Simplifying Life Insurance in India
Buy Term Insurance Plan & Policy Online in India in 2024
Life is uncertain, and one can never foretell what the future holds for us. We cannot be certain about anything in life, whether we will be successful, get married, or have kids, but there is just one thing that is guaranteed: Death.
We cannot control life's unpredictability, but we can prepare for the unexpected just as we plan to lead a good life. The most crucial factor towards achieving this objective is ensuring your family is financially secure even after you are gone.
While most of the products in our investment basket are directed toward the objective of wealth creation, Life Insurance has a much broader purpose. It is financial support to the family in the unfortunate event of the breadwinner's demise. Term Insurance is the most fundamental kind of life insurance.
What is Term Insurance?
Term insurance is a type of life insurance policy that provides coverage for a specified duration known as the “Term” of the policy. It offers financial protection to the policyholder's beneficiaries in the event of the policyholder's death during the term.
Unlike other types of life insurance, such as whole life or endowment policies, term insurance does not accumulate cash value over time. Instead, it focuses solely on providing a death benefit to the beneficiaries.
Term insurance policies are typically more affordable compared to permanent life insurance options, making them an attractive choice for individuals seeking cost-effective coverage for a specific period, such as during their working years or mortgage repayment period.
Types of Term Insurance Plans in India
1. Basic Term Plan
A basic term plan comes with a life cover that is paid as a lump sum to the nominee in case of the demise of the life assured.2. Return of Premium Term Plan
A Term Plan with Return of Premium option provides a Life Cover during the policy term and returns the total premium paid upon surviving the policy term.3. Term Insurance With Limited Premium Payment Term
A term plan where you pay a premium for a few years, and then the plan benefits continue for the complete policy term.4. Term Insurance With Increasing Sum Assured (Increasing Term Insurance)
In these plans, the policyholder has the option of increasing the sum assured annually during the policy term while the premium remains constant. For this reason, the premium of these plans is generally on the higher side.5. Level Term Plans
The premium remains constant throughout the term life policy duration, ensuring that both the premium and the death benefit remain unchanged. This insurance can last anywhere from ten to thirty years, depending on the policyholder's requirements.6. Decreasing Term Insurance
This policy includes a feature that enables the benefit amount to decrease monthly or yearly. Generally, the size of the policy also decreases over time until the coverage period ends or until the policy pays out.7. Convertible Term Plans
Convertible Term Plans allow policyholders to convert a basic term plan into a whole-life or lifelong insurance policy. You do not need to pay a fee while converting but can expect higher premiums.How Do Term Insurance Plans Work?
The Contract
An Insurance Plan is a legal contract between you and the insurance company.
The policyholder agrees to pay a certain amount to the insurance company, known as the Premium.
In return, the insurance company agrees to pay a specific sum of money, called a Death Benefit, to the beneficiary in case of death of the Life assured during the term of the policy.
The person who pays the premium for the coverage is the Policyholder. A policyholder can buy coverage for themselves or any family member.
The person who is covered by the insurance is the Life Assured.
The Application Process
To buy term insurance, you need to fill out an application form declaring your information like medical history, current health conditions, lifestyle habits, hobbies, age, annual income, and nature of your profession, apart from the basic personal details. This helps the insurer assess your risk level and arrive at the premium accordingly.
The major factors that affect premium include age, lifestyle habits like smoking, drinking, health issues, hazardous professions and similar factors.
Assessing Your Requirements
- Assess the Cover Required: Decide the Life Cover that would be sufficient to take care of your family's needs in your absence. Check out the methods discussed further to do the same.
- Choose the Policy Term: Choose a policy Term depending on the duration you feel your family would need the coverage. It's usually until the children become educated and employed or till your retirement.
- Choose the Premium Payment Mode: You can go for single premium payment or Regular Payments. Under Regular payments, too, there is the option of annual, quarterly, or monthly premium payments.
- Choose the Payout Option: You can choose a Lump Sum payout wherein your family would take care of the bulk financial requirements and invest the rest. However, if you are not sure they would be able to take care of the same, you can choose to optimize in the form of staggered or regular payouts that will ensure your family is paid regularly for their financial requirements.
- Check Out the Riders: You can always improve your policy with increased coverage and for various other situations by adding up Riders in your base plan.
