What is Term Insurance? The Meaning of Term Insurance

Term insurance is a type of life insurance policy that provides coverage for a specified period of time. In case of the insured’s demise during the term of the policy, a lump sum amount is paid out to the beneficiary as death benefit, provided the policy is in force.

Typically, term insurance plans are available at lower premium as compared to other type of life insurance policies as it doesn’t offer any maturity benefits.

In order to cater to the requirements of the insurance seekers, the insurance companies offer an array of term insurance policies to choose from. As a simplest and comprehensive form of insurance policy, it provides the customers with an excellent opportunity to financially secure the future of their family and their loved ones in the most economical way. To know more about what is term insurance let’s consider the below pointers.

Benefits of Term Insurance Plan

Many insurance buyers do not consider investing is term insurance plans as it only provides a death benefit in event of the demise of the insured and does not offer any add-on benefit or profitable returns. However, on the other hand, there are many benefits to purchasing a term insurance policy.

Some of these benefits offered by term insurance plan are:

1. Financial Protection

Term Insurance plans are the simplest and best way to create a financial protection net. As the term plans financially secures the dependents of the life assured in case of his/her unfortunate demise.

2. Offers Affordability

Along with the death benefit, there are various other additional benefits offers by term plan at an economical premium rate.

3. Adequate Coverage

The insurance buyers can choose the coverage of a term insurance plans by comparing a wide range of term insurance plans online.

4. Survival Benefits

A traditional term insurance plans do not offer any survival benefit. However, there are many insurance companies which offer Term return of Premium Plan (TROP) under which maturity benefit is provided to the policyholder in case he/she survives the entire tenure of the policy.

5. Low Claim Rejection

As the policy tenure of term insurance plan is more than 10 years; the ratio claim rejections are observed to be lower.  Therefore, purchasing a term insurance plan is ideal if the individual wants to make sure that their claim is honored.

6. Riders

Along with the basic life coverage the term insurance plans provide add-on rider benefit to enhance the coverage of the policy. The insurance buyers can buy rider benefit by paying an extra premium along with the basic premium of the policy. Some of the riders offered by term insurance plans are accidental death benefit, critical illness, partial and permanent disability and waiver of premium.

7. Tax Benefit

Term insurance plan also offers the benefit of tax exemption to the insured on the on the premium amount paid U/ S 80C of Income Tax Act 1961. Moreover, the death benefit offers by term plans are also applicable for tax exemption under section 10(10D) Income Tax Act

Types of Term Insurance Plans

The insurance companies offer an extensive range of term insurance policies in order to fulfill the requirement of the insurance buyers. As per one’s own requirements and suitability, the customers can compare various plans online and zero in on a plan. Let’s take a look at the different types of term insurance plans available in the market.

1. Standard Term Insurance Plan

These are the most common and simplest form of term insurance plan which offers life protection to the policyholder’s family in form of the death benefit in the event of untimely death of the insurance holder during the policy term.

2. Group Term Insurance Plan

Group term insurance plan is specifically designed for businesses, companies, societies, and associations.  Group insurance provides life coverage to all the members of the specific group or company. The benefits offered by group life insurance policies are the same as individual term insurance plan. However, group term insurance plans provide high coverage as compared to the individual term plan.

3. Term Return of Premium (TROP)

Term Return of Premium (TROP) is a type of term insurance plan which offers survival benefit as the return of premium. In case, the policyholder lives the entire term of the policy then the whole premium amount paid by the insurance holder excluding tax is paid back to the policyholder. This plan is a great investment option for individuals who want to create a corpus for a long run along with the benefit of life protection.

4. Increasing Term Plan

Under this option of term insurance policy, the coverage provided by the plan increases at a particular duration during the tenure of the plan. The policy calculates the risk according to the rising cost during the term of the policy and compensates  The policy coverage keeps on increasing until the time the policy acquires a value, which is 1.5 times higher than the actual policy coverage.

5. Decreasing Term Plan

Under this option of term insurance plan, the rate of premium payment, as well as life coverage offered by the policy, keep on decreasing at a specific rate during the entire policy tenure. Banks or financial institutions use in order to cover the mortgage or home loan risk offered to their customers. Decreasing term insurance plans are generally used by financial institutions and banks that covers the risks of the home loan or mortgage provided to their customers.

