- Meaning of term insurance
- How it works
- Why is term insurance important
What is Term Insurance?
Term Insurance is a type of life insurance policy that offers financial coverage to your loved ones in case of your uncertain demise during the policy tenure. It is the simplest form of life insurance available at affordable premiums. Term life insurance offers you a range of benefits including:
- Death benefits for the family in case of the policyholder’s demise,
- Cheaper premiums as compared to other life insurance products,
- Option to choose a high sum assured,
- Tax benefits on premiums paid,
- Multiple death benefit payout options,
- Rider options to choose from,
- Flexible payment options, etc.
There are various term plans available in the market but you should choose the one that best suits your requirements. After reading this article you will get a complete idea to choose the right term plan for yourself.
Why do you need a term insurance policy?
There are various reasons to buy a term insurance plan as your life is uncertain. Let’s understand the need to buy a term insurance policy.
To secure your loved ones
Term insurance is considered one of the best investments you can make for your loved ones as it protects your loved ones financially even when you are not with them.Secure your assets even after you pass away
If you have a loan/liability then it can add financial burden to your family in case of your unfortunate demise. Having term insurance ensures that your assets are secured and your liabilities don’t bother your family.To get a policy tenure of your choice
Term plan offers both short and long-term protection ranging from 5 to 40 years and in some plans even for up to 99 years. You can choose the coverage options as per your requirements.To get coverage for critical and terminal illnesses
There are various term insurance policies that cover critical and terminal illnesses through riders or as in-built benefits. You can get coverage for illnesses such as cancer, heart attack, stroke, kidney failure and more.To get high life coverage
Term insurance plans offer coverage of as low as Rs. 50,000 to 5 crores. Some comprehensive term plans come with no upper limit on the sum assured as well. So there is a high chance that you can get a high sum assured with your term plan with cheap premiums.
Riders That Come With Term Insurance Policies
Here are some of the common rider options you can choose with your term plan.
| Name of the rider | Benefits |
|---|---|
| Accidental Death Benefit Rider | Offers additional rider sum assured in case of the policyholder’s demise due to an accident. |
| Critical Illness Rider | Offers a lump sum in case the policyholder is diagnosed with any critical illness covered under the policy. |
| Terminal Illness Rider | Offers full or partial sum assured in case the policyholder is diagnosed with any of the terminal illnesses covered under the policy. |
| Waiver of Premium Rider | Future premiums are waived off but the policy continues in case of accidental total permanent disability, critical illness or death under this rider. |
| Accidental Total and Permanent Disability Rider | Offers life cover in case of total permanent disability due to an accident while waiving off all future premiums. |
Types of Term Insurance Plans
There are a total of six categories of term insurance plans available in the market. Let’s understand each one of them:
| Type of the plan | Features | Suitable For People Who |
|---|---|---|
| Level term plans | These plans only provide a sum assured to the nominee in case of the death of the policyholder. No survival benefits are included and premiums remain the same in the entire policy tenure. | Want affordable coverage, Have just started their career, Have dependents |
| TROP (Return of premiums plans) | These plans give the premium amount back to the policyholders only if they survive the policy term. | Want a their paid premiums back, Want maturity benefits, Want coverage with savings |
| Increasing term plans | Offer options to increase the basic sum assured of plans at different milestones of life of the policyholder such as marriage, childbirth, or adoption. | Want protection against inflation, Expect growing financial responsibilities, Need flexible coverage |
| Decreasing term plans | The total sum assured amount decreases over time as one part of the premium is used to pay the loan of the policyholder thereby decreasing the loan as the policy continues. | Need loan protection, Want temporary, coverage Have no dependents |
| Zero-cost term plans | Offers a special exit option to the policyholder after they have completed a certain number of years with the active policy. | Can exit their policy in between due to any reason. |
Key Features of Term Life Insurance
Life is very uncertain, continuously surrounded by multiple risks, diseases, accidents, or death. Term insurance in such scenarios comes in handy because it offers the financial aid that is utmost needed when these things happen. Let’s look at all the features of term insurance to understand it better.
Affordable premiums
Term insurance policies come with affordable premium prices compared to other insurance policies.
Low entry age
The entry age for purchasing term life insurance is just 18. Most of the insurers ask for income proof as well while buying a term insurance policy. Buying term insurance at a younger age will help you pay lower premiums for a higher sum assured.
Flexible policy term
Policy term is defined as the total no. of years under which the policyholder is covered; in any unfortunate event that occurs during that period, the nominee will get a sum assured. You can choose the policy term as per your requirements.
Return of premiums paid
If the policyholder survives the full policy term, under the TROP plans, they can get all the paid premiums back on completion of the policy term.
Flexibility in Premium Payments
Term insurance offers flexibility to the customers for paying premiums. Customers can choose annual, half-yearly, quarterly, or monthly payments according to their convenience.
Tax benefits on premiums paid
Customers can opt for tax benefits under sections 80C (max 1.5 lakh) and 80D (max 50k) under the Income Tax Act 1961
Additional Benefits of Term Insurance
Option to increase death benefits
Some term plans such as HDFC Click 2 Protect Super offer you the option to increase the death benefits up to a certain percentage.
Additional cover for spouse
Term plans such as HDFC Click 2 Protect provide the policyholders with an option to cover their spouse under the same plan.
Pay for a limited time while enjoying coverage for a long time
Various term plans such as HDFC Life Click 2 Protect Elite provide you with an option to pay premiums for a shorter duration while providing coverage for a long time.
