Term Insurance Plans

Overview

What is Term Insurance?

A term insurance plan is an insurance policy that offers coverage for a specified period or term. It is one of the purest forms of life insurance available in the market. Ideally, the primary purpose of term insurance is to safeguard the financial future of your family in your absence.

Your nominees receive a death benefit in case of your unfortunate death during the policy term. In simple terms, a term insurance plan offers financial security to your loved ones after your death, so that they can continue living their lives without any financial hurdles.

Common Terminologies Under Term Insurance

To help you understand what is term insurance and its nuances, here are some of the most common expressions used in term insurance plans, which will help you make a better choice for your future.

• Policy Term -

A policy term or tenure is the duration for which the policy provides coverage to the insured. Usually, the minimum policy term for term insurance is 5 years, while the maximum is 25 years for equated monthly premiums. For single premium plans, the policy term can vary between 5 years and 40 years.

• Premium Amount -

This is the amount you pay to keep the policy active/running to enjoy its benefits. In case you are unable to make the premium payment within the due date, the insurer grants you a grace period. Failing to make a payment even after the grace period, will lead to the termination of the policy.

• Premium Payment Term -

  Premium payments can be done as per your financial convenience. You can choose from:

  • Single-Premium Payment - Choose to pay the premium amount for the entire policy duration as a lump sum in one go.

  • Regular Premium Payment - Select an option to pay premiums for an entire policy period or covered term at regular intervals, that is monthly, quarterly, half-yearly, or annually.

  • Limited Premium Payment - Choose to pay premiums for a limited time. You can pay for a pre-fixed number of years such as 10 years, 15 years, 20 years, and so on.

• Riders -

  Term insurance providers rider benefits that enhance the coverage of the policy. Some common term insurance riders such as –

  • Critical Illness Cover

  • Waiver of Premium

  • Accidental Death Benefit Rider

  • Accidental Total and Permanent Disability Rider

• Grace Period -

In case you are unable to pay the premiums on the stipulated time, the insurer grants you a grace period. It is the timeframe to make the payments or the insurer will terminate the policy. Usually, the grace period is 15 days for regular monthly premium payments and 30 days for annual premium payments.

• Life Assured -

A life assured is the insured individual. The insurer covers the financial risk in case the insured individual’s death. Primarily, the policy should be bought for the sole earner of the family who becomes the life assured. That way, in case of its untimely death, the dependents will be financially covered.

• Sum Assured -

Sum assured is the amount your insurer pays as death benefits to the beneficiaries of the policy. For instance, let's assume that you bought term insurance with a sum assured amount of INR 1 crore. Now, in case of your sudden demise, your beneficiaries will receive INR 1 crore as a death benefit.

• Death Benefit -

As explained earlier, the death benefit is the amount your beneficiaries receive in case of your unfortunate death. Usually, the death benefit is the same as the sum assured amount or in some cases more.

• Maturity Benefit -

Term insurance plans do not provide maturity benefits if the insured outlives the policy. However, if you buy the ‘Return of Premium’ term plan, then you will receive the premiums paid throughout the policy term, as maturity benefits.

• Free Look Period -

Every insurance policy has a free look period. This period is nothing but a duration within which you can terminate the policy without having to pay any penalty charges. In other words, you can cancel the policy if you do not agree with the term and conditions of the purchased plan. The free look duration varies from insurer to insurer. Generally, the freelook period is a period of 15 days after the policy bond receipt.

Why Should You Buy Term Insurance?

A term insurance plan can be purchased for the following reasons –

• Secure the financial future of the family

Whether you are buying an individual or a group term plan, the primary focus is to ensure financial security of your loved ones. So, in case of your untimely death, a term insurance will act as an income replacement for at least a specific period.

• Ensure easy repayment of financial liabilities

For those having a personal loan or home loan overburden can buy term insurance to ensure that your family is able to pay off these liabilities easily, even in your absence.

• Term plans are quite affordable

Whether you are buying an individual term plan or a group term life insurance plan, know that the premiums are quite affordable and easy on the pocket. Thus, you can secure the financial future of your loved ones for a nominal amount.

Benefits of Term Insurance

Some of the prominent term insurance benefits are explained with the help of the following illustrations.

Illustration 1: Ms. Jyoti earns a decent living and is a single mother.

Ms. Jyoti has to take care of her child’s needs and manage the monthly household expenses while doing a full-time job. In case anything would happen to her, everyone dependent on her would face a financial turmoil.

In such a situation, term insurance works as a reliable financial back-up for the family. Moreover, she does not have to shell out a fortune to buy a term policy that covers the financial future of her loved ones.

Illustration 2: Mr. Amit is diagnosed with cancer.