Assigning a Nominee
One of the most important steps while buying an insurance plan is to appoint a nominee. A nominee is usually a close family member authorised to receive the insurance payout, i.e. the Death Benefit in case of the policyholder's demise.Features and Benefits of Term Life Insurance
Affordable
Term Insurance Plans provide a high amount of Life Insurance coverage at a considerably low premium, and it's an affordable way to get complete financial coverage.Tax Benefit
The premium paid towards term insurance is exempted from Tax under Section 80C of the Income Tax, within its limit of 1.5 lacs. The payout from the policy is also tax-exempt under Section 10(10D). Another exciting feature is that the deductions under section 10 (10d) do not have any upper limit and include bonuses and surrender values as well.Riders
These add-ons allow for increased coverage for different situations, otherwise not covered in the base policy. Available at an affordable price, these riders customise an insurance policy as per the customer's need and maximise the benefits.Death Benefit
The most crucial benefit of term insurance is the death benefit, i.e., the sum paid to the nominee in case of the policyholder's demise. It creates financial security for the dependents in case of the demise of the breadwinner of the family.Multiple Options of Death Benefit Pay-out
In cases of the life assured's untimely demise, the nominee has the option to receive the death benefit in the form of a monthly or a lump sum payout, depending on the requirement.
For example, there may be monthly EMIs for a home loan or car loan or monthly payouts like fees. A monthly payout might be chosen to meet such monthly recurring expenses.
However, there might also be a case when a life-assured child was ready to go for higher education at the time of the mishap. The nominee may take the death benefit as a lump sum payout in such a case.
Flexibility in Paying Premiums
Term insurance provides flexible premium payment options to accommodate your financial situation. One option is to pay premiums regularly throughout the entire term of the policy, known as Regular Pay.
If you prefer to make complete payments within a specific period while the coverage continues, you can opt for Limited Pay. Alternatively, there's Single Pay, where you make a one-time premium payment at the start. These choices enable you to manage your budget and maintain financial stability effectively.
For example, Suppose you buy a term insurance policy at 30, opt for Limited Pay term insurance, and pay premiums for only 15 years. You can secure life coverage until 60 without the financial stress of regular payments and any burden of regular payments throughout the term.
What are the Payout Options in Term Life Insurance?
1. One-Time Payment / Lump-Sum Payment
This is the most straightforward option. The beneficiaries receive the entire death benefit as a single payment, allowing them immediate access to the funds to cover expenses such as funeral costs, outstanding debts, and living expenses.2. Fixed Monthly Payout
Instead of a lump sum, the death benefit can be paid in instalments over a specified period. This can provide a steady income stream for the beneficiaries, helping them manage their financial needs over time rather than receiving all the money at once.3. Increasing Monthly Payout
With increasing monthly payouts, beneficiaries receive a single lump-sum payment from the entire sum assured amount. Additionally, the nominee receives a monthly income, increasing by 10% annually for 10 years, determined by the insured individual when purchasing the insurance.How Much Term Insurance Coverage Do You Need?
In the case of the unfortunate demise of the family's breadwinner, the insurance proceeds must be sufficient to take care of the complete financial liabilities of the family. Even in the absence of the policyholder, the family's lifestyle must stay safe.
Children's education, marriage, pending liabilities, spouse needs and regular expenses are some significant factors to consider while deciding the coverage requirement. This is the basic premise behind determining how much term insurance a person needs.
Here are a few methods that consider these factors and help you determine an indicative figure for your Term Insurance coverage requirement:
1. Expense Replacement
A method commonly suggested by most financial planners, the Expense Replacement method takes into account all the expenses of an individual, like day-to-day expenses, future expenses like children's education, marriage, financial requirements of dependents like spouses, parents, siblings, etc., loans and debts.
After arriving at this expenditure figure, we deduct the present value of our savings, like investments and any other life cover. Here, we do not consider assets like homes and cars in the calculation since we want our family to use them as utility and not depend on their monetary value.
This final figure gives us an idea of the insurance coverage amount required by a person.
