Term Insurance

What Does Term Life Insurance Mean?

Term life insurance is a form of life insurance that offers coverage for a set period or duration, known as a term. In the event of the policyholder's untimely death during the term, the insurance policy provides a financial payout to the designated beneficiary. Term life insurance plans offer substantial life coverage at lower premiums. For instance, the premium for a ₹1 crore term life insurance policy could be as low as ₹485 per month*. The policyholder can pay these predetermined premiums either at once or at regular intervals for the entire policy term or for a limited period. The premium amount varies depending on the payment method chosen by the purchaser.

Who Should Purchase A Term Insurance Plan?

Individuals who have financial dependents, including married couples, parents, business owners, self-employed individuals, SIP investors, young professionals with dependent parents, and in some cases, retirees, should consider purchasing a term insurance plan.
The premiums paid for life insurance plans are eligible for deduction from taxable income under Section 80C, providing a double benefit of protection and tax-saving for taxpayers. Furthermore, the amount received as the maturity value under a term insurance plan is tax-exempt, subject to certain conditions under Section 10(10D) of the Income Tax Act, 1961. Term insurance plans typically have lower premiums than other types of insurance policies, making them more affordable.
Therefore, individuals who seek any of the three significant benefits of term insurance, namely life protection, tax-saving, and cost-effectiveness, should consider purchasing a term insurance plan.

Parents

Parents are typically the primary financial support for their children, covering everything from school fees and living expenses to expensive university fees later in life. Unfortunately, a parent's unexpected misfortune can put their children's future in jeopardy, leaving them without the opportunities they deserve. To prevent this, parents should consider purchasing a term insurance policy that provides a lump sum or income to cover their children's expenses in case of any mishap with the parent(s).

Newly-married couple

While roses, chocolates, and movie tickets are nice gestures, a truly meaningful gift for your spouse is term insurance. Unlike fleeting gifts, term insurance can provide long-lasting security for your loved one's future. In the event of any mishap with the insured person, term insurance ensures that the spouse receives financial support. It's important for newly married couples to consider purchasing term insurance as soon as possible.

Working Women

In today's world, women are equal partners in managing finances and providing for their families. With families now depending on women's incomes as much as men's, it's crucial to financially secure your loved ones in the event of any mishap with you. Term Insurance guarantees that your parents, spouse, and children remain financially secure, even in your absence. The cover amount can also take care of any outstanding liabilities such as home loans, education loans, and more. Some term insurance plans also include critical illness cover, providing a payout for serious illnesses like breast or cervical cancer.

Young Professionals

Young professionals who are just starting their careers may not have any dependents yet, but that is likely to change in the future. Purchasing term insurance early in life is beneficial as premiums remain the same throughout the policy's term. Waiting to buy term insurance can lead to higher premiums later due to age-related increases.

Taxpayers

Under Section 80C of the Income Tax Act, 1961, term insurance premiums are allowed as a deduction from taxable income. Furthermore, term insurance payouts on maturity are exempt from tax, subject to certain conditions under Section 10(10D). Taxpayers can use term insurance to significantly reduce their tax burden.

Self Employed

As a self-employed person, you face unique challenges, such as an uneven source of income and loans from creditors, banks, or family and friends. Therefore, purchasing a term insurance plan to secure your family is even more important for you. Term life insurance ensures that your family remains financially secure in your absence.

SIP Investors

Mutual fund SIP investors make regular fixed investments in a mutual fund to create wealth over time. However, any mishap with the investor can stop the flow of instalments. To protect the SIP, term insurance can provide the nominee(s) of the insured person with funds to continue the SIP.

Retirees

Retirees with dependent spouses or families should consider purchasing term insurance to ensure their loved ones' financial security. Term insurance can also serve as a way of leaving an inheritance for their families. The payment of term insurance is tax-free subject to conditions under Section 10(10D) of the Income Tax Act, 1961.

Terms Related To Term Insurance

Below are some important terms related to term insurance that you should know:

Claim Settlement Ratio (CSR)
The Claim Settlement Ratio (CSR) is the ratio of the total number of claims settled by an insurance company to the total number of claims raised in a year. A higher CSR indicates that the insurer is more reliable and the chances of your family’s claim being rejected are low.

