What is term insurance?
It’s a total financial protection plan that covers the family’s needs if a policyholder dies untimely. In term insurance, a nominee receives a lump sum amount under a death benefit clause. If the policyholder survives the term period, they can either extend their insurance period or close their coverage entirely.
Types of term insurance plans in India
Plan of basic term insurance
The only basic term insurance policy that provides life coverage and solely provides a lump sum death benefit. There are no maturity benefits available with this kind of term insurance coverage.
Plan for term insurance with monthly payments
You have the choice to provide your family with a regular, consistent income in addition to a lump sum death payment when you purchase a term insurance plan with monthly income.
Plan for term insurance with increasing monthly income
When it comes to typical family spending, inflation is a significant consideration. A term plan with increasing monthly income provides your family with a lump sum payment as well as a growing recurring income from the death benefit.
Plan for term insurance with a refund of premiums (TROP)
A specific type of term insurance plan called a “term plan with return of premium” provides a maturity return of all premium payments.
Plan for group term life insurance
One of your employees’ fundamental needs is financial security. The most cheap approach to guarantee your employees’ families’ financial security is through a group term life insurance coverage.
See also: All About Employee’s State Insurance Scheme
Who should buy term insurance?
Let’s examine who should buy term insurance:
Parents
Parents are constantly concerned for the future of their kids. Parents can relax knowing that their child has a term plan. They can feel secure knowing that even if something were to happen to them, their child would still be cared for financially. They never have to worry about their child losing up on their aspirations since they have a financial safety net.
Young employees
A term plan is an option for young professionals without many debts, such as a car loan or a personal loan EMI. They make sure that their parents and other loved ones have the resources necessary to cover their debts in the event of their passing.
Newly-weds
Recent newlywed couples can gain from a term plan. When their spouse most needs it, the insurance will help them financially. For young couples who aspire to achieve financial independence, a term plan is an essential component of any sound financial strategy.
Working women
Today’s young women sit in boardrooms and handle their finances as well. Many take up the position of the single provider and provide financial support for their family members. These ladies may safeguard their parents’, spouses’, and kids’ financial futures with a term plan. The payoff from such a policy can assist in paying off any unpaid obligations or even assist their loved ones in achieving future financial objectives.
Taxpayers
Certain advantages provided by term insurance policies enable taxpayers to lower their tax obligations. Section 80C of the Income Tax Act of 19616 permits deductions for premiums paid for term insurance contracts.
Retirees
To enjoy a secure retirement, many work their entire lives. In your elderly years, having a term insurance plan gives your spouse financial security. If something were to happen to you, the reimbursement from the insurance policy would enable them to continue living as they do even without a reliable source of income.
When should you buy term insurance?
You should buy term insurance as soon as possible. Young, healthy individuals can get higher assured amounts at lower premiums. As you age, your health concerns might increase your premium amounts and decrease the maximum sum insured.
Why should one buy term insurance?
A negative notion around term insurance is that it does not provide good returns or benefits to the policyholder. However, there are times when term insurance significantly provides added advantages to the family. Some of them are:
- Financial coverage: Term insurance secures a family during times of adversity. The plan is made to protect your family post the demise of your bread earner.
- Cost-effective: This plan comes with a fixed term and affordable premium.
- Good returns: A term insurance higher returns on investments without active management of the investment. Moreover, a regular plan and TROP (Term Rate of Premium) can give a return of 105% on the premium upon maturity.
- Adapt coverage: Make sure your term policy helps you provide sufficient coverage. Commonly, your term insurance coverage should be more than 10% of your total income. Review your insurance before investing for cost-cutting purposes.
- Survival effective returns: Not all term insurances are designed for survival. However, the Term Return of Premium Plans offers survival benefits as premium refunds.
- Low claim rejection: If your term insurance is older than 10 years, you will have a lower claim rejection cost.
- Flexibility: Several term insurance policies come with flexible terms and conditions. However, several sellers insist on no health check-up if the term insurance plan is below Rs. 50 lakhs.
- Riders: People who love to ride can avail of extra protection through their term insurances. These insurance plans are available for accidental death, critical illness, permanent disability, etc.
- Cheap brokerage cost: Firstly, if you buy term insurance online, there will be no brokerage cost. Secondly, brokerage cost is calculated on premium. Therefore, if you buy term insurance offline, you will pay low brokerage costs because of the lower premium cost.
- Payment flexibility: You can pay your premium with limited pay, single pay, or regular payment options. Moreover, you can pay your premium monthly, quarterly, half-yearly, or yearly.
- Plan choices: You can choose your policy for a single entity or joint entities. Additionally, you can extend your coverage for your spouse or bread earner.
