Term insurance has emerged as one of the most effective and affordable ways to provide financial security to your loved ones. With the convenience of online platforms, purchasing term insurance plans in India has become easier than ever before.
Term insurance is a type of life insurance that provides coverage for a specific term or period. In this article, we will know about term plan, explore its features, benefits, types, and the best plans available in India. We will also guide you through the process of selecting the best term insurance plan and the factors influencing term insurance premiums.
What is a term insurance plan?
A term life insurance policy offers coverage for a specific period, typically ranging from 10 to 30 years. The term life insurance meaning refers to a policy where the insurer provides a death cover if the policyholder dies within the term. If the term ends and the policyholder is still alive, no benefit is paid. However, some policies offer the option to renew the coverage at the end of the term or extend it, depending on the policy terms. Additionally, many policies provide the option to convert the term policy into a permanent life insurance policy, which offers lifelong coverage. These features provide flexibility and ensure long-term financial security.
Types of term insurance plans
Term life insurance plans provide straightforward life insurance coverage for a specified term, offering financial security to beneficiaries if the insured passes away during the policy duration. There are several types:
- Level term: Offers a consistent death benefit throughout the policy term.
- Decreasing term: Death benefit decreases over time; ideal for covering mortgage or loans.
- Increasing term: Death benefit increases periodically, providing protection against inflation.
- Renewable term: Allows policy renewal at the end of each term without the need for re-evaluation of health.
- Convertible term: Permits conversion to a permanent policy without a medical exam.
- Return of Premium (ROP): Returns paid premiums if the insured survives the policy term.
- Group term: Typically offered by employers to a group of employees, often with lower premiums.
Each type caters to diverse needs, ensuring families and dependents receive financial support in case of the insured's untimely demise. This makes term insurance a crucial component of a comprehensive financial plan.
Eligibility and documents needed to buy term insurance plan in India
Buying term insurance plan in India requires a few essential documents to ensure a smooth process. Here are some of the documents required:
- Age proof: Any government-issued identity card, passport, or birth certificate that verifies your age.
- Identity proof: Aadhaar card, PAN card, Voter ID card, or driving license, that prove your identity.
- Address proof: Utility bills, ration card, or driving license, used as proof of your residence address.
- Income proof: Latest salary slip, bank statements, or income tax returns.
- Passport-size photograph: Required for identification purposes.
Why do you need term life insurance?
Here are the reasons why you should consider getting term insurance:
- Financial security for dependents: Term life insurance ensures that your family members or dependents are financially protected in case of your untimely death. The death cover provided by term insurance plans can help cover living expenses, education costs, and any outstanding debts, allowing your loved ones to maintain their standard of living.
- Affordable premiums: Compared to other types of life insurance, term insurance plans are cost-effective, offering high coverage at relatively lower premiums. This affordability allows you to secure comprehensive life coverage without straining your budget.
- Customisable coverage period: Term insurance plans offer flexibility with different policy terms (10, 20, or 30 years). This ensures you can select a policy term that aligns with your life stage and financial obligations, such as securing your children’s future or covering a mortgage.
- Debt protection: If you have loans or other financial obligations, a term life insurance policy can help clear them in case of your demise. The payout ensures that your dependents are not burdened with your debts during difficult times.
- Peace of mind: Having a term life insurance policy provides peace of mind, knowing that your family’s financial future is safeguarded. It allows you to focus on your present without worrying about what might happen to your loved ones in the event of your death.
- Tax benefits: Term insurance plans also offer tax deductions under Section 80C, making them a useful tool for saving taxes while securing your family’s financial future.
Also, read: Term insurance calculator
Key features and benefits of term insurance
Term life insurance is a smart financial choice due to its affordability and focused coverage. Following are the key features and benefits of term insurance:
- Affordability: Term insurance plans offer high coverage at a relatively low premium cost, making them an attractive choice for individuals seeking comprehensive protection.
- Financial security: The primary purpose of term insurance is to provide financial security to your loved ones. It ensures that they are financially stable even if you are not around.
- Flexibility: Term plans can be customised to suit your specific needs. You can choose the policy term, sum assured, and additional riders according to your requirements.