Term Insurance Premium
The premium is the amount of money that you pay to the insurance company in exchange for financial protection. Premiums can be paid in monthly, half-yearly, or annual instalments. Premiums tend to increase as you age.

Add-on Benefits (Riders)
Riders are additional benefits that can be added to your term insurance plan to enhance its coverage. Examples of riders include critical illness rider, accidental death rider, and permanent disability rider. These riders come at an extra cost over the premium.

Sum Assured
The sum assured is the amount of money that your nominee will receive in case of an unfortunate event. This amount also determines the premium amount for your term plan.

Death Benefit
The death benefit is the same as the sum assured and is given to the nominee in case of an unfortunate event.

Characteristics of Term Insurance

Consider the following features when looking at term insurance plans:

Early Eligibility
Term insurance plans allow a minimum entry age of 18 years, enabling you to safeguard your loved ones soon after you attain adulthood.

Extended Coverage
Term plans offer extended policy tenures of up to 40 years, providing long-term protection for your family.

Convenient Purchase
You can buy term insurance with minimal steps. By comparing various plans and features, you can select a plan that best suits your needs. From the comfort of your home or office, you can submit documents, pay premiums, and resolve customer queries.

Flexible Premium Payments
Term insurance plans offer flexible premium payment options such as monthly, quarterly, or yearly payments.

Adjustable Coverage
Term plans are flexible and allow you to increase or decrease the sum assured depending on your financial situation.

Liability Coverage
The sum assured of a term insurance plan can be utilized to secure your family's financial well-being and protect them from debt obligations such as loan repayment.

Reasons To Consider Term Insurance

Affordable high coverage:
Term insurance plans offer a large amount of life insurance coverage at an affordable premium. This can provide financial support to your family for a significant period.

Critical illness coverage:
Some term plans offer protection against critical illnesses at an additional premium. A lump-sum payment is made if the policyholder is diagnosed with a critical illness like cancer, heart attack, or kidney failure.

Disability support:
In case of total and permanent disability, some term plans will pay your future premiums. This ensures that your life insurance cover continues, even if you're unable to pay the premiums.

Additional financial security:
A term policy can provide an additional payout (up to Rs. 2 crores) in case of accidental death. For instance, if your life cover is Rs. 1 crore, a term insurance plan with accident death cover will pay Rs. 2 crores to your family in case of accidental death.

Tax benefits:
Premiums paid for term insurance plans are eligible for tax benefits under Section 80C (up to Rs. 46,800) and Section 80D (up to Rs. 7,800). Your family also receives tax-free death benefits under Section 10(10D).

Death benefits:
In the unfortunate event of the policyholder's death during the policy term, the nominee receives the death benefit from the term insurance plan. The nominee may choose to receive a regular income along with a lump-sum benefit.

Return of premium option:
Some term plans offer a return of premium option that pays a lump sum or regular income as guaranteed benefits if the policyholder survives the term. The term plan pays back an amount equal to the total premium paid

Receiving Payouts From Term Life Insurance

Term life insurance is a type of policy that provides a life cover to the policyholder and pays out a sum assured to the nominee in case of an unfortunate event. The payout can be received in different ways, depending on the option chosen:

Lump sum:
The entire sum assured is paid as a one-time payment to the nominee, who can use it as needed.

Income:
The nominee receives monthly income payments that are equal in amount. This can be used as a replacement for the policyholder's income.

Combination:
This option provides a part of the sum assured as a lump sum payment and the rest as monthly income payments. This can help meet varying financial needs of the family.

Increasing income:
The nominee receives monthly income payments that increase by 10% simple interest every year for 10 years until the entire sum assured is paid.

TOP 3 REASONS TO CONSIDER TERM INSURANCE

Family financial security:
Your family members depend on you for their financial needs. In your absence, the payout from a term insurance policy can help your loved ones maintain their lifestyle, pay bills, and fulfill important goals such as your child's education.

Protection for your assets:
Loans taken for assets like a house or a car can burden your family with repayments if you pass away. Term insurance can help pay off outstanding loans, relieving your family from financial stress.