2. Income Replacement
This method is based on the premise that the insurance proceeds must be sufficient enough to replace the lost earnings of the deceased breadwinner of the family. So, by this method,
Insurance Cover = Current Annual Income x Number of Years left for Retirement
It's a simple method that gives you a close idea of the required sum assured, but a significant drawback is that it does not factor in the inflation, income rise, and the major expenses on the way.
3. Human Life Value
To find how much insurance someone needs, the major factor widely used across the insurance industry is the Human Life Value or HLV. HLV, in simple terms, is the monetary value attached to a person.
It is the present value of all future income a person would expect to earn for their family. It directly indicates the financial loss a family would suffer in case of the untimely death of the family's breadwinner.
Age | Approx HLV |
18-35 | 25 X Annual Income |
36-45 | 20 X Annual Income |
46-50 | 15 X Annual Income |
51-60 | 10 X Annual Income |
For example, for a 30-year-old earning 10 lac annually, the ideal life cover would be 25 x 10,00,000= 2,50,00,000.
4. Underwriter's Rule
A common thumb rule for calculating the minimum amount of cover needed by a person, the Underwriter's rule states that the sum Assured = 10 x Annual Income. So, if your annual income is 10 lacs, you should have a life cover of 10 x 10 = 1 crore, i.e., 10 times the annual income.
While this formula has become widely prevalent due to easy calculation, it is believed to give a minimum figure as an indicator for the required sum assured.
How Term Insurance Calculator Can Be Helpful?
A term insurance calculator is a helpful online tool designed to assist individuals in determining the premium amount for a term insurance policy. Users provide details such as:
- Age
- Income
- Desired coverage amount
- Policy term
- Lifestyle habits (smoker or non-smoker)
- Health conditions
Based on this information, the calculator estimates the premium required to secure the specified coverage. It’s a convenient way to assess your insurance needs without the need for medical exams.
Benefits of Using a Term Insurance Calculator
The benefits of using a term insurance calculator are:
- It provides an instant, personalised estimate of your premium and the coverage you can expect, saving you time and making decisions efficiently.
- It allows you to adjust critical variables like the sum assured, policy term, and premium payment options, providing a real-time view of how each adjustment impacts your monthly premiums.
- It saves time by providing quick estimates, eliminating the need to manually contact insurance agents or sift through multiple insurance websites for information.
- It provides policy cost transparency, allowing for easy understanding of premium rates based on various levels of coverage and term lengths.
When is the Right Time to Buy Term Insurance?
Many people keep procrastinating on this critical life step and believe that the right time to buy term insurance is in the post-30s when you start settling with the family. However, that is not true.
Most experts believe that the earlier you start, the better it is. At a young age, when you have fewer liabilities and are less prone to any diseases, your premium is considerably lesser than in the later years. It remains the same for the complete tenure of your policy.
How to Choose the Right Term Insurance Policy Period?
The basic thumb rule for determining your term insurance policy period is knowing for how long you or your family is dependent on your financial value. Most people's liabilities finish off by the time they turn 60, and if not, plans are available for up to the age of 99. Let's consider the policy terms based on your age:
- In Your 20s: Opt for a long-term plan (e.g., 40 years or coverage until age 99) to benefit from lower premiums without needing to renew the plan.
- In Your 30s: Similar to your 20s, consider a long-term plan or coverage until age 99. You can adjust the tenure based on your financial responsibilities and retirement plans.
- In Your 40s: As financial liabilities might decrease, consider coverage until age 80. If you are purchasing a policy for the first time, expect to pay a higher premium than if you were in your 20s or 30s.
- In Your 50s: With children likely independent, a policy term of 25 years should be adequate. You may also choose a longer tenure of 35 years or coverage until age 99.
How to Choose the Right Term Insurance Plan?
1. Claim Settlement Ratio of the Insurer
When choosing Term Insurance, the key element is the Insurer's Claim Settlement Ratio, which shows the proportion of claims settled to claims received. Opt for an insurer with a high ratio to ensure quick and efficient claim processing for your dependents, securing your family's financial well-being. Assessing the total claims settled can also reflect the insurer's dedication to fulfilling its commitments.2. Solvency Ratio
The Solvency Ratio gives an idea of whether your insurance provider has enough financial buffer to settle all claims in case of any extreme situation, such as natural disasters. The Insurance Regulatory and Development Authority of India (IRDAI) mandates a minimum solvency ratio of 1.5, indicating the insurer's ability to meet its long-term obligations.3. Critical Illness Cover
Adding a critical illness rider to your term insurance is crucial as it covers the financial impact of severe health conditions like cancer or major surgeries. This benefit offers a direct payout upon diagnosis, easing the financial strain of high treatment costs and helping maintain your family’s standard of living.
