What is Term Insurance – Here’s all you need to know!
We all work hard to ensure that our loved ones always have a better today and tomorrow. One of the most important instruments that can ensure the financial safety of your family is a Term Insurance Plan.
What is a Term Insurance Plan?
Term life insurance meaning refers to a type of life insurance plan that compensates the beneficiary of the insured person, in case of the unfortunate death of the insured during the policy term. The sum insured opted under the policy is payable as a death benefit to the beneficiary or nominee on filing of a death claim with the insurance company, assuming the policy is premium paying.
How does a Term Insurance Plan work?
Term Insurance Plan is a pure insurance cover. It is the simplest form of life insurance for securing the financial future of your loved ones in your absence, by financially indemnifying them to live their lives as before. Affordability is an essential aspect of a Term Insurance Plan. Under a Term Insurance Plan, the individual can get a high coverage amount at the most affordable premium price.
Term Plan meaning is refers as a pure protection plan that offers death benefit on the death of the insured during the policy term, with no maturity benefit given on survival till the completion of the policy term.
The premiums under the term plans are affordable, and with the availability of online term plans, one can further avail a reduced premium, since there isn’t any cost of intermediaries like agent commissions. This makes Term Insurance Plans, the cheapest, and the most affordable form of life insurance. Also, insurance companies offer differential premium pricing for females and non-smokers which further lowers the premium cost. Opting for a large sum of the insured amount also helps in getting an additional discount on premium from your insurer.
It also helps you to get a tax benefit under section 80 C of the income tax act of the land. Also, a term plan bought at an early age offers lower premium rates.
Also Read: How to Determine the Ideal Coverage Amount for Term Insurance
Term insurance is a straightforward and affordable life insurance policy offering financial protection to your loved ones. Here are the key features of term insurance plans:
Affordable Premiums
Term insurance is known for its low premiums, offering high coverage at an affordable cost, making it suitable for those seeking financial protection without stretching their budget.High Coverage Amount
With term insurance, you can secure a significant sum assured at a relatively low cost, ensuring that your family’s financial needs are met in case of your untimely demise.
Fixed Policy Term
Term insurance plans have a fixed duration, typically between 10 to 40 years. You can choose a term that aligns with your life stage, such as until your children are independent or until retirement.
Death Benefit
The nominee receives the sum assured in case of the policyholder’s death during the policy term. This benefit is generally tax-free under Section 10(10D) of the Income Tax Act.
Riders and Add-Ons
Many term plans offer optional riders like critical illness, accidental death, or disability coverage, which can enhance the policy’s protection and cover unforeseen events.
Convertible Option
Some insurers allow policyholders to convert their term insurance into a whole life policy or ULIP after a certain period, offering flexibility.
No Survival Benefit
Term insurance plans do not provide survival benefits, focusing solely on death protection.
Why Is Term Life Insurance Important?
Because life is unpredictable, one should always have a backup financial arrangement to support his/her family. Also, looking at the mounting inflation, lifestyle expenses, education expenses of children, easy monthly installments (EMI), etc. survival of the family members in the absence of an earning member becomes tough (even if you have some savings in hand). To combat the financial crisis in these scenarios, a substantial fund or corpus is necessary for the family members to continue their lives with some financial comfort. It is not easy to build such a corpus with few handfuls of savings or investment schemes. A term plan takes care of your family’s financial needs and provides them with financial stability through lump sum payout in times of distress.
Payout Options – are offered in, lump-sum amounts at the end of the term, staggered payouts along with the lump sum amount, regular monthly income along with the partial lumpsum amount
Riders – are available in the form of accidental death benefit rider, critical illness rider, and waiver of premium rider for comprehensive protection against death, disability, accident or disease
Premium Payment Mode - available as monthly, quarterly, semi-annually or annually, as per one’s financial comfort of premium payment
Also Read: Top 10 reasons why Term Insurance Plans are must to have
A term plan is essential to protect your family’s future. Before making a decision, consider the following key factors to ensure you select the right coverage:
1. Coverage Amount: Evaluate the financial needs of your family. The coverage should be sufficient to replace your income, pay off debts, and cover future expenses like children’s education or marriage. A general guideline is to opt for a coverage amount of 10-15 times your annual income.
2. Policy Term: Choose a policy term that aligns with your life goals. A longer-term can provide coverage until retirement or until your dependents are financially independent. Ensure the policy term meets your needs without being too short or unnecessarily long.
3. Premiums: Premiums for term insurance are relatively affordable but vary based on coverage amount, policy term, and age. Choose a premium that fits your budget, but don’t compromise on coverage for cost savings.
4. Claim Settlement Ratio: The claim settlement ratio of an insurer reflects how efficiently they settle claims. Opt for a high-ratio insurer to ensure your beneficiaries receive the sum assured without hassle.
