Term Insurance

Why Do You Need Term Insurance?

There are a few reasons as to why you will need term insurance. These are explained briefly below -

1. Plans are straightforward - Simply designed to provide a payout to nominees in your absence during the term. Unlike whole life insurance, it does not accrue monetary value over time.

1. Affordable - This is one of the most economical types of life insurance. You make little payments monthly, and in case of untimely demise within the policy's term, your family receives a lump sum payment.

1. Tax benefits - Sections 80C and 80D of the Income Tax Act 1961 provide tax benefits for term insurance.

1. Financial stability – Ensures that your family will not suffer financially if something bad occurs to you. Get a lump amount (sum assured) to meet expenses such as everyday living, schooling, and even unpaid loans.

Why Should You Invest in Term Insurance?

Term insurance is a fantastic option for parents, newlywed couples, working women, young professionals, and taxpayers. Let's look at some of its distinguishing aspects to get a better understanding -

1. Large life cover at low premiums: Comprehensive life insurance without breaking the bank.

1. Long-term protection: This feature allows you to protect your family for a long time.

1. Low entry age: You can start a term insurance plan as early as 18 years old.

1. Tax Benefits: Another advantage is that you can receive tax breaks. The premiums you pay are tax-deductible under Section 80C of the Income Tax Act, depending on the tax regime you choose. Your family's compensation is typically tax-free under Section 10(10D).

1. Optional Riders: Riders that provide additional protection such as accidental death benefit, accidental total permanent disability, and critical illness insurance. These riders give an additional layer of financial protection on top of the sum assured by the term plan. Doing term insurance correctly requires effort, but the reward is peace of mind.

Eligibility Criteria for Term Insurance

Before anyone can take a life insurance policy, they will have to meet specific eligibility criteria, which can be:

1. The minimum policyholder age must be 18 years old when taking the plan.
2. The maximum entry age will depend on the minimum tenure of the policy.
3. The maximum age at the time of maturity for these policies can be 75 years, but this could change from one insurer to the next.
4. The minimum age for maturity will be determined based on the minimum age at entry and the minimum tenure offered.
5. The sum assured will also be a factor in calculating eligibility, as many policies have a fixed minimum assured sum.
6. This is not required; however, some insurers may request that the policyholder undergo a medical examination prior to purchasing the policy.

Documents Required for Term Insurance:

All insurance companies mandate that the policyholder submit relevant documents while applying for term insurance. Document requirements may differ from insurer to insurer.

Following is the list of documents the policyholder must provide when taking a term insurance plan.

1. PAN card
2. Proof of identity using documents like a passport, Voter ID card, Aadhaar card, driving licence, a letter from a public servant or authority verifying identity.
3. Proof of age with documents like passport, birth certificate, driving licence, PAN card, etc.
4. Proof of address with documents like utility bills (electricity, telephone), ration card, bank account statements, Voter ID card, or passport.
5. Proof of income with documents like Income tax returns, employer's certificate, or Income Tax assessment order.
6. Some recently clicked passport-sized photos.

Why Should You Buy a Term Insurance Policy?

Term insurance is often neglected compared to other types of insurance. The primary reason is the misconception that term insurance doesn't provide high rates of return or any benefits other than the "Sum Assured" on the policyholder's death.

However, there are several advantages of buying a term insurance policy. These include:

1. Security in terms of finances: Term insurance plans are one of the most effective ways to create financial security. This is especially relevant in the modern era, as a term insurance plan safeguards the financial stability of the policyholder’s dependents should the policyholder die.
2. Basic insurance product: Instead of choosing a plan with dozens of additional benefits and paying an exorbitant premium, choose term insurance with a stable, low-cost premium for nearly the same benefits.
3. Greater returns: Term plans also cater to the needs of all types of investors. Term insurance provides better returns without the hassle of managing investment funds, as the return on investment is usually much higher than the money put in. Both the Regular plan and the TROP plan offer up to 105% returns on premiums paid at maturity.
4. Coverage in times of need: Under term insurance policies, you can choose the sum assured so that it provides you with sufficient coverage. Financial experts say that sufficient coverage is equal to 10 times your yearly income. It is important to note that inadequate coverage defeats the purpose of insurance. Similarly, it is important for you to evaluate your insurance coverage and identify areas where you can reduce costs to avoid over-insurance.
5. Survival benefits: While a regular term insurance plan does not have any survival benefits, a number of insurers have designed plans, i.e., Term Return of Premium Plans (TROPs), that offer survival benefits in the form of premium refunds at maturity.
6. Policy term: Term insurance plans offer the policyholder with a fixed term coverage. This indicates that they can take term insurance for a fixed duration wherein their family is financially protected. Following this, they can retire comfortably.
7. Low claim rejection: Claim rejections are observed to be lower if a life insurance policy has been active for more than 10 years.
8. Flexibility -:Most term plans provide you the choice of purchasing the coverage in person or online. Additionally, if the amount assured under the plan is Rs. 50 lakh or less, many insurers do not require health examinations.
9. Riders: Term plans can be enhanced through the use of riders that offer extra protection. These riders can be bought from the insurance company at nominal costs. Some of the riders available under term plans are accidental death benefit, critical illness, partial or permanent disability, waiver of premium, etc.
10. Low brokerage: In case policyholders opt for an offline term insurance policy, they will be paying the lowest amount as broker commission. Brokerage is usually calculated as a percentage of the premium paid. Since the premium for term insurance policies are usually low, the overhead of broker charges is also reduced. If they choose an online plan, there will be no broker fees as well.
11. Flexible payment options: Term insurance policies offer flexible premium payment options, allowing policyholders to choose a payment plan based on their convenience. Premiums can be either limited pay, single pay or regular pay. Policyholders who choose limited or regular pay plans can pay their premiums either monthly, quarterly, half-yearly, or annually.
12. Choice of plan: A number of insurers offer policyholders a choice when it comes to the type of plan they wish to opt for. Policyholders can choose between single or joint life plans, depending on their need. They can thus choose to extend coverage for dependent spouses or choose a plan exclusively for the breadwinner of the family.
13. Tax benefits: Last, but not least, premiums paid towards a term plan are eligible for tax benefits under Section 80C of the Income Tax Act. The death benefit received by the nominee under the plan is eligible for tax deductions under Section 10(10D) as well.

How does Term Insurance Work?

A term insurance policy can be considered one of the most traditional forms of insurance. Most of the term insurance plans have a premium that increases in small amounts over a period of time. This is to account for a reduction in the value for money as years pass by. It also covers the increase in mortality risk and the extra levies imposed for a longer coverage term.

To understand how it works, have a look at it in these three situations:

1. Buying the policy: To purchase a term insurance policy, you do not need to set aside tens of thousands of rupees each year. Many insurance policies can provide you with an amount assured of up to Rs. 1 crore for as little as Rs. 10,000 per year (these are approximate values). The actual premiums may vary depending on the sum assured and the insurance provider.
2. Keeping the policy: You pay the premiums for these plans at the frequency that you choose, just like you would for any other insurance policy. These premiums might be paid monthly, quarterly, semiannually, or annually. They can also be paid all at once rather than in installments.
3. Redeeming the benefits:  Term insurance policies often do not include any maturity benefits. Except for term insurance coverage, most term insurance policies do not include maturity benefits. Their major goal is to give life insurance coverage, which is exactly what they provide. If the policyholder dies, the sum promised will be paid to the person selected as the policy's beneficiary.

Due to the way it operates, insurers frequently refer to these plans as pure protection plans. The plan has no frills tied to it. You pay the premium and receive a specified sum if something occurs to you.

Points to Note While Buying a Term Insurance Policy

Some important points to keep in mind while buying online term insurance are as follows:

1. Premium may vary in the future:  The online pricing quote you obtain is based on the premise that you are at average risk in terms of health, occupation, and family medical history. After you provide the appropriate papers, the insurer may request that you undertake medical testing to determine the exact policy cost. If medical studies show that you are at risk for certain conditions, your insurance premium may increase.
2. Do not let the policy move into lapsed status: Purchasing an internet insurance plan is undoubtedly a wise decision. However, you should not let the coverage lapse due to missed premium payments. It is easy to forget to renew your insurance because no insurance representative would remind you of the premium payment due date. It is best to send an ECS mandate to your bank so that the premium is debited immediately on the due date. Setting up an alert on your phone or computer is another effective technique to remind yourself of the payment date.
3. Do not hide relevant facts while applying: If you are a smoker or use tobacco in any other form, your insurance premium will be 25%-30% higher than that of an individual who does not use tobacco. However, you should never hide this information in your application for insurance. At the time of a claim, if the insurer finds that the customer had concealed information, the claim will be rejected. The insurer may also cancel the policy, as applicable.