- Tax relief: You are eligible to get a tax concession under 80C of income tax for paying the premium for term insurance. Moreover, the money you will have as death benefit will be eligible for tax deduction under section 10(10D) as well.
Factors affecting term insurance
Age
Young and healthy people are deemed low risk, therefore their rates are cheaper than those of older people who might have health issues.
Gender
According to studies, women often live longer than males do. Due to the possibility of lengthier premium payments from women, insurance firms frequently offer them lower premium rates.
Medical and Personal History
You must supply information about your family members and respond to inquiries about your medical history when you acquire a term plan. Kidney failure and heart attacks are two conditions that parents may pass on to their offspring. Your premium can go up if you or members of your family have a history of certain medical issues.
Lifestyle Habits
High risk people are those who routinely engage in adventure activities, use alcohol, smoke, or use other tobacco products. As a result, insurance firms raise their premiums for them. To prevent your nominee’s claim from being later rejected, you must be completely honest when applying for term insurance.
Profession
Some people work in professions that regularly put them in dangerous situations. People who work with hazardous chemicals, such as pilots and sailors, may have to pay greater premiums than their friends who have less hazardous employment.
Period of Coverage and Sum Assured
Your premiums are directly influenced by the amount assured and the length of the policy. A larger premium will result from a higher sum assured.
Features of various term insurance policies
| Basis | Characteristics |
| Death benefits | If the policyholder dies, the nominee will get a lump sum amount |
| Credit coverage | Term insurance provide protection against credits like loan, mortgage, etc |
| Tax benefit | Policyholder gets tax relief under 80C of Income Tax |
| Add-on benefits | Term insurance provides rider benefits, waiver on premium or extra return on accidental disability |
| Maturity benefits | Policyholder can enjoy maturity benefits through return on premium option |
| Multiple payment
frequency options |
You can pay your premium on a monthly, quarterly, half-yearly, or yearly basis |
How do term insurances work?
- Buying term insurance: Firstly, you don’t need to put exorbitant money aside to start your term insurance. You can get a sum assured of Rs. 1 crore with a premium of Rs 10,000 annually. Remember, this might not be true for all insurances. Every policy has its ownterms and conditions.
- Sustaining term insurance: You can sustain your policy at your own pace. You can pay your premium on a monthly, quarterly, half-yearly, or yearly basis. Additionally, you can choose to pay your premium as a lump sum at a regular interval.
- Perks and benefits: Your benefits do not come with maturity benefits. This policy’s sole purpose is to secure your life financially after the death of the policy holder.
How to choose your term insurance?
- Reliability: Make sure the company is widely known in the financial market and has good FICO scores.
- The ratio of claim settlement: Check the company’s IRDA claim settlement ratio in a financial year. Claim settlement ratio means how many times a company settled a claim in every 100 claims received by the company.
- Add-on coverage: Check if your coverage provides additional benefits like securing vehicle riders.
- Term insurance cost: Term insurance can have a tenure of 20 years. Thus, you will pay a significant amount of money as a premium. Therefore, the premium cost of term insurance is usually low.
- Inflation: Remember, inflation affects the value of money in a country. Term insurance spanning for years will be affected by the rate of inflation. Therefore, choose a company that offers a plan where your annual coverage increases by 5% to 10% yearly to beat inflation.
- Comparing policy: Look for the different policies offered by companies to make a better and informed decision. Several unbiased financial websites provide a comparison of term policies offered by different companies for you to make a wise decision.
- Take financial advice: You can seek advice from a financial expert while deciding on buying term insurance. These advisors are better informed about the market and have more knowledge of different term insurances.
- Read terms and conditions: Read all terms and conditions under the small details of your term insurance.
Choosing the right term insurance period:
- Loans: You are liable to get a penalty for late payment of your loan amount. You need to calculate the time you will need to pay off those loans and then choose your term insurance. Ideally, your loan and term insurance period should be similar to gain financial security.
- Financial commitments: If you are responsible for a family member’s wellbeing, your term insurance should last at least to a point where your offspring or your dependent can have a self-sustained lifestyle. Moreover, you need to consider marriage, education, hospital, and basic lifestyle while choosing term insurance.
- Sustenance: A long-term insurance plan is more expensive than a short-term insurance plan. You need to be in a comfortable financial position to bear the burden of paying the premium on time regularly.
What is a rider?
In addition to life insurance, a term insurance rider offers additional benefits. You can choose an accidental death rider or a disability rider, for instance, which provides an additional payout in the event that the policyholder is killed in an accident or becomes crippled. The majority of insurers also offer a critical illness rider. You are given a lump-sum payment when a covered serious illness is diagnosed with this add-on. The premium waiver rider, which waives off future premiums in the event that the policyholder is diagnosed with a severe illness or other eventualities specified by the plan, is the most common term insurance rider.