Multiple death benefits payout options
Some term plans such as ICICI Pru I Protect Smart Term Plan offer you to choose from multiple death benefits payouts including- income, lump sum, lump sum plus income, and increasing income.
Option to increase the sum assured through top-ups
Various term plans such as Tata AIA Sampoorna Raksha Supreme offer an option to increase sum assured through a top-up option.
How Does Term Insurance Work?
Problem- Mr. Ranbeer, a non-smoker was looking for a plan that covers his family financially even after his demise so that they do not face any problems.
Solution- He visited PolicyX.com on one of his friend’s recommendations. He provided his information and chose the Max Life Smart Total Elite Protection Plan. Let’s see how this plan works for him with a simple premium illustration table.
| Age of policyholder | Annual premiums | Policy tenure | Premium payment term | Total premiums paids | Sum Assured |
|---|---|---|---|---|---|
| 30 years | Rs 11,243 | 30 years | 30 years | Rs 3,37,290 | Rs 1 crore |
Takeaways- In the case of Mr. Ranbeer’s demise during the policy tenure his family would receive death benefits of Rs 1 crore.
Who should buy a term plan?
The following people should purchase a term plan:
Someone with ongoing loans/ liabilities
You should purchase a term plan if you have ongoing debts so that it won’t bother your loved ones in case of your unfortunate demise.Someone with responsibilities (child education, marriage)
If you are someone who has responsibility for their child’s education or marriage then you should consider buying a term plan.Someone with no savings
An individual with no savings pool should buy a term plan so that their family does not suffer in case of their unfortunate demise.Earning member of the family or someone with dependents
If you are the sole breadwinner of the family or you have dependents you must buy a term plan to cover them financially in your absence.
How to choose the right term insurance coverage?
Before buying a term insurance plan make sure you have decided how much coverage you need. Ideally, your term life cover should be 15 to 20 times your annual income.
Here is a list of the factors you should consider before calculating your ideal term insurance coverage amount:
Analyze your monthly expenses
The first step before deciding about life cover is to analyze your monthly expenses and study the inflation rate; a suitable life cover can provide financial support to your family in your absence without negotiating the cost of living.Calculate your financial liabilities
Count your major liabilities like debts, loans, your children’s education, marriage, home loans, and business loans. Your term insurance coverage should be sufficient to cover these as well.Age
A 50 lakh term plan is suitable for a 20-year-old person, while a 1 Crore term plan looks less worthy for a 30-year-old married person. Since the responsibilities are increased according to different phases of life you should make sure to choose the right life cover to cover up your expenses in tough times.Tenure of your plan
Term insurance provides insurance coverage for a particular term; you have to plan accordingly after analyzing your liabilities like - child education and marriage. You have to make sure that these events occur during your policy term.Cost of the premiums
The cost of the premiums plays a very important role in your budget. It should not be higher, as you are compromising with the other expenses, and it should not be lower, resulting in a reduced life cover amount. So you have to study and make a budget for premium amounts.
Key Takeaways
- Buying a term plan at a younger age is advised as your premiums are considerably lower.
- Make sure the term plan you purchase fits your budget. It should not add any financial burden on you.
- Choose your add-ons wisely as every add-on costs you.
- Make sure to make a comparison between various plans before choosing the one.
- Choose the right policy tenure. Make sure you are covered when you need your insurance policy the most.
How to Buy Term Insurance?
You can buy term insurance from PolicyX.com, the insurer’s website, their nearest branch office, or any other agent. Let’s see the buying process of term insurance.
Buying from PolicyX.com
- Fill out the form at the top of this page with the necessary details.
- Select your income and city. Click on ’Proceed’.
- Update your education and occupation details.
- Choose your preferred plan and click on ’Buy this plan’.
- Select the policy term, premium period, and riders (if required), and then proceed to pay.
* Once the payment is made, you will receive a confirmation at your registered email address.
Buying from the insurer’s website
You can visit the official website of the insurer and buy the plan you want by paying the premiums.
Buying from the branch office of the insurer
You can visit the branch office of the insurer from whom you want to buy the insurance.
Conclusion
A term plan gives a financial safety net to your loved ones even when you are not with them. You should buy a right-term plan at a younger age as the premiums are comparatively lower. Choose the right policy tenure, sum assured, add-ons, etc to avoid any kind of hassles.
If you are still confused about which term plan is right for you then you can contact us at PolicyX.com. One of our insurance representatives will contact you shortly and help you choose a plan that best fits your requirements.
What is Term Insurance : FAQs
1. What is the difference between Term insurance and life Insurance?
Term insurance covers the insured for a specific period, whole life insurance covers the insured for a lifetime.
2. Who is eligible for term insurance?
Any individual at least 18 years of age with a monthly income is eligible to purchase term insurance.
3. Can I buy term insurance for my parents?
Yes, you can purchase term insurance for your parents.
4. What is the maximum age limit of term insurance?
The maximum age limit to purchase term insurance is 65 years.
5. What kind of deaths are not covered in a term insurance plan?
Death caused by consumption of any intoxication, homicide, or disease that is not disclosed during purchasing the term plan is not covered in a term plan.
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Written By: Himanshu Kumar
Himanshu is a seasoned content writer specializing in keeping readers engaged with the insurance industry, term and life insurance developments, etc. With an experience of 2 years in insurance and HR tech, Himanshu simplifies the insurance information and it is completely visible in his content pieces. He believes in making the content understandable to any common man.
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