Key Features of Term Insurance Policy

The key features of the term insurance policy are as follows:

How to Choose a Term Insurance Plan

The market is flooded with term insurance policy options, with varying policy terms, benefits and sum assured amounts. Navigating this maze of policies and making sure you choose the one that fits best and meets your requirements is a difficult task.

The following points should be kept in mind when looking for a term insurance plan:

1. Reliability: It is generally advisable to consider the insurance company's reputation when choosing an insurance coverage. This is crucial since a term insurance policy is a long-term investment, and as a policyholder, you shouldn't be left behind if the company goes out of business or runs into problems. The FICO score of the business can be used to evaluate its stability and dependability.
2. Claim Settlement Ratio: The insurance company's claim settlement ratio indicates how many of the 100 claims it gets are ultimately resolved. Because a higher settlement ratio is viewed positively, insurance companies with a high claim settlement ratio are perceived as more reliable and a better choice. The IRDA makes public each insurance company's claims settlement ratio for a given year.
3. Riders / Add-on covers: It is also important to consider the riders the insurance provider offers in addition to the standard policy. A secure insurance is one that includes both additional benefits and riders in addition to the standard coverage, and insurers that offer a large selection of riders are regarded as solid choices.
4. Cost: The amount you would be paying in terms of premium for the protection offered is a key factor in selecting a term insurance policy. Given that these policies can have a tenure of up to 20 years, the amount being paid annually as premium is a significant amount. Thus companies that offer reasonable protection for low premiums are preferred by policyholders.
5. Inflation: When selecting a term insurance policy, consider factors like inflation. Term insurance policies are usually taken for 10-20 years, during which time inflation will erode the value of the rupee, resulting in lower returns at the time of maturity. To offset this, consider companies that offer plans where the cover increases by 5% - 10% annually to keep in line with inflation.
6. Policy comparison: It is advisable to compare insurance plans online so that you have a clear idea of the options available to you. The facility of policy comparison is offered by neutral third-party financial websites, free of cost. So, it is wise to make use of this facility as much as possible.
7. Engage an insurance advisor: In case you feel that you are unable to decide on a plan by yourself you can always seek the assistance of an insurance advisor for the same. This way you can be assured of expert insurance advice/suggestions that would enable you to pick the right policy.
8. Policy terms and conditions: Before signing the dotted line, make sure you have thoroughly read the terms and conditions of the policy document. This allows you to comprehend the minute details of the plan's inclusions and exclusions, preventing future confusion.

Term Insurance Premium Calculator

A term insurance premium calculator will help you calculate how much coverage you need for free. This online tool is simple to use if you are considering purchasing a term plan. There are simply a few details to type into the term insurance calculator. The term insurance calculator calculates the amount of coverage you need to appropriately safeguard your family. It also includes a summary of the top plans available from various insurance carriers. In general, term insurance coverage must be adequate to meet your family's financial demands in the event of an unexpected incident. The amount you pay for the specified term plan coverage must be within your monthly budget. The term insurance premium calculator calculates the premium using the criteria shown below:

Life cover amount: This is how much the insurance company will give to the family members or designated beneficiaries in the unfortunate demise of the policyholder during the duration of the policy. It is suggested that you have life insurance that is at least 10 to 15 times your annual income.

Policy term: This refers to the duration of time that the policyholder's life insurance is covered by the term plan. The nominee or family members are entitled to the full amount of life insurance in the event of the policyholder's untimely death during the policy's term.

Add-on covers: Term riders have extra benefits that can be added to a term insurance plan by paying a higher premium during the purchase process. Benefits such as extra financial coverage in addition to the amount of life insurance are available with these add-ons.

How does the term insurance premium calculator work?

