Term insurance is the purest form of life insurance that offers life coverage for a term or specific period. This term can be anything from 10 or 20 years, where the premium amount remains fixed for the coverage period.
What Is Term Insurance?
Term insurance is a cost-effective form of life insurance and is generally less expensive than other life insurance products. Term life Insurance policies provide a high life cover at lower premiums. These premiums are fixed and can be paid a lump sum or at regular intervals for the entire policy term. Premium amount varies depending upon the type of premium payment method opted by the buyer. Term life insurance helps ensuring the family's financial goals such as paying off a mortgage, keeping a business running, or child’s higher education costs, etc. are met.
Why Should You Buy Term Insurance?
The prime motive behind opting for a Term Life Insurance plan will be to provide a safety cover for the family in case of the sudden demise of the insured. Life Insurance like this plan, thus, becomes important, whether you are single or in a relationship. In the event of an unfortunate circumstance, your family members will get the insurance coverage as death benefit. These plans are capable of providing a regular flow of income to cover not only daily living expenses but also paying off the outstanding debts such as loan EMIs, credit card bill, funeral expenses, or estate taxes etc.
- It will provide for your family’s regular expenses after your demise.
- Term insurance offers cost-effective insurance coverage
- These plans also offer enhanced protection against illnesses or disabilities
- It also aims to protect your assets and lifestyle risks
Benefits of Term Insurance Plan
Now we will go through the various benefits that you get when you opt for a life insurance term plan.
Long Term Coverage
This product is ideal for covering yourself for a specific need in the long run like indemnifying a mortgage or business loan or meeting unforeseen life expenses.
High Life Insurance Amount
Term plans provide a large amount of life insurance coverage at an affordable premium. This cover can compensate for several years of lost earnings even after the demise of the policyholder.
Critical Illnesses Cover
Some contemporary life insurance term plans also protect against critical illnesses. When a critical illness like a heart attack, cancer, kidney failure, etc. is first diagnosed, this comes as an additional benefit. Critical Illness Cover provides lump-sum payments for a small additional premium, which can be purchased as a rider cover.
Additional Security Cover
A term policy provides additional pay-out in case of accidental death to increase the security of your family. For example, if your life cover is Rs. 1 Crore, a term policy with Accident Cover pays Rs. 2 Crore to your family in case of accidental death.
Some term life insurance plans pay your future premiums in case of total and permanent disability leading to loss of income. It is an appealing feature that if you are unable to pay your regular term insurance premiums because of disability, but your life insurance cover will continue. There are policies which offer waiver of a premium rider of all policy premiums in case the life assured is diagnosed with a permanent disability or critical illness.
Under Section 80 C of the Indian Income Tax Act, all term life insurance plans offer tax benefits on premiums paid up to 46,800. New-age Term insurance plans with critical illness cover also offer additional tax benefits on premiums paid up under Section 80 D.
Types of Term Insurance Plans in India
Now that you have realized the significance of a term life insurance plan, it is necessary to delve into the details of these plans. Term insurance can be categorised into various types. You have to be very specific in your future insurance requirements before you opt for a single policy.
|Type of Term Plan
|Level Term Plans
||The sum assured and payable premiums remain fixed for the entire tenure of the policy for 10-20 years.
||The insurance company will return all the premiums that you've paid over the life of the policy at the end of the term if you survive the policy period.
|Increasing Term Plan
||Death benefits increase every year periodically during the term of the policy. The premiums of the policy do not increase.
|Decreasing Term Plan
||The assured sum payable will decrease every year until either the period of coverage ends, or the policy pays out. The premiums remain constant.
||A regular plan can be converted to another plan on a later date.
|Tem Plan with Riders
||This regular term plan with riders for accidental death, critical illness, disability cover, etc. by paying additional premiums.
Here are the types of existing term life insurance plans.
Now we will go through the various benefits that you get when you opt for a life insurance term plan.