Including this cover in your term plan enhances protection and secures your family’s well-being beyond just life coverage.
4. Additional Covers Available
Comprehensive family protection with term life insurance can include:
- Waiver of Premium: Life coverage continues without the need for future premium payments if the insured is disabled.
- Accidental Death Benefit: Increases the sum assured paid to beneficiaries on accidental death, often matching the original coverage amount for extra financial security.
- Income Benefit: The family receives a regular monthly income instead of a lump sum, ensuring ongoing financial support.
5. Premium Cost
The premium cost of a term insurance plan is significant but should not overshadow the value of the protection offered. It's essential to look for plans with favourable terms and comprehensive coverage, including crucial riders, at fair rates.
Term insurance can be more cost-effective by opting for convenient payment methods and tax benefits under Section 80C and Section 80D.
What are the Eligibility Criteria for Term Life Insurance?
Documents Required for Buying Term Life Insurance
Residence / Identity Proof Documents for Term Plan
Age Proof Documents Required for Term Insurance
Income Proof Documents Required for Term Insurance Policy
Note: Each section requires one or two documents as proof for term insurance, depending on the insurer's requirements.
What is a Term Life Insurance Rider?
Term insurance riders enhance the financial protection provided by the base policy. They offer additional benefits to beneficiaries in case of specific events, such as accidental death, disability, or critical illness.
These riders can provide crucial support during challenging times. Note that adding riders to a policy usually comes with an extra cost on top of the premiums for the primary policy.
Some of the Major Riders in Term Insurance are listed below:
Accidental Death Benefit Rider
Accidental Death Rider provides extra coverage to the dependents in case of accidental death of the life assured. This is over and above the basic coverage the insurer already provides in the base plan.
In fatal accidents, the medical interventions that go into saving the victim's life hit the family's finances. In many cases, the victim eventually dies, and the family then deals with the personal loss in addition to this financial loss.
To cover these scenarios, in cases where the life assured does not immediately pass away after an accident, the Accidental Death Benefit rider provides the Sum assured to the nominee within 120-180 days from the accident date. Hence, accidental death Benefits are among the most significant riders that must be added to the primary insurance policy.
Critical Illness Rider
A Critical Illness Rider provides financial coverage in case the life assured is diagnosed with any critical illnesses mentioned in the policy document. Some critical illnesses are cancer, heart ailments, and tumours.
The Critical Illness Benefit is provided to the life insured to meet treatment and household expenses in times of need. It acts as an Income Replacement plan and ensures that the illness does not affect the policyholder's treatment and family finances.
Accidental Total and Permanent Disability Benefit Rider
This rider takes care of the finances in case the life assured suffers an accidental partial or permanent disability and, thus, becomes unfit to carry on with any occupation.
For example, loss of both eyes and legs, both arms or one arm and a leg, can be classified as a permanent disability. Such kind of disabilities leaves a person incapable of leading a normal life where they can take up a job and earn for their family.
In such cases, the policyholder is paid a specific portion of the Sum Assured regularly for a few years, which takes care of the finances for the most challenging years of the family.
Waiver of Premium Rider
Waiver of Premium Rider ensures that the policy stays active even when the policyholder cannot pay premiums due to physical disability.
With this rider, the premiums are waived, and the policy continues till maturity. On maturity, the benefits are paid to the nominee.
This rider can be availed in cases where:
The life insured has been disabled for six months or more.
When life insured is diagnosed with any of the critical life-threatening ailments.
Terminal Illness Rider
Also known as Accelerated Death Benefit Rider, this rider ensures the Sum Assured is paid to the policyholder on the diagnosis of any terminal illness.
What are Terminal Illnesses?
Terminal Illnesses are ailments with a high likelihood of death within six months. In these types of illnesses, in addition to the eventual personal loss of the family member, the finances are also hit badly during the treatment.