6. Online Term insurance Plans

For the convenience of the insurance buyers, most of the insurance providers provide online term insurance policies.  The policy buyers can purchase the term insurance plans online in a very easy and simple way. Along with an easy option of premium payment, the insurance buyers can also compare various term insurance plans online and zero in on the most beneficial plans according to their own requirement and suitability. Moreover, online term insurance plans also offer reliability and transparency to the customers.

7. Convertible Term Plan

Convertible term insurance plans are traditional insurance policies, which has a limited number policy term and can be converted into whole life insurance permanent life insurance policy. The major benefit if convertible term insurance policy is that while converting the term plan into whole life insurance, the policyholder does not require to submit any medical proof. Also, not any health conditions are considered when the term plan is converted to whole life insurance.

8. Annual Renewable Term Plan

As each year completes, the term insurance policy is renewed with a higher premium since the age of the policyholder also increases. The major advantage of annual renewable term insurance is that it offers guaranteed coverage. However, it may not be a cost-effective option for many insurance seekers due to the increase in premium rates over time.

Best Term Insurance Plans In India

Since every term insurance buyer takes different insurance prospects, the term insurance providers offer multiple range of best term insurance plans to cater the requirement of the insurance buyers.

Insurers  Term Plan Entry Age Maturity Age Sum Assured Claim Settlement Premium( For coverage amount of 1Cr)
Max Online term Plan Plus Min-18 years

Max-60 years

70 years Min-Rs.25lakhs

Max-No upper limit

97% Rs.893 per month
PNB Metlife Mera Term Plan Min-18 years

Max-65 years

75 years Min-Rs.10 lakhs

Max-no upper limit

91% Rs1401\ per month
Aegon Religare I Term Min-18 years

Max-65 years

75 years Min-25 lakhs

Max- No upper limit

97% Rs1286 per month
Bharti Axa Life eProtect Min- 18 years

Max- 65 years

75 years Min-Rs.25lakh

Max-No upper limit

92% Rs992 per month
IDBI iSurance Flexi Lumpsum Plan Min- 18 years

Max-

50years

80 years Min- Rs.50lakh

Max- no upper limit

90% Rs1509 per month
Bajaj Allianz iSecure Minimum-18 years

Maximum-60 years

70 years Min-Rs.20 Lakh

Max- No upper Limit

91% Rs.1266 per month
Edelweiss Tokio My Life Min-18 years

Max-60 years

80 years Min-Rs.25 lakh

Max- No upper limit

93.2% Rs1046 per month

Other Benefits of Buying Term Insurance Plan

As we have already talked about what is term insurance plan, let’s take a look at the benefits of term insurance plans.

  • Offers death benefit as lump sum amount to the nominee of the policy in the event of the decease of the policyholder.
  • Term insurance plan takes care of loans and liabilities.
  • Offers financial security to the family of the policyholder so that they can continue to maintain a good lifestyle.
  • The term insurance policy also offers supplementary income to the policyholder in case he/she is suffering from income loss due to accidental disability or critical illness.
  • In case of accidental demise of the insured an extra sum assured amount is paid to the beneficiary of the policy if the policyholder has opted for accidental rider benefit.

Features of Term Insurance Plan

The major aim of a term insurance policy is to offer financial stability to the policyholder’s family in case of an unfortunate event or decease of the insurance holder. Besides this, there are many other features of the term insurance plan.  Let’s take a look at some of the features offered by the term insurance plan.