Level Term Plan
This is the simplest form of a term policy. In these types of plans, the sum assured does not change during the tenure and benefits are paid out to the nominee on the death of the policyholder.
TROP refers to a term insurance policy with a Return of Premium option. This plan is the same as any other standard term insurance policy, however, the only difference is return of premiums option These plans also ensure survival benefit at the end of the policy term. Their primary objective is to provide financial protection to your family in case of contingencies.
Increasing Term Plans
As the name suggests, these are term insurance policies that increase the death benefit. The premium increases, but these plans allow policyholders to pay lower premiums in the early years when they have greater expenses.
Decreasing Term Plans
A decreasing term policy is the opposite of the increasing term insurance policy. They are also known as Mortgage Term Insurance Plans. In these plans, the death benefit amount decreases with time. Here, premiums are smaller when compared to life insurance term plan premiums. Premium payments remain the same even if benefits decline.
Convertible Term Plans
These plans allow a term policy, to convert into whole life or permanent insurance plan once the policy matures. The primary benefit of convertible insurance is that the policyholder doesn't have to submit a medical test, even while converting the policy to a regular life insurance plan.
Term Plan with Riders
With a rider cover, the basic term insurance benefits can be enhanced. A rider is an insurance policy provision that adds benefits to or amends the terms of a basic insurance policy. They provide insured parties with options such as additional coverage at an additional cost. You can buy riders for critical illness cover, accidental death cover, or disability cover. You can also choose a premium waiver benefit with a rider, in which you need not necessarily pay future premiums during emergencies
These are the various types of life insurance term plans available in the market. You need to determine your insurance objective and your financial goals before you finalize any of these.
What is Not Covered in Term Insurance Plans?
While life Insurance term plans can be the most popular insurance products that provide an efficient life coverage as well as add-on benefits, certain things are excluded. Before buying a term policy, you need to be aware of these exclusions:
- Death due to murder: The insurer will not attain a claim if the policyholder is murdered, and it is revealed by investigations that the the nominee was involved in the crime. However, if the policyholder has a criminal background but dies due to any natural reason like disease or disaster, then, in that case, the nominee will get the claim
- Death by Suicide: If the policyholder commits suicide in the 1st year of the term of the policy, the insurance company will reject the claim for the death benefit. But still, most insurers provide coverage for suicide from the second year from the date of the policy purchase.
- Death due to Pre-existing Health Conditions: existing Health Conditions- If the death of the policyholder is caused due to conditions that existed during the availing of the term policy, it will not be settled by the insurer. The death occurred because of injuries that are self-inflicted or hazardous activities, an overdose of drugs, sexually transmitted diseases like AIDs or HIV, are not covered by the insurer unless covered by a rider policy.
- Death by Childbirth: If the death of the policyholder takes place due to pregnancy related complications or childbirth, the nominee will not get the death benefits from the insurer. Such cases are not covered in a life insurance term plan.
- Death Due to Natural Disaster: Death of the insurance policyholder due to natural calamities like earthquake, hurricane, tsunami, etc. is not covered under the life insurance term plan.
- Death under the Influence of Alcohol or Drug: If the policyholder dies due to driving under the influence of alcohol or narcotic substances, the life insurance claim will be rejected by the insurer. The policyholder needs to disclose its drinking habits while availing of the term policy. Failing to do so can lead to the withhold of the death benefit.
- Death due to Participation in Hazardous Activities: Hazardous activities like car and bike racing, paragliding, skydiving, parachuting, etc. must be disclosed at the time of availing the policy. They pose a threat to the life of the policyholder and any death resulting from the participation in such activities is not covered by the term policy.
These are the exceptional cases which are not covered by life insurance policies. The buyer needs to keep these in mind while making the product purchase.
Are There Any Tax Benefits to be Availed with Term Insurance Policies?
A very significant benefit of term life insurance products is that they also provide tax benefits i.e., your money invested in these policies stays tax-free. Let us check out the tax implications for the term insurance plans below.