5. Riders and Add-ons: Consider adding riders such as critical illness or accidental death benefits to your term plan. These add-ons provide additional protection for unforeseen circumstances at an affordable cost.
6. Renewability and Conversion Options: Check if the plan offers renewal options after the term ends or if it can be converted into a permanent life insurance policy, providing more flexibility.
By considering these factors, you can make an informed decision that ensures comprehensive protection for your loved ones.
What are the different types of Term Insurance Plans?
A Term Insurance Plan comes in various forms, and knowing the differences can help you in selecting the Term Insurance Plan that best suits your needs.
Term Insurance Plans can be classified into the following six types:
• Level Term Plans
• TROP (Return of Premium) Plans
• Increasing Term Plans
• Decreasing Term Plans
• Convertible Term Plans
Here are more details on Term Insurance Plans:
Level term plans are the most basic Term Insurance Plans. In level term plans, the sum assured is fixed throughout the policy and the benefits are paid to the nominee on the death of the life insured.
TROP plans come with a maturity benefit. On surviving the policy tenure, the life insured gets back the total paid premium.
In increasing term plans, the policyholder can increase the sum assured on annual basis during the policy tenure, with the premium account at the same value. The premiums are slightly higher than level term plans.
In decreasing term plans, the sum assured keeps decreasing each year to meet the decreasing insurance needs of the life assured. This plan works best for individuals who have already opted for large loans in the past.
By opting for a convertible term plan, the policyholder can convert one type of term insurance pan into another type of plan at a future date. This helps the policyholder to adapt the plan as per his/her financial targets.
A Term Insurance Plan should be a priority, considering the unpredictable nature of life!
Buying term insurance online is simple and convenient. Follow these steps to purchase the right plan for your needs:
1. Assess Your Coverage Needs
Determine how much coverage you need by evaluating your income, debts, and family’s future financial goals. A good rule of thumb is choosing a sum of 10-15 times your annual income.
2. Research Insurance Providers
Compare various insurers offering term insurance. Look at the premiums, coverage, policy terms, and riders. Consider the insurer’s claim settlement ratio to ensure reliability.
3. Choose the Right Plan
Select a term insurance plan based on your requirements. For enhanced coverage, you can add riders like critical illness or accidental death benefits.
4. Fill in Your Details
Complete the online application by entering personal details like your age, health, income, and lifestyle. Accuracy is crucial for the underwriting process.
5. Undergo a Medical Check-up
Depending on your age and health, a medical check-up may be required. Many insurers offer online medical tests for convenience.
6. Make the Payment
Once your application is processed, proceed with premium payment through credit/debit cards or net banking options.
7. Review the Policy Document
After payment, you’ll receive the policy document. Review it carefully to confirm all the details are accurate.
With these simple steps, buying term insurance online can be quick and hassle-free.
Determining the right term insurance cover depends on factors that ensure your family’s financial security in case of your untimely demise. Here’s how to calculate the coverage amount:
A key consideration is replacing your income to ensure your family maintains their lifestyle. Your term insurance coverage should ideally be 10-15 times your annual income. For example, if you earn Rs 10 lakhs annually, you should aim for a coverage amount of Rs 1-1.5 crore.
Consider any existing loans, such as home loans, car loans, or personal loans. Your term insurance should cover these debts so that your family isn’t burdened with them in your absence.
Consider future financial responsibilities such as your children’s education, marriage, or other life goals. Depending on their age, you may need to set aside Rs 20-30 lakhs for education and related expenses.
Your family will need a certain amount for daily living expenses. Depending on the number of dependents, factor in 5-10 years’ worth of living expenses in your cover. This could range from Rs 30-40 lakhs.
Remember that inflation will increase living costs over time. To ensure adequate coverage in the long term, factor in an annual inflation rate of 6-8%.
By assessing these factors, you can choose a term insurance cover that meets your family’s needs and provides them with long-term financial security.
Frequently Asked Questions
Term insurance is a life insurance policy that provides coverage for a specified period, offering financial protection to your beneficiaries in case of your death.
2. Who is eligible for a term insurance plan?
Generally, anyone aged 18-65 is eligible, provided they meet the insurer's health criteria.
3. Can I buy a term plan for a spouse?
Yes, you can purchase a term plan for your spouse as a policyholder or nominee.
4. Does Term Insurance Cover Terminal Illness Benefits?
Some term insurance plans offer terminal illness benefits, providing early payouts if diagnosed with a terminal illness.
5. What are the minimum and maximum age to buy a term insurance plan?
Minimum age is typically 18 years, and maximum age is around 65-70 years, depending on the insurer.
6. What is the best age to buy term insurance?
The best age to buy term insurance is in your 20s or 30s, ensuring lower premiums and long-term coverage.
Feb 57/19
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