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What is Term Insurance?
A term insurance policy is a simple type of life insurance that provides financial security for a predetermined amount of time. If you pass away within the term of a term insurance policy, the nominee will be compensated financially.
Term life insurance is designed to only pay out money if the policyholder passes away during the term. If you live out the duration of this policy, you will not receive any money back. If you want to receive your premiums back once the policy term expires, you can select term insurance with return of premium.
When you purchase term insurance, you pay recurring premiums in return for a monetary payout to your designated beneficiary in the case of your untimely death.
For instance, 30-year-old Akshay chooses to pay about ₹12,000 a year for a ₹1 crore term insurance for 30 years. Akshay’s family will get ₹1 crore if something occurs during those 30 years. Unless there is a return of premium feature, the policy simply expires otherwise.
How does Term Insurance Work?
Policy Purchase
Ajay finishes his health evaluation, gets tested, and begins making premium payments.
During Policy Term
He keeps paying the premiums to keep the life insurance.
Death during the policy term
The tax-free death benefit amount of Rs. 1 crore is given to Ajay's beneficiary/nominee, his wife, in the event that he dies within the policy's term.
Outlives the policy term
On Ajay's 60th birthday, the term plan's coverage expires. Ajay would have received all of his premiums back if he had chosen the term plan return of premium option.
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Why Should You Buy A Term Insurance Plan?
Financial protection for the family
If the policyholder dies sooner than expected, the term insurance plan helps because it gives the family a lump sum payout. In practice, it lets them carry on with their day-to-day living and cover various financial duties.
Affordable premiums
Plans for term insurance are typically affordable. For example, a ₹1 Crore life insurance policy is affordable for people of all income levels, starting at ₹501 per month.
Tax benefits
Term insurance gives financial security too, and it can also help with taxes. For the GST part, there is 0% GST on term plans, so they end up more cost-effective. Also, policyholders may take tax deductions9 on the premiums paid, under Section 80C of the Income Tax Act, which supports those long-term savings.
Coverage against critical illnesses
In order to ensure complete protection, many term insurance plans offer riders10 that offer extra coverage against serious illnesses.
Debt repayment support
The sum promised can be used to settle outstanding debts in the event of the policyholder’s death, relieving the family of financial hardship.
Income replacement
The dividend can help sustain the family’s standard of living by paying for both short-term and long-term costs.
Long-term financial stability
It becomes a fundamental component of financial planning, providing stability across various phases of life.
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Who Should Buy Term Insurance Plan?
Newly married people
Term insurance might assist shield your spouse and kids from financial difficulties while you are away. Selecting the top term insurance plan in India can provide them with the money they need while you’re away.
Single earners
A term life insurance policy is crucial if your family is solely dependent on your income. It provides your family with a certain amount in the event of your untimely death. Selecting the best term policy in India guarantees that you will receive the appropriate coverage at a reasonable price.
Individuals with existing loans
A term insurance policy helps guarantee that your family won’t be burdened with repayments if you have a home or personal loan.
People with other debts
If you have student loans or auto loans, a term life insurance policy helps your family manage those costs even while you’re not around.
Business owners and self-employed
Term insurance is a useful tool for business owners to safeguard their company and loved ones. It also aids in handling unexpected business losses.
Women and homemakers
Women are increasingly making more money. They can safeguard their family’s future with a term life insurance policy. In order to support their roles in the home, homemakers can also obtain coverage.
Retired and near-retirement individuals
Term life insurance keeps your dependents financially stable if you are retiring but still have them.
People with elderly parents
Purchasing the greatest term plan will allow older parents live worry-free in the event that something were to happen to you.
Taxpayers
As part of your financial planning, you might be able to reduce your annual taxes by purchasing a term insurance policy. You can choose a term plan that meets your long-term needs and income by comparing the best ones.
Types of Term Insurance Plan
Level Premium Term Insurance Plan
In this kind, the basic sum assured or life cover stays the same through the whole tenure of the policy. You pay a steady monthly or annual premium throughout, and nothing changes.
Year Renewable Term Insurance
Here, you have to renew the policy every single year. And the premium keeps rising each year because your age goes up too, so the cost becomes higher over time.
Decreasing Death Benefit Term Insurance Plan
With this term insurance, the death benefit reduces, following a fixed schedule. People often choose it alongside a home loan. Since the loan principal comes down gradually with time, the life cover in the term policy also comes down in a similar way.
Increasing Death Benefit Term Insurance Plan
In this one, the death benefit moves upward every year, for the entire term of the policy. This happens because it’s meant to keep pace with inflation over the years, kind of covering the growing cost of living.
Convertible Term Insurance Plan
This plan type gives you a chance to change your term insurance into permanent insurance, but only during a specific conversion window. The length of that conversion period depends on how long your original term insurance plan is.
Joint Life Term Insurance
As the name kind of implies, this term insurance covers you and your spouse under one single policy. You are the primary life assured, your spouse becomes the secondary life assured, and both may get a shared or separate coverage amount, depending on how it’s set.
Term Insurance with Return of Premium (TROP)
In this plan, if the policyholder makes it through the entire term, the premiums are returned. After that, the policy ends, and that’s pretty much it.
What Are The Important Life Stages To Buy Term Life Insurance?
1. Starting a family
When you start a family, responsibilities tend to grow fast. If something happens to you during this phase, term insurance gives a set sum to your nominee. That sum helps your family manage daily costs and keeps things less stressful.
2. Planning for children’s education
Higher education usually needs steady funding. If you are not around when your child is ready for school, or later college, term insurance can pay the assured amount to your nominee. This way your child can continue studying, without financial nerves or constant worry.
