What is Term Insurance?
What is Term Insurance? Well, this is a general question about which most of Urban Indians are still not aware. As per Wikipedia, Term Life Insurance is a form of life insurance that provides coverage against a fixed rate of premiums for a limited period of time. In case the insured dies within the term of the policy, then the coverage amount or the death benefit is paid to the beneficiary. And after the policy term expires, the policyholder can renew the term plan; however, he or she will not get the previous rate of premiums. Therefore, in such a scenario, the applicant can either forgo the insurance or get further coverage with different conditions and payments.
According to Max Life India Protection Quotient (IPQ) 2.0 survey jointly conducted by Max Life Insurance and Kantar IMRB, the Indian Protection Quotient is as low as 37. This means that Indians feel uncertain and under-protected while managing their financial future.
The survey also reveals that almost 70 percent of India’s population owns life insurance policy, but in the case of term insurance, only 3 out of 10 people are investing term insurance. Out of which, 55 percent think that they have an insufficient cover. However, the good part is that the awareness around term life insurance has increased and is at 57 percent. There is a probability that with the increase in knowledge about term insurance policy; there might be more people purchasing term plans in the coming years.
Moreover, as IPQ degree is as low as 37, it is essential that all of us re-think about life insurance to protect our family’s future and the nation as well.
India Protection Quotient refers to the degree (on the scale of 0 to 100) on which Indians feel secured from uncertainties in the future. IPQ is based on the attitudes, mental preparedness related to the future risks, ownership, and awareness about the life insurance product categories (Term, endowment and ULIP)
How does a term insurance work?
Term Insurance is an agreement between the applicant and the insurance provider wherein the insurer agrees to pay an insurance coverage amount to the nominee/s of the policy, in case of the sudden demise of the policyholder during the policy tenure.
To buy a term life insurance, you need to apply for it while selecting a life coverage amount (sum assured) based on your age, income and other factors. You need to pay a premium against the coverage amount for a specific duration to keep the policy active. As per the agreement, if the insured person passes away during the policy term, then the dependents or beneficiaries get the death benefit, or the sum assured amount.
The sum assured amount is paid to the beneficiary based on the pay-out option chosen by the policyholder at the time of purchasing the term plan. The various options for pay-out include lump-sum payment, monthly or partial payment option.
But why term insurance is so important?
The answer to this question is very simple. Nowadays, the chances of accidents and illnesses have rapidly increased, making our lives immensely unpredictable. Thus, experts suggest that every individual should invest in term life insurance to secure their family’s future financially in his or her absence, making their life smooth and comfortable like before. It is the most inexpensive form of life insurance offering high coverage as compare to other life insurance policies. Term Insurance policy does not provide any maturity benefit; rather, it provides death benefits to the beneficiary of the term plan.
In a term life insurance, the policyholder pays a fixed premium against a sum assured amount for a specific term. The insurance providers calculate the premiums of the policy based on the applicant’s age, health condition, income, and other factors. That is why insurance companies review the applicant’s health status through medical tests and then decides on the coverage amount and premiums. Term Insurance has become a necessity for today’s lifestyle. Here are some key factors that will make you understand why is it so?
- Health risks: In today’s time, there are various kinds of illnesses and ailments. Term insurance policies do not only secure your family’s future but also offer protection against such diseases and offer financial coverage on the diagnosis of ailments like cancer or others.
- Expenses of the dependents: The dependents or nominees can use the sum assured amount of the term insurance for managing their monthly costs when you are not with them. Moreover, the amount can also be used to fulfil other crucial expenses like marriage or education of your child.
- Protection of liabilities: In your absence, your family might get burdened with the repayment of loans taken for assets like a car or home. The term insurance pay-out amount can take care of this aspect as well in your absence, keeping your dependents stress free.
What are the eligibility criteria?