Using a term insurance premium calculator entail calculating how much coverage you need and how much the premium for a term life insurance policy will cost. The operation of this calculator is described below -

1. You are asked to submit a few facts to get an estimate of the premium for the specified insurance coverage. Enter information such as your age, gender, date of birth, required life insurance, and policy duration.

1. A few other factors are taken into account, such as the users' lifestyle and whether or not they smoke.

How to Use Term Insurance Premium Calculator?

The steps to use a term insurance premium calculator are as follows:

Step 1: Provide Your Personal Details

To use the term insurance calculator, enter your gender, date of birth, life insurance coverage, annual income, marital status, number of children, and other details. Inquiries about your smoking habits may also be made. Remember that annual income reflects one's ability to earn. As a result, it plays an important role in determining the premium rates for term insurance policies.

Step 2: Enter the Required Sum Assured Amount

The amount of the sum assured and the number of years you want must be entered. You also need to specify whether your family should receive monthly income or a one-time lump sum.

Step 3: Compare and Evaluate the Plans

Based on the facts you submit; the term insurance premium calculator will recommend many profitable term insurance products. Compare several insurance plans and select the one that matches your needs.

Benefits of Term Insurance Premium Calculator

The benefits associated with using a term insurance premium calculator are listed below:

1. The term insurance premium calculator saves you time by recommending the most appropriate term insurance plan for your needs. To acquire premium quotes, no physical documents are required.

1. You can use a term plan calculator to get an accurate estimate of the premium amount required to obtain the desired coverage.

1.  A large number of insurers prefer to conduct business online. When someone acquires insurance online, they receive substantial discounts. When the term insurance premium calculator offers plausible possibilities, you can easily compare them and purchase any of the appropriate policies online, saving even more money.
2. You can also estimate how much of the premium will need to be paid in advance with the term insurance premium calculator. Once you are aware of the premium amount you must pay each month, you can adjust your budget as needed.

Exclusions for Term Insurance Plans

Term insurance plans cover a list of specific events and circumstances. Depending on the type of plan selected, this could be an exhaustive list. However, there are some exclusions that term insurance policies do not provide coverage for. Given below is a list of exclusions:

1. Suicide: Suicide is an exclusion in all term insurance policies. Insurers will not pay dependents if the policyholder commits suicide within a year of purchasing the policy. In the case of group insurance, suicide will not be liable for compensation.
2. Death due to war, terrorism drought: Death due to natural calamities and acts of war are not covered under a term insurance plan.
3. Death due to actions by the insured: Accidental death brought on by the actions of the policyholder (such as extreme sports etc.) are not covered as these are viewed as self-imposed risks by the policyholder.
4. Death due to intoxication or narcotics: If the policyholder's death was caused or resulted from the usage of alcohol or narcotic substances, the insurance company is not obligated to reimburse dependents.

Interesting Facts About Term Insurance

Term Insurance With Maturity Benefit India

Maturity benefits refers to the amount received by a policyholder or nominee when a policy matures. A tem insurance policy needs to be active or in force to avail these maturity benefits(IDV)....Read More

Term Insurance Claim Process

In case the life assured policyholder passes away, their dependents will be required to file a claim in order to receive the amount which the insurer has assured to pay on such an event. The claim process is usually quite simple and easy to follow in most cases. Given below is a step-by-step guide to file your claim for a term insurance policy:

Step 1 - Inform the Insurer About the Claim:

The first step in submitting a claim is notifying your insurance carrier about the claim. To do this, contact your insurance provider by any available channel, such as phone, email, or in-person at the branch. Only when you have alerted the insurer about the claim will the claim settlement process begin.

Step 2 - Submit Required Documents:

Once you have informed the insurer about the claim, you must submit the necessary documents to support it. Documents usually required for supporting a claim include the original insurance policy document, proof towards the claim, deceased life assured's death certificate and medical records, apart from some other documents. Some insurers may also ask you to submit additional documents to further verify the claim.

Step 3 - Claim Settlement and Payout:

The final phase in the claim procedure is to decide whether to file a claim and then settle. Once the insurer receives the required paperwork, the claims department will analyse the claim and supporting documentation before reaching a settlement decision. If everything is in order, the insurance company may accept the claim; but, if there is a discrepancy between the claim and the supporting evidence, the claim may be denied.