A Terminal Illness Rider provides much-needed financial freedom in those times of need to put finances in order, take care of medical support, or travel. This rider comes into effect only after the diagnosis and short life expectancy confirmation.
Income Benefit Rider
Life is full of uncertainties, but it's up to us to plan well for all those lemons that life might throw at us. When you buy insurance, you have taken an essential step towards securing your family's future. Besides, there is always scope for better planning.
Under usual circumstances, insurance pays off the death benefit as a lump sum in case of the policyholder's demise.
However, with Income Benefit Rider, if the policyholder dies during the policy term, the family receives a certain monthly payout with which they can manage their finances better. It acts as a substitute for monthly income in the absence of the policyholder so that the family doesn't struggle to pay bills.
Income Benefit Rider acts as a substitute for monthly income in the absence of the policyholder so that the family doesn't struggle to pay bills.
Benefits of Adding Riders to Your Term Insurance Policy
Term insurance riders are extra benefits you can add to your basic term insurance policy for more protection. Here are some of the key benefits of including riders in your term life insurance plan:
- Riders allow you to tailor your term insurance policy according to your specific needs and concerns. You can choose riders that address your particular worries, such as critical illness or accidental death.
- Certain riders provide a lump sum payment or additional coverage in case of specific conditions, such as critical illness, disability, or accidental death.
- Adding riders to your term insurance policy can be more cost-effective than purchasing separate insurance policies for each additional coverage. It consolidates your insurance needs into one policy, potentially reducing the premium cost.
- You can add or remove at different stages of the policy term, allowing you to adjust your coverage as your needs change over time.
- Some riders ensure your insurance continues even if you temporarily can't pay premiums due to a disability or job loss.
- Some riders let you receive part of your sum assured early to help with medical costs in the event of a critical or terminal illness.
- Like your primary policy, you might get tax savings on the money you pay for these extra benefits.
Who Should Buy a Term Insurance Policy?
The most significant benefit of Term Insurance is its financial stability to the dependents in case of the policyholder's unfortunate demise.
Hence, any individual who has financial dependents: spouse, parents, retirees with liabilities, or business people with financial liabilities, must definitely invest in a Term Insurance Plan.
Young Professionals - The Younger You Are, The Lesser Is Your Premium
Young, freshly employed individuals usually think they don't need Term Insurance since they don't have any dependents. However, this thought might not be correct. At a young age, with a healthy body and no liabilities, your premium would be much lesser than it becomes in the later stages of life. And it remains the same for the complete term.
Read more: Term Insurance For Young Professionals
Newlyweds - Gift Your Partner the Ultimate Security of Insurance
Post-marriage, we start a new life and build a new lifestyle. We don't have just an emotional dependency on each other, but there is a financial dependency too.
So, while we are still lost in the roses and chocolates, do take time to purchase a gift that will secure your partner's future life. Buy a term plan.
Read more: Term Insurance For Family
Taxpayers - Who Doesn't Like an Extra Penny Saved From Tax
Term Insurance premiums fall under tax exemption under section 80C of the Income-tax. Not just that, the payouts from Term Insurance are also exempt from tax, subject to some T&C under section 10 (10 D) of the Income Tax Act. Hence, Term Insurance is a wise investment when it comes to securing life as well as saving tax.Home Loan Borrowers - Because Its About Your Dream Abode
The purchase of a home is a huge expense, and if done through a Home loan, it’s a huge liability. Unfortunately, if the primary earner passes away, it would be difficult for the dependents to pay off the home loan. Life Insurance provides this assurance that the burden of a loan would not come on the family members in such unfortunate circumstances.Parents - Secure Your Family’s Future with Insurance
Parents are vital in securing their children’s financial future through activities like paying for education and saving for university; mitigating these burdens with a term insurance plan ensures their dreams remain within reach, even in unforeseen circumstances.Working Woman - Empower Your Financial Independence
Working women are pivotal in their families' financial well-being, and a term insurance plan safeguards their family's lifestyle and aspirations, covering any debts and serious health conditions and providing peace of mind.Retirees - Enjoy Your Golden Years with Peace of Mind
For retirees, term insurance is key to ensuring their partner’s financial comfort and healthcare needs in the later stages of life, maintaining their living standards without worry.Housewives - Protect Your Loved Ones with a Strong Financial Backup
Housewives also significantly contribute to their family's financial stability; term insurance guarantees that, in their absence, the household and childcare costs are manageable, preserving their family's way of life.Self-employed - Safeguard Your Business and Personal Life with Insurance
Self-employed individuals can protect their family's future and business obligations with term insurance, ensuring financial continuity and household stability after they're gone.Non-resident Indian - Secure Your Assets and Loved Ones Back Home
NRIs can support their family back home through a term insurance plan. This plan offers a safety net against the economic challenges of medical care and travel, ensuring peace of mind across miles.Some Relatable Real-Life Examples
Aravind, 35, and Priya, 30 (married couple)
Aravind and Priya, both successful IT professionals, are repaying a mortgage for their dream home. Their jobs include insurance covering the outstanding mortgage balance if either of them passes away during the loan term, leaving other financial needs unaddressed. So they decided to buy term life insurance, knowing their loved ones would be secure even if the unexpected happened.Rohit, 34, family man (sole breadwinner)
Rohit, aged 34, is a devoted husband and father of two who is responsible for his family's financial well-being. His father is close to retirement, while his parents-in-law are also approaching retirement.