Below are listed some of the general requirement to apply for term life insurance. However, these may vary from insurer to insurer.
|Minimum eligible age||18 years|
|Maximum eligible age||65 years|
|Maximum maturity age||Upto 99 years|
|Minimum sum assured||Rs 25 lakh|
|Premium payment||Annually, half-yearly, quarterly, monthly|
What are the documents required?
|Age Proof Allowed||a) Birth Certificate||a) Birth Certificate|
|School Leaving Certificate, issued at the time leaving the school.||School Leaving Certificate, issued at the time leaving the school.|
|b) Passport||b) Passport|
|c) Driving License||c) Driving License|
|d) Aadhar Card – only if Complete Date of Birth is mentioned therein||d) Aadhar Card – only if Complete Date of Birth is mentioned therein|
|STANDARD INCOME PROOF|
|Salaried||Salary Slips for Last 3 Months|
|Bank Statement reflecting
Salary Credits for Last 3 Months
|Form 16 (Part A & B) for last 2 years|
|Self Employed||Audited Balance Sheet and
P& L Account for Last 3 Years
|ITR with Computation of Income for Last 3 Years|
|Shareholding pattern of company
if holds share in the Company
(if Income from Partnership)
|SURROGATE INCOME PROOF|
|Investments||Fixed Deposit Receipt|
|Mutual Fund Statement|
|Monthly SIP Receipt|
|Bank Statement||Bank Statement|
|Credit Card||Credit Card Statement showing Monthly Credit Limit|
|Car Document||Car Ownership Document/ Purchase Document|
|House/ Commercial Property Document||Loan Document against House/ Commercial Property|
Now let’s understand the features and benefits of term life insurance to know it in a better way.
- Cost-effective: Term Life Insurance is a cost-effective way to secure your family financially in your absence as it offers high life coverage at affordable premiums. Term Plans does not have any investment element attached to it, and thus the premiums are much lower as compared to the other insurance policies. Hence, it is the most affordable form of life insuranceplan that everyone can afford.
- Multiple options for payout: While buying term insurance, you can choose either lump-sum payment, monthly or partial payout option, depending on the needs of your family. The choice you make determines the way they will lead their lives when you are not there. Therefore, you should select the option keeping in mind your family’s future needs and requirements.
- Riders to enhance term policy:Riders are the add-on benefits that gives you extra coverage along with your base term policy. There are various types of riders available in your term insurance plans such as Critical Illness Rider, a Disability rider, Accidental death benefit rider, Waiver of premium rider amongst others. You should choose the one that is best suited as per your needs.
- Simple to understand: One of the interesting features of term life insurance is that they are simple and easy to understand as compared to other life insurance policies. A pure term insurance policy offers you death benefit and not the maturity benefit. For the insurance coverage amount, you pay premiums for a fixed tenure, and the insurance company provides the benefit in term of securing your family financially in case of your demise within the term policy duration.
- Return of Premium:A pure term insurance plan does not provide any maturity benefit, which means that after the policy term gets over; you do not get the premium amount that you have invested. However, if you select the return of premium option, then you can get back the premiums if you survive the tenure of the policy.
- Income Tax Benefits: The premiums you pay for the term life insurance are tax-free Under Section 80C of the Income Tax Act 1961, up to a limit of Rs.1.5 Lakh in a year. Also, the death benefit amount that is given to the dependants is wholly exempted from the tax under the provisions of Section 10(10D) of Income Tax Act 1961.
- Security for liabilities:Term life insurance provides protection to the dependents from the burden of the policyholder’s loans and debts.
- Financial security:Term insurance policies offer complete financial security to the policyholder’s family in his/ her absence. If the policy is active and all its premiums are paid on time, then the nominee/s are eligible to receive the death benefit amount and comfortably lead their life.
- Flexible Policy Term: The term of a term plan ranges from 5 years to 40 years. Applicants can choose their preferred policy tenure as per their needs and requirements.
Who should buy it?
Any financially independent individual with dependents should consider buying a term life insurance policy, such as working professionals, married couples, parents or even those seeking tax benefit options. In a nutshell, any person who wants to provide a secured future to his or her family should invest in a term life insurance.
- Working professionals:If you are young and working, then you must think about buying term insurance. As buying a term plan at a young age will cost you must less as compare to buying it in the later years.
- Parents:Being parents hold a greater responsibility, especially towards children and if you are the only earning member in the family. Term insurance is the best way to secure your child’s future and other members as well with the help of the death benefit amount.
- Married couples:A term insurance is an excellent financial safety tool to protect your spouse in your absence. During any eventuality, term plan not only gives security to the dependents but also takes care of the burdens like loans.
What are the different kinds of Term Life Insurance?
There is a wide range of term plans offered by insurance companies. Let’s understand the different term life insurances in detail.
- Usual Term Insurance Policy:A regular term life insurance offers coverage against certain risks on the payment of premium for a specific period. These term plans do not provide any maturity benefit but come with the death benefit. The policy tenure ranges between 10 to 30 years or even more, and the coverage it offers is quite extensive at a comparatively low premium. The nominee/s of the insurance plan receive the coverage amount in case the policyholder passes away within the policy period.