  • Entry Age: The term insurance plans offer minimum age eligibility of 18 years, whereas, the maximum age eligibility to purchase a term plan is 65 years. Along with the increase in the age of the policyholder the premium rate of the policy also increases. Therefore, it is recommended to buy a term insurance plan at a young age so that one can secure their family’s future at an affordable premium rate.
  • Maturity Age: The most advantageous term insurance plans are those which offer coverage to the policyholder within a lifetime. Most of the term insurance plans offer a maturity age of 65-70 years. The plan which offers a higher maturity age also has a higher rate of premium as it provides insurance coverage for a period of long-term. Besides this, the age of an individual plays an important factor to determine the premium amount of the policy as the risk factor also increases simultaneously.
  • Death Benefit: In case the insurance holder expires during the tenure of the policy then the insurer pays a total sum assured amount to the nominee of the policy as a death According to the type of policy chosen by the policyholder the amount of sum assured remains the same during the entire term of the policy. According to the type of policy chosen by the insurance holder, the death benefit is paid as lump-sum or at particular intervals of time.
  • Maturity Benefit: A traditional term insurance policy doesn’t offer any maturity benefits. However, if one wants to avail survival benefit then he/she can choose to invest in term return of premium plan (TROP).
  • Tax Benefit: Term Insurance plan also offers the benefit of tax exemption. The insurance holder can save on taxes U/S 80C and 10(10D) of Income Tax Act 1961. Additionally, the premium paid by the policyholder towards critical illness benefit is also qualified for tax benefit under section 80D of Income Tax Act.
  • Survival Benefit: A traditional term insurance plan does not provide any maturity benefit. However, to provide a comprehensive policy to the insurance buyers, many insurance companies offer Term return of Premium Plan (TROP). Under the TROP plan, the entire premium of the policy is returned to the policyholder as maturity benefit in case of his/her survival at the end of the policy tenure. As compared to the pure term insurance plan, the premium rate of TROP is higher and is a remunerative option of investment for individuals who want to gain the combined benefit of insurance cum savings.
  • Policy Tenure: A term insurance plan offers a minimum tenure of 5 years whereas; the maximum term period of the policy can differ from 25 years to entire life. For single premium payment policy, the tenure of the policy ranges from 5 years-15 years.
  • Additional Rider Benefit: An extra coverage is offered under term insurance policy accompanied by basic policy coverage as add-on rider benefit. In order to avail the rider benefit, the policyholder will have to pay an extra premium along with the basic policy premium. let’s take a look at the rider benefits offered under term insurance plans.
    • Critical Illness Rider
    • Accidental death benefit rider
    • Hospital cash rider
    • Premium waiver rider
    • Total and permanent disability benefit rider
  • Larger Life Cover: As the premium rates of a term insurance policy are more affordable, it possible for insurance buyers to choose a policy with higher life coverage for the same premium as of an endowment plan. For instance, a 30-year-old person can purchase a term plan with a life cover of Rs.1Crore for a term period of 30 years by paying a minimum premium.
  • Enhanced Cover: Certain insurers offer the flexibility to enhance the coverage of the policy while achieving the major milestones of the insured’s life. For example, the insurance holder may have the facility to enhance the coverage of the policy by 50% at the time of marriage and by 25% at the time of becoming parents. This makes it possible for an individual to start with a low cover and enhance the coverage along with the increase of responsibilities and also increase the premium rate of the policy.
  • Innovative Features: As compared to the other life insurance policies, term plans offer innovative features such as:
    • It offers discounts to non-smokers and female policy buyers.
    • The premium rate of term plans is much cheaper as compared to other life insurance plans.
    • It offers a low premium rate to healthy and young individuals.
    • A healthy individual can purchase a term plan online without taking a medical test.

Important Things to Consider before Buying a Term Insurance Plan

As there are inclusive ranges of term insurance plans offered by the insurance companies, it is very important to consider the various important aspects before purchasing a term plan. Before we get into the details of what is term insurance, here are the important thinks that should be kept mind while purchasing a term insurance plan.

  • Determine the amount of coverage.
  • Assess the budget and needs.
  • Choose the right insurer.
  • Determine the period of the policy.
  • Choose a suitable payout option.

Smokers/Drinkers Criteria in the Term Insurance

The insurance companies verify the smoking habit of individuals in different ways. Some of the common questions asked by the insurer are:

  • Do you consume nicotine/tobacco products?
  • Have you consumed a nicotine/tobacco product in the past 4 years?

Moreover, apart from these questions the insurance companies also do not differentiate between frequent smokers and occasional smokers. Even if an individual is an occasional smoker then he/she will fall into the category of smokers.

The premium charges of term insurance plans for smokers are higher as compared to non-smokers because the life expectancy ratio of smokers is low and they are more prone to chronic diseases like lungs cancer, heart problems, and bronchitis.  The higher premium to be paid by the insured varies from insurer to insurer. Apart from the smoking habit, there are various other factors considered by the insurance company while determining the premium rate of the policy.