Term Insurance Renewal Process

When your term insurance policy is about to expire, make sure you get it renewed on time. Term insurance policies can now be easily renewed online with just a few clicks. Here are the basic steps involved in the renewal process. This process may be different for different insurers.

Review your policy: The first step of the renewal process of to review the existing insurance policy that you have. This will give you a chance to review the cover and discounts that your policy provides and make any changes as are necessary. Since many of us may not use our insurance cover for a long time, it is wise to make changes to your cover with time as your priorities change.

Provide policy details : Go to the insurance provider's website and click on the policy renewal tab. When you click on the tab, you will be prompted to enter your policy information, such as the policy number, date of birth, and name. Following this step, you will be asked to validate the information you just supplied.

Make the payment: The last step of the renewal process is to make the payment on the policy. Nowadays, one can make the payment for policy renewal online via a several  channels such as by cheque, by credit card/debit card, vi an ATM, via SMS, via online banking, via mobile wallets, bank auto-debit facility, bank collection centres, or at the branch office itself.

Factors That Affect Term Insurance Premium

When it comes to term insurance, there are several factors which affect the premiums which the insurer quotes on your policy. These factors are:

1. Age: Your age plays a major role in the premium you pay on your policy. The younger you are, the lower your premiums are likely to be and the older you are, the higher your premiums will be. It is always advised to purchase a life insurance policy when you are young.
2. Your family's medical history: If your family has a medical history of any critical or life-threatening illness/condition like cancer, diabetes, etc., then you will be considered a higher risk as compared to someone who does not have a family history of any major life-threatening disease/condition. A high-risk applicant will be charged higher premiums automatically.
3. Your health: Insurers will also consider your health status at the time you apply for the coverage, as well as in the past. If you have a history of chronic sickness or if your present medical condition predicts future health difficulties such as high blood pressure, your policy premium rates may be influenced. Applicants who are typically healthy are more likely to pay reduced premiums
4. Weight: People who are obese or overweight on the weight to height ratio scale may be asked to shell out more in terms of policy premiums as they carry greater chances of medical issues in the future.
5. Smokers: It is commonly advertised by insurance providers that non-smokers are eligible for special discounted premium rates on policies as compared to smokers. This is because smokers may be at a higher risk of cancer or other smoking related health hazards as compared to a non-smoker.
6. Alcohol consumption: Like smoking, alcohol consumption can also lead to health problems. Which is why insurers will enquire about your lifestyle habits during application as heavy alcohol consumption is linked to several health complications, increasing the applicant's risk.
7. Lifestyle habits: Those who frequently participate in high-risk activities for pleasure, such as skydiving, bungee jumping, paragliding, hang-gliding, or any other type of adventure sporting activity, are considered high-risk candidates and may be asked to pay higher rates. However, numerous insurers have developed plans that specifically cover these high-risk activities.
8. Applicant's gender: Insurance providers often advertise lower premium rates for women applicants as compared to men. This may be due to the fact that women usually have longer lifespans as compared to men.

How to Choose the Right Tenure for Your Term Plan?

One of the main reasons why term plans are preferred over other types of insurance plans is because it provides cover at affordable prices for a duration that the customer needs. However, when it comes to term insurance, how does one decide the term for which the plan should be taken? The right duration for a term plan will differ from individual to individual, depending on their unique financial situation. When deciding the term of a term insurance plan, you must consider the financial liabilities which your family may have to face if you pass away and how long it would take for those liabilities to be paid off. Some of the factors you must consider when choosing the term of your term plan are:

1. Liabilities - Liabilities can come in many forms, such as loans or mortgages and must be paid in or before time to avoid penalty. When you choose the term for your term insurance, it is advisable to consider the time it would be required to pay off such liabilities. For instance, if you have a home loan which will be fully repaid in 20 years, your policy term must be at least 20 years.
2. Commitments or Dependents - If you have dependents like young children who are financially dependent on you, the term of your plan must ideally be the duration (no. of years) till your children can support themselves. You must also consider milestone life events like weddings or starting a career when deciding your policy term. Ideally these events must fall within the term of the policy so that in case you may not be around to financially provide for your family, their needs are still taken care of.
3. Affordability - Long-term plans are much more expensive than short-term insurance plans. When deciding on a term for your plan, you must first determine whether you are financially comfortable paying premiums over a longer period of time. Long-term plans offer longer coverage but are more expensive. Short-term policies are less expensive and provide coverage for several years.  