Critical illness protection:
The current lifestyle can lead to various ailments, and some term insurance policies offer critical illness coverage. This feature pays out on the diagnosis of critical illnesses such as cancer or heart attack and helps support your family financially during your lifetime.

Selecting the Right Term Insurance Plan

When purchasing a Term Plan, it's common to have questions about which one is best and how to compare them. Consider the following factors when selecting the best Term Plan for you:

Claim Settlement Ratio:
The proportion of life insurance claims paid out compared to the number of claims made is referred to as the claim settlement ratio. A higher ratio is preferable.

Solvency Ratio:
The solvency ratio indicates if the chosen insurer will be able to pay out your claim if necessary. IRDAI requires every life insurer to maintain a solvency ratio of at least 1.5.

Option to Add Critical Illness Benefit:
Critical illnesses such as cancer or brain surgery can be financially devastating for families. Critical illness coverage protects against this risk by paying out immediately upon diagnosis, requiring only medical documentation.

Option to Add Accidental Death Benefit:
By choosing Accidental Death coverage, your family will receive an additional payout if you die in an accident, up to a maximum of `2 crore.

Waiver of Premium on Terminal Illness:
If the policyholder becomes terminally ill, they will not have to pay future term plan premiums.

TERM INSURANCE PREMIUMS: WHAT ARE THE FACTORS TO CONSIDER?

When determining the premium for a term insurance plan, several factors are taken into account. These include various aspects of your health and lifestyle, such as age, gender, medical history, current health conditions, habits, profession, policy duration, and lifestyle habits.

Here are some of the key factors that can affect your term insurance premium:

Age
The younger you are, the lower your premium is likely to be. As you age, the chances of developing a medical condition that could result in a claim increase, and so does your premium.

Gender:
On average, women tend to live longer than men, which means they are charged lower premiums.

Medical history:
Your medical history, as well as that of your family members, is analyzed to determine the risk of developing a hereditary medical condition. If you or a family member has a history of a serious ailment, you may have to pay a higher premium.

Current health conditions:
Your weight, eating habits, and overall fitness can affect your premium. If you have a pre-existing medical condition, your premium may be higher.

Smoking and drinking alcohol:
Habits such as smoking, drinking alcohol, and using tobacco or drugs can increase your chances of developing a life-threatening condition, resulting in a higher premium.

Profession:
If your job is risky, you may be asked to pay a higher premium. Jobs that expose you to chemicals, environmental hazards, or require physical exertion can put you at greater risk.

Duration of the policy:
The longer the term of your policy, the higher your premium is likely to be.

Lifestyle habits:
Participating in adventure sports can increase your risk of injury or death, resulting in a higher premium.

WHAT IS A TERM INSURANCE RIDER?

A term insurance rider is an optional add-on cover that can be purchased along with the base term insurance plan. These riders come at an additional cost over and above the premium of the base plan and can be chosen as per your specific needs. Some common types of term insurance riders include a terminal illness rider, critical illness benefit, accidental death benefit, and permanent disability rider.

Here are some details about the different types of term insurance riders:

Terminal illness rider:
This rider provides coverage for a terminal illness that is likely to result in death within the next six months as diagnosed by medical practitioners. The terminal illness benefit is available with all plan options and covers AIDS as well. In case of diagnosis of a terminal illness, the full death benefit is paid out.

Waiver of premium due to permanent disability:
This rider ensures that your life insurance policy remains active even if you become permanently disabled and are unable to pay your premiums. If you have this rider, all future premiums are waived off in case of a permanent disability, but the policy benefits continue for the entire policy duration.

Critical illness cover:
Under this rider, you pay an additional amount to get coverage in case you are diagnosed with any of the critical ailments mentioned in the policy document. The amount received under the benefit can be used to meet both medical and household expenses. While the critical illnesses covered under the policy may vary from one insurer to another, some common ailments like cancer, heart attack, and brain tumour are covered under the rider.

Accidental death benefit:
This rider provides coverage for accidental death. When you purchase an accidental death benefit cover, the insurer pays up to double the sum assured to your nominee in case of your accidental death.

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