Types of Death that are Not Covered under Term Insurance

The term insurance provides death coverage to the family of the insured in case of natural death of the insured, accidental demise of the insured or death caused due to a health issue. Besides this, there are certain cases which are excluded under the term insurance plan.

  • Suicidal death is not covered under the policy.
  • The policy does not provide any death coverage in case of self-inflicted injuries.
  • Death due to HIV/Aids is not covered under this plan.
  • Death due to overdoes of drugs or intoxication is also not covered under the plan.

Does Term Insurance Covers Death Outside India?

Yes, the death occurred outside India is covered under the term insurance plan, provided the insurance holder has updated this information with the insurance company. In case if the policyholder lives outside India then he/she will require to mention this fact while purchasing the term plan. However, if the if the insured lives in a country which is marked as unsafe by the insurance companies like Myanmar, Pakistan, Somalia, etc. then the policy company declines this facility.  Death coverage outside India is valid in countries like UK, USA, Australia, etc.

Can NRI’s Buy Term Insurance?

Yes, NRI’s can buy a term insurance plan in India. The process of availing term insurance plan for NRI’s are very simple and hassle-free. The person living abroad can apply for a term insurance plan in 2 ways.

  1. The individual can purchase the term plan while visiting India. Once the individual completes all the formalities related to the underwriting of the policy, the policy will be considered the same as other policies purchased by an Indian citizen.
  2. By the process of mail order business, the NRI can purchase the plan from the country he/she is presently residing in. The policy will be verified by an Indian diplomat, notary, and official of the Indian The NRI students applying for term insurance plan can also approach supervisor or dean for verification.

Top 5 Reasons to Purchase a Term Insurance Plan

  • Competitive Pricing: Term insurance policies are easily comparable, mainly on the basis of price. In terms of their operation and structure, term plans are similar to other life insurance policies, which allows the insurance buyers to compare various policies with greater ease. One of the simplest ways one can distinguish between term plan and other life insurance policies is through competitive pricing. Due to the affordable cost of term plans, it is preferred by most of the individuals.
  • Flexibility: As compared to policies that offer cash value as maturity benefit, it is easier to choose a term insurance policy. The process of term insurance plan is quite simple. If the insured stops to pay the premium of the policy then the coverage of the policy ceases and the policy is no longer applicable. considering that term insurance does not provide any maturity benefit, the insured will not receive any maturity benefit. On the other hand, under life insurance policies only maturity benefit is offered as survival benefit in case the insured survives the entire tenure of the policy. In case, the insured ceases the premium payment of the cash value policy before the completion of the policy tenure then he/she will be in the greater loss as they won’t be able to recover the savings made under the plan.
  • Easy Access to Quotes and Information: The quotes and information related to a term insurance plan can be easily checked online. Also, with more and more insurers entering the industry with affordable plans, the insurance buyers have the facility to compare the plans online and choose the most lucrative plan as per their requirement and suitability.
  • Tax Benefit: Along with the quotient of insurance coverage, one of the major reasons why you should consider purchasing a term plan is that it also offers you the advantage to save on taxes. The premium paid towards the term plan up to the maximum limit of Rs.1.5 lakhs is eligible for tax exemption under section 80C of IT Act.

Why You should Consider Purchasing 1 Crore Term Plan?

With the rise in inflation, a term insurance policy with high coverage amount has become a necessity more than a choice. Nowadays, an individual earning an average salary can also secure his/her family with a higher sum assured amount of Rs. 1 crore after his/her demise.

1 crore term insurance plan can be purchased by individuals falling between the age group of 30-35 years. If an individual is a single breadwinner of the family or having a more earning years should consider purchasing 1 crore term insurance plan. However, while considering purchasing a 1 crore term insurance plan, it is very important to consider the important aspects of the policy like:

  • Premium rate offered by the policy.
  • Claim settlement ratio of the company.
  • Features and benefits offered by the policy.
  • The riders benefit offered by the policy.
  • Inclusion and exclusion mentioned in the policy documents.

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About Geet Sharma

My Name is Geet Sharma Financial Blogger & Founder of Paisabank.org. We are a personal finance blog dedicated to finance & financial planners. The main aim of this blog is to help people to informed about financial decisions.
View all posts by Geet Sharma →

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