To safeguard the financial future of his loved ones, he plans to obtain term life insurance with the flexibility to adjust the coverage as the family's dependency needs evolve, providing safety for their future.
Sneha, 23, (single woman)
Sneha, a young professional with no dependents to worry about, is considering applying for a home loan. She recognizes the value of purchasing term life insurance to secure her future while she is young and can benefit from lower premiums due to her age and health. Plus, she knows that once she gets married, she can easily update her policy to include her spouse as the nominee. This proactive approach ensures Sneha stays ahead in her financial planning.Raj, 36, and Priya, 34, (married couple)
Raj and Priya, parents of 13-year-old Sarah, prioritize her education and future aspirations. Raj works as a software developer, while Priya manages the household. Raj decides to obtain term insurance to protect Sarah's dreams as he is committed to providing for her education and future.
He recognizes that life is unpredictable, and having a term life insurance plan is a wise decision to protect his family in case anything were to happen to him or Priya.
Why Should You Buy Term Insurance Online?
Buying term insurance online offers several advantages:
- Buying term insurance online allows you to quickly compare different plans and understand their benefits, ensuring that you make an informed decision.
- Online term insurance plans often have lower premiums compared to offline plans.
- The online buying process is quick and straightforward, saving you much time.
- You can compare, choose, and pay for the most suitable plan at your convenience without physical meetings or paperwork.
- The entire process can be carried out from the comfort of your home at any time that suits you, making it highly convenient.
- Opting for an online purchase reduces the risk of misinformation and inaccuracies that can sometimes occur when buying through a sales agent over the phone. This method ensures that all the information you receive is precise and reliable.
What are the Factors Affecting Term Insurance Premiums?
When you buy a Term Insurance plan, your premium is calculated based on several demographic and lifestyle factors, such as age, gender, present or past medical ailments, habits like smoking or drinking, and hereditary diseases.
Here are the most common factors that affect a Term Insurance premium:
1. Age of Policyholder
Age is a primary factor affecting your Term Insurance premium. It's accepted that the younger we are, the fewer the risks of developing any critical medical condition that might result in any unfortunate event. This risk increases with age; hence, the insurance provider's financial risk also increases, directly affecting the premium.2. Policy Term/Duration
The Term Insurance premium directly depends on the period and increases with the increasing term, considering the older and the riskier years of life.3. Medical History
Medical History is also one of the significant factors affecting Health Insurance premiums since a higher risk to life can mean higher chances of claims to the company. The family medical history is also analysed since there are many diseases like stroke, diabetes, and cancer that can be passed down to the next generation.4. Current Health Condition
Term Insurance usually involves a medical checkup before you can buy the policy. This is done to check if the prospective policyholder does not suffer from any ailment like hypertension, diabetes, or any health condition that poses a life risk and thus increases the policy's premium.5. Occupation
Your premium is also affected by your profession. People in risky professions, like soldiers, pilots, and people working in the mining industry, are directly exposed to chemicals or other hazardous activities and are more exposed to risk, thus charging higher premiums.6. BMI (Body Mass Index)
A skewed BMI index can directly mean you are at a health risk, increasing your premium.7. Lifestyle Habits
A non-smoker who also doesn't consume alcohol has a lower premium than one who does. Also, if you are inclined towards adventure activities like scuba diving, skydiving, etc., your premium would be higher since these activities put life at risk.Why Do You Need Term Insurance?