Types of riders for term insurance plans in India
| Rider Name | Key Benefits |
| Comprehensive Accident Benefit Rider (UIN: 104B025V02) | In the event of an accident resulting in death or dismemberment, further protection benefits. |
| Waiver of Premium Plus Rider (UIN: 104B029V02) | In the event of an unforeseen circumstance, such as death, dismemberment, or the identification of certain serious illnesses, all upcoming premiums would be waived. |
| Critical Illness Benefit Rider | When a serious illness specified in the policy is discovered, a periodic or lump sum benefit may be received. |
What are the eligibility criteria of buying term insurance?
- Policy holder age: Above 18 years (the maximum entry age is dependent on the tenure of the policy).
- Maximum maturity age: 75 years at least (liable of changes depending on the insurer of the policy)
- The sum assured tends to remain fixed. However, it can also be floating depending on the results of the policy holder’s medical report
What are the documents required for term insurance?
- PAN Card
- Identity proof: Passport, Voter id, Aadhaar card, driving licence, public servant letter, or authority verifying identity
- Age proof: passport, birth certificate, driving licence, PAN card, etc.
- Address proof: electricity bill, water bill, ration card, bank account statement, Voter Id card, passport
- Income proof: IT return, employer’s certificate, salary slip, Income Tax assessment order, etc.
- Passport-size photo
Some of the best term insurance plans available online in India
| Insurance companies | Term Plan | Claim Settlement Ratio | Maturity
Age |
Insurance
Premium |
| Aditya Birla Capital | DigiShield Plan | 98% | 73 years | Rs 612/pm |
| Aditya Birla Sun Life Term Insurance | ABSLI Life Shield Plan | 98.02% | 75 years | Rs 623/pm |
| Aegon Life Term Insurance | iTerm | 98.01% | 100 years | Rs 479/pm |
| Bajaj Allianz Term Insurance | Smart Goal Protect | 98.48% | 85 years | Rs 616/pm |
| Canara HSBC OBC Life Term Insurance | iSelect + LumpSum | 98.12% | 99 years | Rs 480/pm |
| Edelweiss Tokio Term Insurance | Zindagi Plus + Lump Sum | 97% | 80 years | Rs 478/pm |
| Exide Life Term Insurance | Exide Life Elite Term | 98.54% | 70 years | Rs 451/pm |
| Future Generali Term Insurance | Future Generali Flexi Online Term – Lump Sum | 95.20% | 75 years | Rs 486 /pm |
| HDFC Life Term Insurance | Life Option | 98.01% | 85 years | Rs 927/pm |
| India First Term Insurance | e-Term Plan | 96.81% | 65 years | Rs 422/pm |
| PNB Metlife Term Insurance | Mera Term Plan – full lump sum payout | 98.17% | 65 years | Rs 500/pm |
| Reliance Nippon Life Term Insurance | Reliance Digi-Term | 97.71% | 75 years | Rs 623/pm |
| SBI Life Term Insurance | eShield | 94.50% | 80 years | Rs 589/pm |
| Tata AIA Term Insurance | Tata Maha Raksha Supreme Lumpsum | 98.02% | 85 years | Rs 927/pm |
Benefits of buying term insurance online
Affordable life insurance premiums
Due to their inexpensive premiums and substantial sum guaranteed values, term policies are popular. A term insurance policy’s payout can aid in recouping several years’ worth of lost wages.
Critical illness cover
It goes beyond just providing life insurance. In addition, insurance firms pay out when an insured person is found to have a covered critical disease. Critical illness insurance is frequently an optional rider. The money obtained might be used to cover medical expenses or make up for lost wages.
Disability allowance
Accidents can have devastating repercussions, such permanent disability. The insured may need some time to get used to their new situation and determine whether they can still make a consistent living. You won’t need to worry if your term insurance policy has a disability rider. Future premiums will be handled by the rider, allowing you to worry-free continue to provide for your loved ones financially.
Increased financial safety
Term insurance provides supplemental financial security through riders like accidental death. The sum assured amount and an additional payout from the rider are paid to the nominee in the event that the insured suffers a fatal accident. The purpose is to provide the family with additional financial assistance when they most need it.
Mature benefits
Term plans with return of premiums provide basic maturity advantages. If you live longer than the policy’s term, you’ll get a payout or a series of payouts that total at least the amount of premiums you’ve paid overall.
Term Insurance Premium Calculator:
Term insurance always raises the question of monthly premium payment amount; therefore, companies have a premium calculator on their website. This calculator allows a policyholder to calculate their premium for their chosen policy. You need to provide details like gender, date of birth, smoker or non-smoker, etc. Your premium amount will be calculated depending on your answer. Moreover, your premium will also consider the tenure of your policy. Additionally, some companies will provide a tentative premium amount based on the plan selected.