Life-threatening diseases can surely put stress on the one’s diagnosed as well as the family members. Mr. Amit’s family faced a similar situation when he was first diagnosed with cancer. While the entire family was worried about his health, Amit was concerned about the financial burden that tags along with the treatment of the disease. Fortunately, Amit had bought a term insurance plan with critical illness cover well in advance. This helped his family manage the treatment expenses better.

You can buy term insurance with riders to enhance the coverage of the policy, that too at minimal extra charges. The critical illness cover pays a lump sum amount when diagnosed with diseases that are covered under the policy.

Illustration 3: Ms. Neha is looking for ways to save money on tax

Ms. Neha has just started a new job at a managerial position and is looking for ways to save money on tax. Now, even though she does not have any financial liability at the moment, she can still buy term insurance to save money on taxes.

The investments made towards term plans are tax-deductible under Section 80C of the Income Tax Act, 1961. You can claim up to a total of INR 1.5 lakh annually on all the investments made. Also, the death benefits received by the beneficiaries in case of your death are also tax-free.

Tax Benefits of Term Insurance

While term insurance can be one of the crucial financial security backups for your loved ones in your absence, it can also be purchased to avail tax benefits. The following are the term insurance tax benefits under specific Section of the Income Tax Act.

• Deductions Under Section 80C – Premiums paid towards term insurance can be claimed for tax deductions under Section 80C. You can claim a total tax deduction of up to INR 1.5 lakhs on all the investments.

• Benefit Under Section 10(10D) – In case you opt for the Return of Premium feature in term insurance, the premiums received as a maturity benefit are tax-exempted under Section 10(10D). Also, the death benefits received by the beneficiaries are tax-free.

• Section 80D - If you have opted for Critical Illness cover to enhance the coverage of your term insurance plan, then you can also claim deduction under Section 80D of the Income Tax Act, 1961.

How Long Should Be the Tenure of Your Term Plan?

It is vital to start early in order to gain the benefit of affordable premium rates as it helps you level your premiums evenly across the policy term. With the growing life expectancy rate in India, it is becoming more and more crucial to take a long-term life cover through a term plan.

As a term insurance plan acts as a financial backbone to help your family cope up with regular expenses and future financial needs even in your absence, longer tenure is ideal for your term plan.

Calculation of Your Term Insurance Premium

Determining the tenure of your term plan is as essential as calculating the premiums you pay. You can check our term insurance calculator to compute your premium amount. It is ideal to choose a longer tenure when it comes to keeping up with the financial needs of the future and stay covered in times when your loved ones need financial security.

Now that you have a brief overview about term insurance in general, let us look at different term insurance plans available on Finserv MARKETS.

Bajaj Allianz Term Insurance Plans Available at Finserv MARKETS

The Bajaj Allianz Term Plans available on Finserv MARKETS ensure that your loved ones are protected financially in your absence. In fact, these policies offer extensive coverage and can be customised to fulfil yours and your family’s rising needs.

The two types of term insurance plans offered are as follows:

1. Bajaj Allianz Smart Protect Goal Term Insurance
2. Bajaj Allianz Group Term Life Insurance

The following table gives a brief overview of both the term plans. Take a look!

Exclusions in Term Insurance Plans

Just like any other insurance plan, term insurance has certain exclusions as well. Some of these exclusions include -

• Suicide

• Death due to self-inflicting injuries

• Death due to sexually transmitted diseases such as HIV/AIDS

• Death due to any pre-existing health conditions

• Death due to involvement in illegal activities

• Accidental death due to the influence of intoxicants such as alcohol and drugs

• Death due to participating in racing events such as bike racing and car racing

• Death due to participating in adventure activities such as bungee jumping, trekking, hiking, water sports, etc.

• Death due to pregnancy and childbirth

Note: You need to get a medical examination done when buying Bajaj Allianz Smart Protect Goal Term Insurance at Finserv MARKETS.

Why Buying a Term Plan Later Will Be Costlier

As a decline in the world economy is causing stress in the businesses worldwide, the insurance industry is suffering through the same. The term insurance prices were based on the LIC mortality data as no other data was otherwise available.

Now, as the latest data depicts a higher mortality rate, the prices of term insurance plans are most likely to increase in the coming months. There could be a 20-30 per cent hike in the prices of the insurance premiums. Hence, if you are looking to secure your family’s financial future, now is the time to do so.

It is important to evaluate the term insurance features and benefits and ensure that they are well aligned with your financial objective.

From a financial planning perspective, it is crucial to first focus on your requirements instead of the premiums. If you feel that you and your family do not have adequate financial coverage, a term plan becomes all the more essential.