Term Insurance

Term life insurance is a legal contract between the insured and the insurance company where both the parties are bound by its terms and conditions. But the difference lies in its nature. The sole purpose of the best term life insurance plan is to provide financial coverage to your family in the event of the untimely death of the policyholder.... In other words, it is a death benefit. The policy offers no other benefits like savings or guaranteed returns. These plans give you a long-term benefit as accidents, and deadly diseases are uncertain and can happen any time and any day. An individual's age and health determine the premium for term life insurance. Deciding the policy tenure is in the hands of the seeker. It can be 10,15,20,25 years.

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Term insurance is a kind of life insurance plan that provides protection to the policy holder for a specified time period say for, 10, 15, 20, 30 or maximum renewal age (varies company to company).

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How does the best term life insurance plan work?

  • When a person applies for a term plan, the insurance company decides the sum assured depending on the person’s age and medical history. Also, these factors influence the amount of premium.
  • In a few cases, medical examinations are also done. The company also keeps a track of your smoking and drinking habits, the recent record of medical problems, driving record, occupation, lifestyle, societal status and family history.
  • The nominee will receive the face value of the policy if the policyholder dies during the policy term. The cash benefit helps the beneficiaries cover the hospital bills, funeral costs and other-to-day expenses with ease.
  • In case the policy term gets over, the term insurance expires. The policyholder will get notified by the insurance company that he/she will no longer be covered under the benefit. No payout will be received like a whole life insurance plan.
  • The policyholder can renew the policy but the premium will be calculated again depending upon the age and current medical status.

A best Term life insurance plan is equally important just like health insurance or motor insurance or for that matter whole life insurance. There are so many benefits of having such a policy:

Cost-effective: There is a direct relationship between the premium and your age. The earlier you buy one of the best term life insurance plans, the lower the premium and the bigger the policy term. As you make it late, the premium will tip on the higher side. But Overall, the seeker gets a bigger sum assured at lower premium costs as it only protects against death benefits. One can create a safety net for their loved ones as the cover can go as high as 1cr or may 2cr.

Cost-effective: There is a direct relationship between the premium and your age. The earlier you buy one of the best term life insurance plans, the lower the premium and the bigger the policy term. As you make it late, the premium will tip on the higher side. But Overall, the seeker gets a bigger sum assured at lower premium costs as it only protects against death benefits. One can create a safety net for their loved ones as the cover can go as high as 1cr or may 2cr.

Easy to understand: when you compare a term life insurance with any other policy, there are not many terms and conditions. Since there are no investment or savings options attached to it, the premium paying term and amount of premium is very clear.

Multiple Death benefit payout options: These days all people are paying some or the other EMIs like home loans, car loans and loans for other luxury items. In the event of an untimely demise of the policy, the family suffers emotionally as well as financially. These expenses can be met with the lump sum amount received by the beneficiary. Some of the best term life insurance plans give you the benefit of a sum assured and a monthly income which helps the family members sustain daily expenses and the foreseen financial issues.

Strengthen your policy with riders: There are certain riders like accidental death benefit rider and accelerated death benefit rider available which one can buy just by paying a little extra amount of premium when thinking of buying term life insurance. These benefits enhance your policy and your loved ones are secured for an extra mile.

Income Tax benefits: According to the Income Tax Act, 1968, the premium you pay up to an amount of Rs.1.5 lac is tax exempted under section 80(C). The death benefit under this policy is also exempted under section 10(10)D. So you can take the maximum benefit from the policy.

There are certain riders that can be availed with one of the best term life insurance plans at just paying a little more of the premium amount.

  • Accidental Death Benefit Rider: In the course of the policy term, if the policyholder meets with an accident, a pre-decided lump sum amount is given to the seeker or the nominee. The percentage of this additional sum assured is calculated on the basis of the original sum assured which changes with different companies. In most cases, an upper limit is put on the sum assured for this rider and the premium for the entire term is fixed beforehand. Also, the nominee also receives the lump sum amount even if the policyholder does not die due to an accident. Only the additional sum assured will not be paid.
  • Accelerated death benefit rider: This rider covers heavy medical costs incurred by the family at the time of the insured's death. It becomes very helpful to the grieving family at the time of an emergency to receive a portion of the sum assured in advance if this benefit is taken advantage of. Also, this rider comes at a very low cost.
  • Accidental disability benefit rider: If the policyholder meets any kind of accident leading to a partial or permanent disability, this rider provides a monthly amount to the policyholder for a period of five or ten years which is decided in relation to the sum assured. This rider acts as a monthly income. This rider applies if the disability is caused by an accident only.
  • Critical Illness benefit rider:Upon diagnosis of a critical illness specified in the policy, this rider pays a pre-specified amount. Some of the diseases that are included are cancer, kidney failure, paralysis, major organ transplant, etc.
  • Waiver of Premium Rider:When the policyholder loses the source of income or is down with a permanent disability and becomes unable to pay the future premiums, the leftover premiums of the term insurance plan get waived off and the policy remains active and the policyholder is still covered under death benefit. In the absence of this rider, the policyholder loses all the benefits in case of non-payment of premiums.
  • Income Benefit rider:As the name says, the rider is for the income generation of the family of the deceased. The nominee receives a regular income for up to five or ten years along with the sum assured.

