last day of the policy tenure, the sum assured remains constant.||The life cover goes down as the years go by. It begins with a fixed sum and then, after every policy year, the sum assured decreases by 5%. This goes on until the balance is zero.|
|Premium||There is a steady premium throughout the policy period.||The premium of a decreasing term insurance plan is steady as well.|
|Suitable for||The plans are suitable for family heads, people with loans, housewives, etc.||The plans are suitable for those who take large loans and mortgages. It is also suitable for people who have familial responsibilities and look for a cheap form of life cover.|
Based on one’s situation and needs, and after checking the advantages of each along with the financial goals, one should make a decision about which type of term insurance policy is suited for him/her.
Best Level Term Insurance Plans in India (2020) (Table along with CSR)
Here’s a look at some of the best level term insurance plans in India:
|Name of plan||Brief description|
|LIC e-Term Insurance Plan||This is one of the very best term insurance plans available in India. It offers coverage until the age of 75. It covers death in all forms, including accidents.|
|ICICI Prudential iProtect Smart Term Plan||Another excellent level term insurance plan, this has an in-built terminal illness cover. The minimum sum assured available is INR 8 lacs.|
|HDFC Click 2 Protect 3D Plus Term Plan||This is one of the most flexible term plans available in the country, with nice types of coverage offered. The plan can be bought for a duration as long as 40 years or as short as 5 years.|
|Max Life Online Term Plan Plus||The Max Life Online Term Plan Plus is a very beneficial term cover that can be purchased for a maximum tenure of 35 years. The plan is available for some NRIs as well.|
|SBI Life eShield||The SBI Life eShield plan is a highly sought after term plan that offers coverage at some of the cheapest rates. You can buy this plan for a maximum tenure of 30 years.|