Hired your bodyguard yet?

Imagine an umbrella. It shields you from the downpour as well as the burning sun rays.

Similarly, life insurance can act as an umbrella. It offers financial protection to families and loved ones going through a tough time.

What life insurance does is...
In case of an unfortunate death of the insured (person covered under the life insurance policy) during the policy tenure, death benefits are paid out by the insurer to the nominee. However, if the insured outlives the policy tenure, then survival/maturity benefits are paid out by the insurer.

But when compared to term plans, such traditional life insurance policies (that offer survival/maturity benefit) have high premiums and do not provide adequate life cover often.

What are term plans?
Pure risk term plan, or simply term plan, is a type of life insurance without survival/maturity benefits. They come with cheaper premiums. If the insured outlives or lives past the term life insurance, the coverage ends.

Term insurance can be understood through a scenario where you hired a bodyguard and paying a certain amount to him to take care of your loved ones when you are not around anymore (only during the given period of time you hired him for), and once the duration of his service is over, he goes back to his company. The premium paid is the salary he got during the policy term. The duration throughout which the bodyguard stays may differ based on what you choose.

Now let us learn a few terms related to term insurance plans. Here, term Insurance is personified as the bodyguard.

• Entry age: As the name suggests, it's the age at which you are eligible to hire the bodyguard. Mostly it is between 18 to 65.
• Sum assured: It's the amount that the family gets after the death of the insured. Just think of this as something directly proportional to the strength of the bodyguard. With house loans, and debts you may need a very strong bodyguard and hence his salary (your premium) will increase.
• Policy term: It's the time period for which you hire your bodyguard.
• Premium payment term: It is the total period for which you have to pay the salary (premiums) to the bodyguard. It could be single pay, limited pay or regular pay.
  Let's understand the difference between policy term and premium payment term with the help of an example.
  
  Suppose, you hired your bodyguard for 10 years but you paid him (his salary, your premium) the very first day, this is called single pay. If you paid him the same amount in the first five years (either monthly/half-yearly/annually), then it is called limited pay. If you just pay him for 10 years, i.e., the same duration as your policy term, then it is called regular pay. This is what the premium payment term is like. The policy term is the total duration for which you hired the bodyguard, 10 years in this example.

• Premium payment frequency: It is the number of times you are paying your bodyguard. It could be monthly, half-yearly, yearly, or single pay. It may vary depending on how you choose it to be.
• Grace period: Even if you forget or miss to pay the bodyguard's salary (your premium), he will wait for a few days before coming to you and asking you for his bread and beer. In case of an annual premium payment, the grace period is 30 days. After the grace period is over, the bodyguard may even choose to withdraw his services. Of course, you can still continue his services by paying some penalty and the outstanding salary.
• Free look period: If you hired the bodyguard and for some reason, you feel like he is not strong enough to take care of your family (or it could be just because you don't like his hairstyle), you can send him back to his website/agency or wherever he came from. Free look period is the duration when you can cancel your policy without any penalty. Generally, this duration is 30 days if the bodyguard was hired online, and 15 days if hired otherwise.
• Riders: These are additional benefits which you choose with your plan so that it covers a variety of scenarios, like an accident. Think of this as asking the company (insurer) to provide you a bodyguard with accessories - like a suit or shades or a helmet or maybe all three. Riders will obviously add a minimal amount to your premium. Some examples of riders are accidental death benefit rider, waiver of premium rider, critical illness cover, accidental total, permanent disability rider, etc.

Suggested read: Guide to buying life insurance online