- Tax benefits: Premiums paid towards term insurance plans are eligible for tax deductions under Section 80C of the Income Tax Act.
- Rider options: Term plans often come with additional rider options such as critical illness cover, accidental death benefit, and disability cover, enhancing the overall coverage.
Who should buy term insurance plan?
Term insurance is well-suited for specific individuals based on their life circumstances and financial goals:
- Young adults: Those starting their careers can secure substantial coverage at an affordable cost, protecting against potential financial burdens.
- Parents: Individuals with dependents, like young children or aging parents, can ensure their family's financial stability if they pass away.
- Debt holders: People with mortgages, loans, or significant debts can use term insurance to prevent passing these obligations to their loved ones.
- Business owners: Entrepreneurs can cover business-related debts or ensure the continuity of their business in case of their untimely death.
- Estate planning: Term insurance can be strategically used to cover estate taxes, ensuring heirs receive assets without heavy tax burdens.
- Health concerns: Individuals with health issues can secure coverage while addressing immediate financial responsibilities.
How does term insurance work?
Term insurance provides financial protection for a specified period, usually ranging from 10 to 30 years. Policyholders pay regular premiums, and in return, the insurance company promises to pay a death benefit to the beneficiaries if the insured dies within the term. This death benefit is a lump sum amount intended to provide financial security to the policyholder’s family. Unlike whole life insurance, term insurance does not accumulate cash value; it is purely a risk protection tool. Some term insurance policies offer options for renewal or conversion to permanent insurance, providing flexibility as the policyholder’s needs evolve.
How to select the best term insurance plan?
- Coverage amount: Choose a sum assured that adequately covers your family's financial needs.
- Policy term: Align the policy term with your financial goals and responsibilities, such as education and marriage of children.
- Rider options: Consider adding riders that address specific risks or needs, such as critical illness or disability coverage.
- Claim settlement ratio: Opt for an insurance company with a high claim settlement ratio to ensure a smooth claims process for your family.
Difference between life insurance and term insurance
Aspect |
Life insurance |
Term insurance |
Coverage duration |
Typically, lifelong cover |
Limited term coverage |
Premium |
Higher premium |
Lower premiums |
Cash value |
Builds cash value over time |
No cash value |
Investment component |
Includes an investment/savings component |
Pure insurance protection |
Focus |
Savings and investment with protection |
Protection with no savings element |
How term life insurance differs from whole life insurance?
Here is how term life insurance is different from whole life insurance:
Feature |
Term Life Insurance |
Whole Life Insurance |
Coverage period |
Provides coverage for a specific period (10, 20, 30 years). |
Provides lifetime coverage as long as premiums are paid. |
Premiums |
Lower premiums compared to whole life insurance. |
Higher premiums due to lifelong coverage and cash value. |
Cash value |
No cash value component. |
Accumulates cash value over time, which can be borrowed against. |
Payout |
Only pays if the policyholder dies within the term. |
Pays a death cover regardless of when the policyholder dies. |
Cost-effectiveness |
More affordable, ideal for temporary coverage needs. |
More expensive due to the investment component. |
Key factors affecting term insurance premiums
- Age: Younger individuals generally pay lower premiums as they are considered under a low-risk age category.
- Health: Your health condition and medical history influence the premium. Non-smokers and those with good health receive preferential rates.
- Policy term: Longer policy terms may lead to higher premiums.
- Sum assured: Higher coverage amounts result in higher premiums.
- Lifestyle habits: Behaviours such as smoking or hazardous occupations can increase premiums.
Common mistakes to avoid when buying term life insurance
Following are some of the common mistakes you should avoid when getting term insurance:
- Not assessing coverage needs: Many individuals buy a policy without evaluating their financial obligations. It's essential to calculate the sum assured based on dependents' needs, debts, and long-term goals.
- Choosing the wrong policy term: Selecting a term insurance plan with too short or too long a duration can lead to inadequate coverage or higher premiums. Ensure the policy term aligns with your financial responsibilities.
- Ignoring premium affordability: While it is tempting to get higher coverage, ensure the premiums are affordable for the long term, as missed payments can lead to policy lapse.
- Overlooking exclusions: Carefully review the policy exclusions to avoid surprises, as some causes of death may not be covered. Always read the fine print.