Situational deaths not covered by term insurance:
- Suicide: Suicide is not included as a payable reason under term insurance terms and conditions. Moreover, if a policyholder commits suicide within a year after buying term insurance, is not liable for financial coverage. If people buy insurance as a group, suicidal death is not liable to receive compensation from the insurance company.
- War or terrorism-led deaths: Death due to terrorism or natural calamities are not covered by term insurance policies.
- Insured orchestrated death: death caused by the neglect of a policyholder is not covered by the term insurance policies. These deaths are viewed as self-orchestrated by a policyholder.
- Death due to drugs and alcohol: If a policyholder dies due to excessive abuse of drugs and alcohol will not be liable for financial compensation under term insurance policies.
What is the process to claim your term insurance money?
-
Inform the company
Your primary step should be to inform the company about your insurance maturity and claim. You can do this via any telecommunication channel. Only after informing the company about the claim will the claim settlement process begin.
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Submit necessary papers
You need to provide documents that support your claim. These documents include the original insurance policy document, proof of the claim, policyholder’s death certificate, medical records, and other official documents.
-
Claim settlement
After the submission of your documents, the claim department will verify and decide on your claim settlement. The insurance company will accept your claim if your papers are in order or reject your claim if your paper erupts proof of discrepancy.
What is the process of renewing term insurance?
- Policy review: before renewing your existing policy, review your cover and discounting options to optimise your charges. As you won’t be using your term insurance for a long period, you can change your policy to suit your current priorities.
- Provide policy details: visit your policy’s website and click on the policy renewal tab. There, you will provide your policy number, date of birth, and other information. Post, you need to verify and confirm your details.
- Make Payment: You can make your payment for a policy renewal via cheque, credit card, debit card, SMS, online banking, mobile wallets, bank auto-debit facility, bank collection centres, or at the branch office.
Things to keep in mind before buying term insurance:
- Premium rates vary: Your premium rate will depend on your health. Every term insurance provider will tell you to undergo a medical test to assess the actual cost of a policy. If you are exposed to high medical risk, your premium rates will rise.
- Be vigilant of your due date: No insurance policy officer will remind you of late payment. If you regularly fail to pay your due on time, your policy will lapse. It will be advisable for you to have a bank standing order or calendar reminder of your monthly premium payment dates.
- Be transparent: You need to inform the insurance company about your demerit habits as they will reflect your premium amount. Your premium will increase by 25% to 30% because of your demerit habits. If your insurer finds out about your habit at the time of a claim, your claim might get rejected.
What is the difference between Whole Life vs Term Insurance?
Term insurance assures the policyholder pays a premium for a fixed term; post the policyholder’s death, the family receives the death benefits. Term insurance offers protection and is thus referred to as pure life insurance. Whole life insurance, referred to as whole life insurance, protects the policyholder until death. The premium is paid either for a limited period or the assured whole life. Whole life insurance offers death benefits, survival benefits, and maturity benefits.
| Whole Life Policies | Term Insurance Policies | |
| Premiums | Higher compared to term insurance | Lower than whole life insurance |
| Coverage period | Covers entire life | Covers for a specific time period |
| Investment option | Offers investment options for saving enhancement | Do not offer saving enhancement option |
| Benefits provided | Survival benefits, maturity benefits, death benefits | Death benefits |
Difference between Term Plan, Endowment policy and ULIP
| Term Insurance | Endowment Policy | ULIPs | |
| Premium for Rs 1 crore | Equivalent to Rs 9000 | Equivalent to Rs 60,000 | NA |
| Max amount assured | NA | NA | Depends on funds value |
| Premium Payment | Single pay, monthly-pay, quarterly-pay, half-yearly-pay, yearly-pay, or limited payment options | Single pay, monthly-pay, quarterly-pay, half-yearly-pay, yearly-pay, or limited payment options | Single pay, monthly-pay, quarterly-pay, half-yearly-pay, yearly-pay, or limited payment options |
| Maturity Benefits | Available in a TROP | Offers maturity benefits | Maturity benefits reacts according to market |
| Risk | No risk | No risk | Premium is invested in stock market |
FAQs
Is health plan a part of long-term care insurance coverage?
No, a health insurance policy will take care of your hospital bills but it won’t cover healthcare services. If you want healthcare service you will need a long-term care insurance policy.
At what age should I buy a long-term insurance policy?
Ideally, you should buy a long-term insurance policy between the age of 55 and 64 years.
What is the base to calculate premium?
Individual’s age, gender, and health condition.