Term Insurance is the simplest form of life insurance. The majority of the Indian population, especially in the rural areas, is not familiar with term life insurance. There are many who are sceptical about buying insurance policies as they are not aware of how insurance policies work. Term insurance is the most cost-efficient form of insurance that you can buy to protect your family financially in case of your untimely death. In this article, we’ll take a look at how term life insurance works and why you should buy a term plan.
Term insurance is a type of life insurance that provides financial protection to the family or nominee of the policyholder for the duration of the policy term. In the case of the policyholder’s death, while the term insurance is active, a lump sum of money in the form of death benefit is given to the nominee/family of the policyholder. The policy is similar to traditional life insurance in all other ways except that there is no investment component in term insurance.
Term insurance allows you to get a higher sum assured by paying a very small insurance premium amount. It ensures that your family members meet their life’s goals, even in the event of your unfortunate death.
However, still, a large proportion of the Indian population is not insured. This can be primarily chalked down to a lack of awareness among the masses. In order to increase awareness, it is crucial that Indian consumers understand how term insurance works, its salient features, benefits and the various parameters to consider when purchasing a term insurance plan.
The primary objective of buying term insurance is to take care of the living expenses and meet the financial goals of your dependents in your absence. Term life insurance provides a lump sum amount of money as a death benefit to your loved ones after your sudden demise. Certain insurance providers also provide maturity benefits if you survive the policy term. For this, you have to opt for a ‘Return of Premium’ rider.
However, term insurance does not provide coverage for all types of deaths. There are some inclusions and exclusions you should be aware of:
Natural death due to medical condition or sudden death
A suicide that occurs within 12 months of policy commencement
Suicide after 1 year of policy commencement
Death caused by self-inflicted wounds
Death caused by involvement in hazardous or adventurous activities
Death due to sexually transmitted diseases such as AIDS
Accidental death while driving under the influence of alcohol or drugs
Death due to involvement in anti-national, terrorist or criminal activities
Murder committed by the beneficiary (nominee) on the policyholder (insured)
Death due to natural calamity unless opted for a rider
In its basic form, term insurance provides death benefit (sum assured) to the beneficiary in case of the policyholder’s death during the policy term, provided the premium has been paid regularly. However, there are various types of term insurance policies that can be customised to suit the needs of people with varying coverage goals. We’ll discuss some important types of term plans below and understand how term life insurance works in each of these product types.
Level term insurance plan: This is the default type of term insurance plan where the sum assured and premium amount do not change during the length of the policy term.
Decreasing term insurance plan: In such types of plans, the sum assured under the policy decreases every year while the premium amount remains constant. The premiums are cheaper in such plans.
Increasing term insurance plan: In this plan, the sum assured increases every year and the cost of premiums remain constant or increase depending upon the policy’s terms and conditions. The premiums for such policies are more expensive.
Term insurance with return of premium: If you want to get all of your term life premiums back on maturity, this is the right policy for you.
In addition to choosing the right type of coverage, you can also enhance your coverage with the help of add-on riders. You can choose from a variety of riders, including:
Critical Illness Rider
Accidental Death Benefits
Accidental Total Permanent Disability
Child Support Benefits
It is important to compare the different features and benefits of various term plans available online before zeroing in on the plan of your choice. If you are looking to buy term insurance, you can get an approximate quote by using the Finserv MARKETS Term Insurance Calculator.
Here are the main benefits of buying a term insurance policy:
A term life plan provides a financial safety net to your loved ones after your death.
The premiums paid towards the plan can be claimed for tax deduction under Section 80C of the old income tax regime.
If you have critical illness cover on your term plan, the insurer will provide a lump sum benefit when you are diagnosed with any life-threatening disease.
Term plans are significantly cheaper than whole life insurance plans while providing a large amount of money as the sum assured.
Buying term insurance can be especially beneficial for the following people:
People who have just started earning: There are excellent term insurance tax benefits to avail. Moreover, younger individuals can get access to cheaper premiums.
People who are newly married: In case your partner is dependent on you for financial stability, it is wise to buy a term insurance plan. If anything were to happen to you in the future, your spouse can continue to lead a financially stable life in your absence.
People who plan to start a family: Term insurance is a great way to ensure that your child’s financial future is secure, even if you are no longer around.
The above-given points make it clear that a term insurance plan is an effective and cost-efficient tool you can use to protect your family financially. If you haven’t secured your family or loved ones with a term plan yet, check out the various term insurance policies available at Finserv MARKETS and choose one that suits your needs.
As a rule of thumb, ensure that the sum assured amount is 10-12 times your annual income to take care of your loved ones in your absence.
The tenure of your term insurance plan will depend upon your current age and financial liabilities. If you are in your 30s, you should go for a term plan of at least 30 years as the remaining period will give you enough time to build a corpus, fulfil your responsibilities and lower your liabilities.
Generally, the premium should remain constant unless you have suffered a disability, developed a life-threatening disease or started smoking and drinking.
Yes, you can buy more than one term insurance plan but you will need to disclose these policies to all your insurers to avoid problems in the future.
Yes, you will have to disclose any smoking or drinking habits you may have, or you will risk claim rejection in the future due to non-disclosure of vital information.