- Under Section 80 C of the Indian Income Tax Act, 1961, all term life insurance plans offer benefits on tax for premiums paid. You can claim a deduction up to Rs 1.5 lakh for the premium paid annually for yourself, or your spouse, and your children
- New-age Term insurance plans offer critical illness cover along with additional tax benefits on premiums paid under section 80 D
- You also get tax benefits subject to conditions under Section 10(10 D) on the money that your family receives in case of an unfortunate event
A term policy acts as an income replacement tool for a family when the primary earner dies. However, you need to carefully consider your insurance needs rather than ending up buying a life insurance policy just to avail of the tax benefit that premium payments bring with them.
What are the Steps to Purchase a Term Insurance Policy Online?
Online access has paved the way to purchase these online term insurance plans in an easy and hassle –free way. Once you have ascertained your insurance needs and determined your financial goals, you can go through the various existing life insurance term plans available in the market.
Online term plans offer the cheapest life insurance. You not only get a high life coverage but also can avail the plan at a relatively low premium. You can compare the products online based on several parameters. Once you have zeroed in on a particular product, you can log in to the company’s website and follow the steps to buy the plan online.
The process of buying online term life insurance varies across insurance companies. However, the basic steps remain the same, which are as follows:
- Log on to the company website and click on the link for online term life insurance
- You need to enter your details, health details, existing life cover information, and lifestyle details, and nominee details in a life insurance proposal form. Once you have entered your data in these fields, a suitable online term insurance policy with features, benefits, and premiums will be displayed
- After going through the features of each policy, you can choose the most suitable one by clicking on the suggested option
- You then need to enter the sum assured
- Choose the policy term as mentioned there
- Choose the term for paying the premium from the available options
- You will see the premium amount based on your inputs. You need to pay the premium online and choose the payment mode and frequency
- You will see an acknowledgment of a successful transaction. And a confirmation will be sent to your registered email id
- Next, you will be required to upload your identity, address proof, and health-related documents and reports. The list of documents to be uploaded will be conveyed to you in detail
- You may be required to go through a medical examination at the suggested medical center under some circumstances
The insurance company will get back to you within three weeks if your insurance policy has been approved by its underwriting team. This will be done after verification of your proposal form, documents, and medical reports. If your insurance request has been approved, you will receive a soft copy of the policy. This will be later followed by a hard copy. The process is easy to follow and does not require much external assistance. You can easily apply for a term policy online without any hassles.
How Should You Compare Term Insurance Policies to Make the Right Choice?
The number of term insurance products existing in the market is numerous. In the absence of the right information, it may become complicated and confusing for the customer to compare term insurance plans and choose the right product.
You, as a buyer, have to make sure that your plan is sufficient for your family’s needs in your absence. Therefore, you need to make a term plan comparison by assessing the sources of income, the number of dependents, existing debts and liabilities, and the expenses incurred in the future to sustain their current lifestyle.
You also need to consider the amount invested periodically in these plans if you are planning for your child's education, marriage, or pension for your spouse. Let us consider some factors that can help you to compare term insurance plans online. You can make a term plan comparison and choose the right one for you by keeping the below factors in mind:
- Determine Your Life Insurance Amount: This is an essential step because based on this only you can choose which term products you want.
- Compare the Life Insurance Coverage Offered: You need to be aware of the right coverage and policy term available that can help you save money too. It is recommended that you should have an insurance cover of 10-12 times your income. Make a term plan comparison to find the insurance coverage offered by available plans in the scope of these factors
- Compare the Convenience and Support Offered by the Insurers: This is another factor to be considered when comparing products online. A policy can be very efficient in terms of its coverage and options, but the insurance company also needs to have a solid customer support base and solution network. Compare term insurance plans to find those with the most convenient factor. Absence of this convenient factor can cost you or your family members after you, a lot of time and energy running around for settlement of claims
- Availability of Upgrade facility: As income and obligations increase, you need higher life coverage. Look for a plan that allows an increase in coverage, especially after life milestones such as marriage and child's birth. Compare term insurance plans to find out if any added benefits come with them. For example, some plans offer critical illness cover, terminal illness cover or waiver of premium due to disability.