1. Provide Financial Security to Your Family
In case of an untimely death of the family's breadwinner, while the family is still struggling with the emotional turmoil, a financial burden falls on the dependents, which is not easy to handle. To prevent that situation, it's always a good idea to secure your family's financial future with insurance.2. Secure Your Lifestyle
With a progressing lifestyle, your assets progress, and you end up buying a house, car, etc. But with all that, your liabilities also increase if these are on loan. In the event of an untimely death of the primary earner, the burden of these liabilities falls on the dependents.
In many cases, these assets need to be given up by the family because they can't bear the burden. Insurance is a must-buy to avoid these situations and secure assets.
3. Secure Your Finances Against Critical Illnesses
The modern lifestyle has given rise to many ailments, many of which require highly expensive treatments. Some term plans provide financial stability in the case of death of the life assured and financial assistance if the policyholder is diagnosed with any critical illness.4. Cost-Effective Coverage (Affordable Premiums)
Term insurance stands out among other life insurance options for its balance of extensive coverage at considerably low premium costs. This affordability makes term insurance attractive for those seeking effective yet budget-friendly life insurance solutions.5. Substitute for Lost Income
Term insurance acts as an income replacement tool. The death benefit can replace the lost income, ensuring that the family’s standard of living is not compromised and long-term goals can still be achieved.6. Customizable Protection Plans
Term insurance plans offer flexibility regarding coverage amount, policy term, premium payment term, and rider options. Policyholders can choose a plan that fits their needs and increase coverage based on life-stage requirements.Tips on Choosing the Best Term Plan
Choosing the best term plan is crucial to secure your family's financial future. Here are some tips to help you make an informed choice:
- List your specific needs, including understanding your current income, the number of dependents, future life goals such as a child's marriage or spouse's retirement corpus, and EMIs payable.
- Decide on the coverage you need before going through various term insurance plans available on the market.
- The claim settlement ratio is an essential factor to consider. It represents the number of claims settled by the insurance company out of the total claims received.
- Solvency Ratios and Premium Rates are essential in choosing the best term plan. They indicate the insurance company's financial capability to meet its obligations.
- Look for policies that offer customisation options to suit your specific needs.
- Consider companies with high customer satisfaction scores and excellent service ratings.
- Never mix insurance with investments.
- Save on your tax outgo with term insurance premiums and additional riders.
Terminologies Related to Term Insurance
Policyholder: PolicyHolder is the person who buys the insurance and pays regular premiums.
Life Assured: The person whose life is insured. This may or may not be the same person as the policyholder.
Nominee: The person who receives the death benefit or sum assured in case of an unfortunate demise of the policyholder. The policyholder chooses the nominee when taking the policy; however, they can always be changed during the policy term.
Sum Assured: This is the amount of money a nominee receives in case of the policyholder's demise, and it is one of the major factors determining a policy's premium.
Policy Term: Policy Term is the period during which a policy is active. All benefits and life cover of an insurance policy are valid during this period, and it differs across different policies.
Premium: Premium is the amount of money you pay to the insurance company in return for the insurance. Premium can be paid via various modes: Annual, half-yearly, or even monthly.
Death Benefit: The total amount an insurance provider gives to the nominee in case of demise of the life assured. This is mostly equal to the Sum Assured; however, it might be more when riders are added.
Add-on Benefits (Riders): Add-On Benefits or Riders are the additional coverages on your policy covering some specific conditions like critical illness, accidental death, etc. They come at an additional cost over and above your standard premium.
- Claim: In the case of the life assured's demise, the nominee should file a claim with the insurance company. Basically, it is an intimation to the insurance company about the unfortunate event and the demand for insurance coverage payment.
Read more: Basic Terminologies to Know in Term Insurance
FAQs about Term Insurance
Is there an age limit to buying a Term Insurance Plan?
What are the types of deaths covered in Term Insurance?
