Term Insurance is meant to be simple and straightforward. Your family gets paid if you pass away during the policy term and in no other case (no maturity value). In return, the premiums are extremely low. However modern day term insurance policies come with a host of features and add-ons. Some (though not all) can be confusing and can unnecessarily increase your cost. Here are some of the common features you will be offered and some help in making a decision about them:
Waiver of premiums
This feature keeps your life insurance policy alive and waives future premiums if you become disabled in a significant way or if you meet with a critical illness. This is a useful feature because your income often stops or reduces if you become disabled/ill and you may not be able to afford insurance premiums. This can cause your existing policy to lapse and you to lose out on the life insurance cover that protects your family.
- Critical Illness Benefit
This feature typically pays a fixed sum on the diagnosis of a critical illness like heart attacks or cancer. It pays you this fixed sum regardless of the medical cost you actually incur and is hence different from medical insurance or mediclaim. You don’t have to submit hospital bills for reimbursement. Your life cover stays intact even after you have been paid the critical illness benefit and you survive the said illness. Hence if you subsequently die due to some other cause, your family will be paid the life insurance amount.
Accidental Death Benefit
This feature pays out a higher amount if you die as a result of an accident. Although this feature sounds good on paper, there is a little logical basis for getting paid a higher amount due to accidental death. The consequences of death are equally severe, regardless of the cause and hence this feature is more of a marketing tool than a useful add-on.
- Income Option
This feature allows your family to take some of the insurance payment as income instead of a lump sum. This is a very helpful feature because it spares them the need to manage a huge sum of money and generate income from it. Furthermore, the income paid by the life insurance company will be exempt from tax under Section 10(10)(D).
Return of Premiums
This feature, as the name suggests, returns the sum total of all the premiums you have paid back to you at the end of the policy term. It is a ‘money back’ feature and addresses the concern many people have of having ‘wasted’ their insurance premiums when they survive. Although useful, you should note that the total premium amount after 15-20 years will be much lower in real terms due to inflation.
Note that these optional or additional features usually come with higher premiums. Hence, even if you like a particular feature you must decide if it is worth the higher cost.