How to buy the best term insurance plan in India?
Given below are the points to remember when buying a term insurance plan:
- Research: Compare different term plans online based on features, coverage, and premium rates.
- Evaluate your needs: Determine the required sum assured and policy term based on your financial responsibilities.
- Online application: Fill out the application form with accurate details and submit the necessary documents online.
- Medical examination: Some plans may require medical tests. Schedule and complete the tests as required.
- Payment: Pay the premium online through secure payment gateways.
What is a term insurance rider?
A term insurance rider is an additional feature or add-on to a basic term life insurance policy that provides extra benefits or coverage options. These riders allow policyholders to customise their insurance plans to better meet their specific needs and circumstances. Common types of term insurance riders include critical illness riders, which provide a payout if the insured is diagnosed with a serious illness, and accidental death cover riders, which offer an additional sum if the death is due to an accident. Adding riders to a term life insurance policy enhances protection and provides financial security for various unexpected events.
What are the different types of term insurance rider?
You can choose from the following types of term insurance riders as per your needs:
- Accidental death cover rider: Provides an additional payout if the insured dies due to an accident, enhancing the financial support for beneficiaries.
- Waiver of premium rider: Waives future premiums if the policyholder becomes disabled or critically ill, ensuring the term life insurance policy remains active without financial burden.
- Critical illness rider: Offers a lump sum payment upon diagnosis of a specified critical illness, aiding in medical expenses and recovery costs.
- Accelerated death cover rider: Allows access to a portion of the death cover if the insured is diagnosed with a terminal illness, helping cover end-of-life expenses.
- Child term rider: Provides life insurance coverage for the policyholder's children, offering financial protection in the event of a child's death.
Why should you compare term insurance plans online?
Reasons to compare term insurance plans online:
- Cost efficiency: Comparing term life insurance plans online helps identify the most affordable options, ensuring you get the best value for your premium.
- Coverage options: Online comparisons allow you to review various coverage features and riders, helping tailor the term life insurance policy to your specific needs.
- Convenience: Easily compare multiple plans from different insurers from the comfort of your home, saving time and effort.
- Customer reviews: Access to reviews and ratings helps gauge the reliability and customer service of insurers, ensuring a trustworthy choice.
- Special offers: Online platforms often highlight special discounts and offers, providing additional savings on your term life insurance policy.
Why selecting the right sum assured is crucial in term insurance?
Choosing the right sum assured in a term insurance policy is essential as it determines the financial security your family will receive in the event of your untimely demise. A higher sum assured ensures that all your financial obligations, including debts, daily expenses, and future goals, are adequately covered for your dependents.
Important term policy terminologies
- Sum assured: The amount the insurance company pays to the nominee in the event of the policyholder's death.
- Nominee: The person chosen to receive the death benefit in case of the policyholder's demise.
- Rider: Additional coverage options that can be added to the base policy.
- Premium: The amount paid by the policyholder to the insurance company to maintain the coverage.
- Death benefit: The amount paid to beneficiaries if the policyholder passes away during the term.
- Renewal: The option to extend the policy after the term expires.
- Grace period: The additional time period given to pay the premium after the due date.
Also, read: Term insurance app
Importance of term insurance plans post COVID-19
Following are the reasons what makes term insurance important:
- Financial security: Term life insurance provides essential financial protection for families, ensuring their stability in uncertain times.
- Affordability: Term life insurance remains a cost-effective way to secure substantial coverage, making it accessible for many individuals.
- Health awareness: Increased health awareness post COVID-19 highlights the importance of being prepared for unforeseen events with adequate coverage.
- Customisable coverage: Flexible term life insurance plans allow adding riders for critical illness or disability, enhancing overall protection.
- Peace of mind: Knowing your loved ones are financially protected provides peace of mind, allowing you to focus on enjoying life.
Term life insurance plans stand as a pillar of financial security, ensuring that your loved ones are shielded from the uncertainties of life. With a plethora of options available in India, finding the best term insurance plan requires careful consideration of your needs and objectives.
By understanding the features, benefits, and factors influencing term insurance, you can make an informed decision that offers peace of mind and protection for your family's future.