The following types of deaths are considered valid by an insurance provider at the time of claim settlement:
a) Natural Death
b) Death due to any critical illness
c) Accidental Death
d) Death due to natural calamities like earthquakes, floods, etc.
e) Suicide is covered if it happens after 12 months of buying the policy. However, if it occurs within 12 months, a certain proportion of the sum assured is paid to the nominee. This depends from one insurer to the insurer.
Read more:
What types of deaths are not covered by insurance?
a. Any Death that involves self-harm or self-infliction of injury like suicide is not covered under insurance.
b. Death due to driving under the influence of alcohol or drugs is not covered.
c. Death due to participating in hazardous activities
d. Death due to the involvement in illegal activities when either the life insured was involved in any criminal activity or the nominee is criminal, and it is discovered that the life insured was killed with the nominee's involvement.
Can I buy more than 1 Term Insurance policy?
Can I change the nominee in my Term Plan, and how many times can I do so?
Should we take Riders along with Term Insurance?
Do we get any return in Term Insurance?
Can I get Term Insurance if I'm not in a job?
Can husband and wife both take Term Insurance?
What is the difference between Term Insurance and Accidental Insurance?
Why should I buy Term Insurance when I already have Life Insurance from my employer?
What would happen if a person has two Term Insurance policies?
Can Non-Resident Indians (NRIs) buy Term Plans in India?
Does the premium remain the same throughout the tenure of a policy?
What if I do not want my Term Cover once I have taken it?
On maturity, can a fresh policy be availed at the rate of the old premium?
What is the Contestability Period in Insurance?
If I stop smoking today, or maybe 6 months before taking a Term Insurance Policy, will I get a Non-Smoker rate?
What is the best kind of Life Insurance Policy?
What is the difference between term insurance and life insurance?
Under which sections of the Income Tax Act can policyholders claim term insurance tax benefits?
Term insurance offers tax benefits under various sections of the Income Tax Act.
Section 80C of Income Tax Act: Term insurance policyholders can claim a deduction of up to ₹1.5 lakh in premiums paid annually. This section also covers other investments like the Public Provident Fund, National Savings Certificates, ELSS, and tax-saving FDs.
Section 80D of Income Tax Act: While this section primarily applies to health insurance plans, term insurance policyholders with additional covers (such as Critical Illness or Surgical Care) can also save taxes on premiums paid
Is term insurance refundable?
What is the policy term?
Does term insurance have maturity?
What expenses are covered in my term plan?
How long should be the term of the plan?
Choosing the longest possible term insurance duration, depending on individual needs and responsibilities, is generally a good idea. Consider your current age, expected retirement age, your children's age, and any significant financial liabilities.
For example, if you are 30 years old and think you will only need life insurance for the next 30 years, opting for a 40-year tenure is still recommended.
How to get low premiums on term insurance plans?
What happens at the end of the policy tenure?
Is there any age limit to getting a term insurance plan?
Why is term insurance essential at every stage of life?
What is the rule of term insurance?
Do you get your money back at the end of the policy term?
What are the advantages and disadvantages of each premium payment option?
- The Single Premium Payment Option entails paying the full premium upfront, avoiding monthly hassles. However, due to its size, it can strain budgets.
- Regular Premium Payment Option allows for periodic payments (monthly, quarterly, half-yearly, or yearly), making it budget-friendly, though it might incur extra charges.
- Automatic payments ensure timely contributions and help avoid missed payments by requiring enough funds in your account to prevent late fees or coverage lapses.
- Lump-sum payments may attract discounts, benefiting upfront payers, but require careful financial consideration to prevent strain.
Which is the most common type of term insurance?
Who can be a nominee in term insurance?
How to claim term insurance after death?
Please ensure that you remember the following steps to claim the assured sum as a nominee of the term insurance policyholder:
- Step 1 - As a nominee, notify the insurance company about the claim
- Step 2 - Keep your documents handy to ensure a smooth claim process.
- Step 3 - The insurance company will carefully evaluate your claim.
- Step 4 - Claim settlement
Do I need to buy term insurance even if I am covered under my company's group policy?
What are the eligible investments and expenses under Section 80C for tax deductions in India?
Other Important Articles Related to Term Insurance
Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
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