3. Children’s wedding
Weddings often bring big spending, like jewellery, ceremonies, and all the arrangements. If you were to die earlier than expected, the term insurance payout can help your family organise your child’s wedding smoothly, and without them feeling crushed by expenses.
4. Managing Liabilities
If you have a home, a car, or even a personal loan, your family might struggle to clear those obligations after you’re gone. In that situation, the insurance money can help pay off the debts. It also reduces the risk of unpaid EMIs, which is usually where pressure really starts.
5. Maintaining lifestyle and future security
Prices seem to rise every year, and day-to-day life becomes costlier. If you pass away, term insurance provides a fixed amount so your family can keep their usual lifestyle. It also supports them long term, especially if large savings are not really in place. In a way, this is steady financial backing during your absence.
Eligibility criteria for term insurance
Age
You need to be between 18 and 65 years old to buy a term insurance plan. The age you decide to buy the term insurance at, matters a lot since it influences your premium
Citizenship
You have to be an Indian citizen if you want to buy term insurance in India. Still, your coverage basically stays unaffected if you go overseas later for higher studies or for work, after you already purchased a term plan.
Medical reports
You’ll have to share the required medical reports and also get a few diagnostic tests done, if the insurer asks. Also make sure you give the correct details about your medical history, so that there aren’t any issues during the claim settlement process.
List Of Documents Required For Term Insurance
Identity Proof
- ✓ Aadhaar Card
- ✓ PAN Card
- ✓ Voter ID
- ✓ Passport
- ✓ Driving License
- ✓ Job Card issued by NREGA duly signed by an officer of the State Government
- ✓ Masked Aadhaar Card
- ✓ Letter Issued by UIDAI
Address Proof
- ✓ Passport
- ✓ Driving Licence
- ✓ Aadhaar Card
- ✓ Voter ID
- ✓ Masked Aadhaar Card
- ✓ Letter Issued by UIDAI
What Is The Claim Process For Term Insurance?
Inform the insurer
As soon as the policyholder passes away, the nominee is required to notify the insurer.
Fill the claim form
Accurate information must be entered on a claim form.
Submit required documents
It is necessary to submit documents such as the death certificate and confirmation of identity.
Verification by insurer
All submitted paperwork and claim information are checked by the insurer.
Claim Decision and Settlement
If all the provided information and documents are actually correct, then the claim gets approved, and the amount is disbursed to the nominee. Below is the regulatory-mandated turnaround time for claim settlement, kind of like a rough guideline though.
- Death claim (without investigation) : 15 days from the date of intimation of claim.
- Death claim (with investigation): 45 days from the date of intimation of claim.
What Are The Payout Options Available With Term Life Insurance?
Flexible payout choices are offered by term life insurance. The various payout choices are as follows:
Monthly Income: To cover the family’s monthly expenses, the nominee is paid in instalments each month.
Lump sum: This option provides the nominee with complete life insurance in predetermined amounts in the event that the policyholder passes away unexpectedly.
Growing Monthly Income: This payout option is similar to the income option, except each year the monthly instalment increases by a certain amount.
Lump-sum + Monthly Income: This option combines the lump sum and income options.
What Is Term Insurance Riders?
You can purchase optional term insurance riders in addition to your standard term insurance. They offer more financial protection than a term plan’s death benefit in certain circumstances. You must pay a tiny additional charge in order to use riders.
Consider your term insurance as a basic smartphone plan that mostly provides internet and phone service. Top-ups, OTT subscriptions, roaming, and other add-ons that improve the benefits according to your demands are examples of riders.
Some Common Types Of Term Insurance Riders
Critical illness rider :
If you are found to have any of the serious conditions (cancer, heart attack, etc.) covered by your insurance, you receive reimbursement up front. Pre- and post-hospitalisation costs will be covered by the settlement.
Accidental death benefit rider :
In addition to the term insurance plan's death benefit, your nominee will get an additional sum assured.
Waiver of premium rider :
The insurer will waive all subsequent premiums, and your term insurance policy will continue if you become critically ill or permanently handicapped during the policy period.
Accidental total and permanent disability rider :
You are guaranteed a specific amount if an accident results in a complete and permanent disability that affects your earning capacity.
Terminal illness rider :
If you are told you have a terminal illness, you get a payout that will cover your medical expenses and other necessities.
Live well rider :
This is a special rider that offers both wellbeing and financial security. This rider offers wellness benefits (OPD consultation, preventive health checkup, and others) in addition to a death benefit.
FAQ's
Is it better to have more than one term insurance plan?
It is preferable to have a single policy with coverage that meets your family’s needs, even though people might have many term insurance plans. The burden of remembering term insurance premium payment dates and the insurance cost grows and might become challenging to maintain when you have many term insurance plans.
How much term insurance cover does one need?
Financial experts state that the coverage of a term insurance policy must be at least 15 to 20 times the insured’s current income.
Can I avail of tax benefits under a term insurance plan?
According to Section 80C of the Income Tax Act, term plans do indeed provide tax benefits. According to applicable tax rules, term insurance premiums paid toward the policy are deductible from taxes, and death benefits are exempt from taxes.
Is it good to invest in term insurance?
Yes, term insurance is a fantastic investment option since it guarantees your loved ones’ safety even when you are away and offers a large sum assured at a reasonable rate.
How to find the best term insurance?
Determine your coverage requirements and choose an insurer with a high claim settlement ratio to obtain the finest term insurance. Use internet discounts to lower your rates and compare term plans online to see which is the best match.