- Protection against Inflation: While age and coverage duration are the key factors to be kept in mind when you purchase a term life insurance plan, the impact of inflation on lifestyle needs is also significant. Inflation can deduct a significant share into your sum assured amount. Therefore, it is recommended to opt for a term insurance plan that protects against inflation.
- Compare the Claim Settlement Track Record: The Claim Settlement Ratio or the CSR is a vital ratio to determine the efficiency of an insurance company. When comparing multiple products online, get information about the claim settlement track-record of the insurer. Higher the number of claims settled, better it is for you. Generally, a claim settlement ratio of 90% or above is preferred
- Compare the insurer’s Reputation and Credibility: The insurer company’s market reputation is very important for long term feasibility when you are seeking protection for an extended period of 20-30 years. An insurance provider which enjoys an excellent reputation can provide you confidence with its quality services and excellent performance over this long period.
Term Insurance - FAQs
Ans: A term insurance plan secures the financial future of your family, in case of unforeseen event leading to loss of income. These plans provide a sufficiently large life coverage at a very affordable cost. You should buy a life insurance term plan if your family is financially dependent on you or if you have liabilities like home loans, car loans, or other obligations.
Ans: A term insurance plan includes death due to any reason, be it natural or accidental, along with riders for critical illness. The accidental insurance plan provides a death benefit if the policyholder dies only because of accidental death.
Ans: A standard life insurance policy offers maturity benefit on the survival of the life assured. On the contrary to this, a Term insurance plan does not include any such benefits. It just entitles the nominee(s) of the policyholder to the sum assured in the event of the policy holder's death during the plan term.
Ans: It is always recommended to buy any life insurance term policy as soon as possible. The earlier you buy, better it is. It helps you save on premiums for the entire policy term. Also, the possibility of getting inflicted with a lifestyle disease with age is higher. At that time, you may either not get a policy, or you may get it at a very high price.
Ans: Your tenure for the life insurance policy will depend upon your age. Hence, you should opt for a policy term depending on your retirement age. Generally, by that time, you would have paid off all your liabilities. However, in case you have some loans or liabilities, which will continue even after your retirement, you may choose a higher policy term. For example, if your current age is 30 and you expect to retire at the age of 60, you should opt for a term life cover with 30-years policy term.
Ans: Term life insurance plans do not have any maturity or surrender value. So, a buyer would compare term plan premiums and will more likely go with the plan that offers the lowest premium, based on age, term, and sum assured as determined by that policy.
The premium of a term life insurance plan is low as compared to endowments or ULIPs. However, the buyer's decision should not be solely based on the premium of the plan, getting influenced by its pricing. The plan should have an adequate sum assured (life cover) and should be for the right tenure to provide proper benefits to your loved ones
Ans: The premium of a term insurance plan remains the same throughout the cover period. However, if there is a special clause mentioned in the document regarding the same, this can be possible. The insurance company may alter the premium if the policyholder develops life-threatening habits like smoking, drinking, or any disability. So, you need to carefully compare term plan conditions before buying.
Ans: The term insurance plan is very much valid in case of untimely death outside India. In case of migration of the policyholder to another country, he/she needs to inform the insurance company to update some new information such as phone number, address, or nominee. But, if the insured is moving to another country that is believed to be unsafe or a war zone, like Afghanistan, Syria, or Somalia, the company may not offer this facility.
Ans: Term insurance is a specific product offered by insurance companies. The premium you pay towards insurance in a regular policy covers insurance cost, administrative charges, and investment. In terms of plans, the premium is composed of only the cost of insurance and administrative charges, as no investment is involved. Also, since these policies are for a specific term, lower duration implies a lower premium as well.
Written By: Paisawiki - Updated: 09 September 2020