Everything has two sides attached to it. If one has advantages, then the other has disadvantages. So is the case with term life insurance. Some of the cons that come along with all the good things are:

  • No maturity benefit: Although the sum assured is higher but if a policyholder outlives the policy term, all the premiums paid by him remain with the insurance company. The death benefit also gets over and nothing will be paid. Also, if you renew or take a new policy, the premium gets higher because of the age of the seeker. And most Indian people think that since there are no maturity benefits, the money paid as premiums is a loss of money. They do not consider the intent of buying the policy that it is to give financial assistance to your family.
  • No savings, thus no profit: There is no saving component or investment structure in a term life insurance. You just pay and forget about it. Its significance is only in case of unfortunate events. All the premiums that are paid during the policy tenure go in vain. You don’t get anything out of it except for the death benefit which is also limited to a certain number of years.
  • Buying at a later stage: If you buy the term plan in the later stage of your life, the premium gets higher. Also, buy in case if you are suffering from any health condition, the sum assured goes down. The only benefit of covering for financial losses also goes in vain.
  • No financial assistance if you are alive:There is no financial aid you get in case you outnumbered the policy term. Also sometimes people take out loans against life insurance policies, but in the case of term life insurance, you can not do that also. There is no provision for partial withdrawal in case of any emergency.

In this world of digitization, it is easier to go online, search for different policies and compare them on the website itself and select one of the best term life insurance plans. It becomes easier as you can search for all that you want and buy a policy which suits you the best and fulfils all the major requirements that will safeguard the future of your family and lower the risk.

FAQ

How does the Term Insurance works?

A term plan provides coverage for a specific length of time. It means that if the policyholder dies within the set time period, the policyholder's nominee is entitled to the death benefit or the specified quantity insured in a lump sum or monthly instalments (as stated by the policy holder). However, if the policyholder lives longer than the policy term, that is, if he lives longer than the term period for which he purchased the policy and coverage, he or his nominee will not be entitled to any benefits.

What are the various types of term insurance plans?

There are various types of term insurance plans:

  • Return-of-premium term plan- In most term insurance policies, there is no provision for a premium refund, although some companies are now offering plans with a premium refund option at the policy's maturity. Choosing this type of term plan, however, may result in a larger premium than typical.
  • Level term insurance- Along with the premium to be paid, the amount of coverage remains constant during the policy's term.
  • Term plans with survival benefits- Another type of term plan is one in which the policyholder has the right to receive survival benefits, but only if he or she is disabled partially or permanently.
  • Annual renewable term insurance- The policyholder has the option of renewing his coverage on an annual basis. This type of coverage has a cheaper initial price, but it gradually increases when the coverage is renewed year after year. The policyholder's ability to analyse and pay for his needs annually is ensured by the plan.
  • Decreasing term insurance- Under this type, the amount of coverage a policyholder receives decreases as they get older. This type of insurance is appropriate for those who believe their liabilities will diminish as they age.
  • Increasing term insurance- As the policyholder's age rises, the coverage increases while the premium remains same. This type of plan is critical in combating inflation problems and gives policyholders piece of mind that they will not be underinsured in the future. Because of this, the premium charged is more than for other types of term insurance.
What happens after the policy is over?

When the insurance term ends, the policyholder may or may not be able to obtain the same coverage for the same premium amount. Alternatively, if the premium payment remains constant, the degree of coverage is reduced. The premium rate is determined by a number of factors, including the policyholder's lifestyle and health status, as well as possible death scenarios.

How can you determine how much term insurance to purchase?

A simple rule of thumb is that you should have at least 10 times your annual income in life insurance. However, your coverage must be sufficient to cover your existing and future liabilities, as well as your financial objectives. If you have a home loan of Rs. 50 lakhs, you should make sure that your life insurance policy is large enough to cover the liability. Remember to factor in inflation when determining future goals.

How do you choose the policy's duration?

This, of course, is dependent on how early you get your term insurance coverage. The sooner you get one, the longer you will be protected. The general rule is to buy an insurance for as long as feasible and then cancel it when it is no longer needed. This is especially handy if your policy is designed to pay off a loan while you are away. You can customise your coverage based on how many years you have left to pay your premiums. It's also a good idea to make sure you're protected for the rest of your working life.

When it comes to term insurance, how important is a personal behaviour like smoking?

Term insurance is a life insurance policy, and insurance companies rely on risk assessments. We charge you a greater premium if you are at a higher risk of developing a critical disease. If you smoke, your premium will be more than if you did not smoke.

What are the distinctions between term and accidental insurance?

Only if the insured dies in an accident does accidental insurance give a death reward. Any type of death is covered by a term insurance policy.

What makes term insurance different from life insurance?

If you get term insurance online, the nominees will be paid an amount assured if something unfortunate happens. When a life insurance policy matures, it pays out benefits.

Does term insurance have tax benefits?

Yes, the policyholder can claim a tax benefit of up to INR 1.5 lakh under Section 80C of the Income Tax Act, 1961.

What kinds of death are covered by term insurance?

Term insurance covers all sorts of death, including natural death, death from an accident, and death from serious illnesses, unless the policy contract provisions specify otherwise.

What happens if you don't die during the term?

The insurance plan will expire at the conclusion of the policy term. If there are any survival benefits, they are disclosed.