Whole Life vs Term Insurance

When one talks of term insurance, the immediate other option which pops in one's mind is whole life insurance. Term insurance is a specific type of life insurance where the life assured pays premiums towards the policy for a fixed pre-specified term. In case of death of the life assured before the term of the policy, their beneficiary will receive the death benefit. Term insurance policies are also categorized as pure life insurance policies as they only offer protection.

Whole life policies, on the other hand, are full life insurance policies where the cover of the policy extends until the death of the life assured. The premiums for such policies are paid either for a limited period of the policy term or for the life insured's entire life time. Whole life policies also provide survival benefits and maturity benefits, in addition to the death benefit. These policies may sometimes also offer premium investment options.

Term Plan vs Endowment Policy vs ULIP

There are a lot of life insurance products that are available to customers and they can range from a term plan to an endowment plan to a ULIP. So the question really is how term insurance stacks up against ULIPs and

The interpretations that we can draw from the table are:

For a sum assured of Rs.1 crore, the premium for a term plan is about Rs.9,000 whereas for endowment plans, it is much more and ULIPS don't always offer a fixed sum assured.

The premium payment options are the same for all the insurance plans.

While ULIPS come with an inherent risk due to investments made in equity and debt markets, term insurance plans are quite safe.

If you opt for a term insurance with a return of premium option then when the policy matures, you stand to get 100% of your premiums back.

What is a Term Insurance Rider?

Term Insurance rider is the extra cover a policyholder can opt for with their base term insurance policy to extend their coverage benefits. A policyholder can buy a term insurance rider by paying an additional premium amount.

Types of Term Insurance Riders

Most term insurance plans come with riders, which differ in terms of cost as well as terms and conditions. To understand types of term insurance riders in detail, read below:

1. Accidental Death Benefit Rider: With an accidental death benefit rider, you can receive an additional sum assured if the insured dies in the unfortunate event of an accident. The extra sum assured is determined using the original sum assured and may fluctuate between companies. This rider's premium remains set throughout the policy term. However, certain programs may limit the maximum amount guaranteed that can be obtained.

2. Accelerated Death Benefit Rider: The family of a person suffering from a terminal illness like cancer, asthma, kidney failure, lung damage, etc. ends up paying a huge amount for medical expenses incurred due to the treatment. But with accelerated death benefit riders, the family receives a part of the sum assured in advance, which can be of great help in difficult times.

3. Accidental Disability Benefit Rider: In the unfortunate event of an accident, if the insured suffers from partial or permanent disability, then they can benefit from this rider. Most of the time, term insurance plans pay you for 5-10 years after the accident-causing disability, if you are covered under accidental disability benefit rider. Often coupled with accidental death riders, this rider can be treated as a source of income.

4. Critical Illness Benefit Rider: With a critical illness benefit rider, the insured can receive a lump sum amount on diagnosis of listed critical illnesses as specified in the policy document. Generally, term insurance plans cover you for cancer, stroke, paralysis, kidney failure, heart attack, major organ transplant, amongst others. The policy can either be continued or terminated after diagnosis of a critical illness, as per the terms and conditions stated in the policy.

5. Waiver of Premium Rider: As the name suggests, it waives future premiums if the policyholder is unable to pay them due to disability or loss of income. This manner, you may assure that you pay your premiums until the insurance expires. If the insured does not have a waiver of premium rider and becomes disabled or unable to pay the required premium for any other reason, the policy will expire with no death benefit paid because the premiums were not paid.

6. Income Benefit Rider: This is another useful rider that can be purchased by paying an extra premium at the time of policy purchase. Income benefit rider can be treated as a source of income in the misfortunate event of the death of the policyholder. With this rider, the family of the policyholder can avail additional income every year along with the regular sum assured, for up to 5-10 years.