- Group Term Insurance Plans:This kind of term policy is meant for a group of individuals in companies, trusts, societies, or associations. As a part of this plan, every member gets insured. Group Term Insurance Plans are less expensive as compared to individual term plans. The benefits are almost the same as individual term plans, but the coverage terminates as the membership or employment ends.
- Convertible Term Plan: In this form of term insurance, the policyholder can convert his or her policy into a permanent one within the policy term. Certain insurance providers offer this as an add-on benefit rider while other provides it as a standalone plan.
- Term Return of Premium (TROP): These plans are regular term insurance plans with a little variation in the way that these provide a survival benefit. If the policyholder survives, then they are returned with the total premiums paid during the policy term, excluding the tax. This form of policy ensures that the money spent gets returned to the policyholder after a specific interval.
- Joint Term Insurance Plans: This form of term plans allows the policyholder to insure his or her spouse under the same policy. It’s a complete financial protection plan with multiple benefits, ensuring that the family is secure in the absence of the policyholder.
- Increasing term plans: In case of increasing term plans the coverage and the premium increases during the overall tenure of the term insurance policy. This kind of term plan covers the risk of increasing inflation costs. The insurance coverage in this form of term plan increases at a pre-specified rate, and it continues to rise until the overall value of the coverage gets 1.5 times the original cover of the term policy.
- Decreasing term plans: In decreasing term plans, the sum assured decreases every year by a certain percentage throughout the tenure of the policy. This kind of policy is usually meant for clearing debts. If the insured person passes away, then the available coverage amount is paid towards the clearing of the loan. The premium is generally less as compared to the regular term plans.
How to choose the best term plan?
The right way of choosing the best term plan is simple and easy. One thing that you need to remember while buying term insurance is to stay focus on your needs and requirements and then select the policy accordingly.
- The insurance coverage amount: The first thing that you should consider is the sum assured amount required to fulfil the future needs of your family. To find out the correct coverage amount, one can use the online insurance calculators. Also, there is one simple calculation that you can follow to determine the coverage amount. That is the coverage amount should be 10 times of the policyholder’s annual salary. While choosing term insurance, you should prefer the companies that offer the most reasonable cost for a term plan.
- The credibility of the insurance provider: Another vital aspect to look for while selecting a term plan, is the reputation of the insurance provider. This step is essential as term life insurance is a long-term investment plan. And as a policyholder, you need to be sure that your money is safe with a reliable insurance provider. To know the credibility of the insurer, you can check the company’s claim settlement ratio and FICO score.
- Add-on covers and riders: Insurance companies offer various riders and add-ons to the base policies. Therefore, the insurers which provide a complete protection plan backed with a range of riders should be considered a good choice to make.
What are the exclusions?
The claim for term insurance gets rejected if the reason of death is due to some abnormal circumstances. If accidental and critical illness rider is included in the policy, then the claim gets denied due to the following reasons:
- If it is an accidental death due to driving under the influence of alcohol or drugs.
- Death due to participating in life-threatening actions like trekking or racing.
- Death because of any pre-existing medical condition which is not mentioned in the policy.
- Death because of any illegal activity.
There are specific other exclusions as well.
- Death due to suicide in the first year of the term policy.
- Death because of sexually transmitted disease that is not mentioned in the insurance policy.
- Death due to intake of drugs or illegal narcotics.
How BimaKaro.in helps you find the best “Term Insurance”?
- You can choose from a variety of term plans available on BimaKaro.in.
- Term Insurance offers various riders to add in the primary term insurance policy.
- You can avail maximum life coverage at affordable premiums.
- Term insurance offers flexible term plan and different options for pay-out.
- The term plans available on inoffer tax benefits under Section 80c of the Income Tax Act.
Overall, you must be aware of the product in which you are investing for such a long period. In the case of term insurance, the main objective of buying it is safeguarding your family’s future financially, in your absence. It will help if you are sure about your needs and requirements so that you can choose and buy the right term life insurance. You also need to be sure about the insurer’s reputation as you will be investing quite a significant amount from your hard-earned money and even for the easy claim settlement. Hence, it would be best if you do your research before making the buying decision. You can visit BimaKaro.in that offers various term plans from top insurers in the country. You can quickly get customised quotes as per your requirement, compare and then select the right one for the better future of your family.