What Is Term Insurance Meaning In India & How It Works?By Okbima 23 Jun 2023
Term insurance is a type of life insurance policy that provides financial protection to the policyholder's family in the event of the policyholder's death during the policy term. It is the purest form of life insurance, as it does not have any savings or investment component. Term insurance is the most affordable type of life insurance available in India, and it is a good option for people who need financial protection for their loved ones in the event of their death.
How Term Insurance Plans Works In India?
When you purchase a term insurance policy in India, you agree to pay a regular premium to the insurance company for a specific period of time, or policy term. If you die during the policy term, the insurance company will pay a death benefit to your beneficiary. The death benefit is a lump sum of money that can be used to cover funeral expenses, outstanding debts, education expenses for children, and other financial needs.
Example: A 30-year-old man in India buys an insurance plan that lasts for 20 years. If he passes away while the insurance is active, his beneficiary will get 1 crore rupees. He pays 1,000 rupees every month for this coverage.
Features of Term insurance in India
When it comes to protecting your family's financial future, term insurance stands out as a popular and effective choice. It's a straightforward and easy way to provide financial security for your loved ones in case of an unfortunate event.
In India, term insurance plans come with several key features that make them highly appealing. Let's take a closer look at these features, keeping things simple and easy to understand.
1. Affordable Premiums
Term insurance plans in India are known for their affordability. You can get life insurance protection for a small amount of money. This cost-effectiveness ensures that individuals from various income groups can access this crucial financial safety.
2. Additional Riders
Term insurance plans can be customized with riders or add-on benefits. These riders provide extra protection, such as coverage for critical illnesses, accidental death, disability, or waiver of premium in case of a disability.
3. Flexible Policy Terms
Term insurance policies provide the freedom to select the desired policy duration, allowing for flexibility in the decision-making process. Policyholders can select a duration that best suits their needs, whether it's until their retirement age, a specific financial milestone, or to ensure their children's education and marriage expenses are covered.
4. Tax Benefits
Payments made for term insurance plans qualify for tax deductions under Section 80C of the Income Tax Act. Additionally, the sum assured received by the nominee is tax-free under Section 10(10D), provided the policy meets certain conditions. These tax benefits make term insurance an attractive option for individuals looking to save on their tax liability while ensuring their family's financial security.
Benefits of Term insurance in India
Term insurance is a popular choice among Indians for securing their family's financial future. Its simplicity and effectiveness make it valuable in financial planning. Here are the key benefits of term insurance in India:
1. Financial Security for Your Family
Term insurance provides a substantial sum assured to your family in the event of your untimely demise during the policy term. This financial support ensures that your loved ones can maintain their standard of living, meet daily expenses, and achieve long-term financial goals, even in your absence.
2. Peace of Mind
Knowing that your family will be financially secure, regardless of what life throws at you, provides peace of mind. Term insurance allows you to focus on your goals and aspirations without the constant worry of leaving your loved ones financially vulnerable.
3. Easy to Understand
Term insurance is simple to comprehend. It is a pure protection plan without any savings or investment component, making it a straightforward choice for individuals who want to secure their family's future without any complications.
Who Should Buy Term Insurance In India?
Term insurance provides security and peace of mind to your loved ones in the event of your untimely demise. It's a valuable addition to your financial portfolio, but who should consider buying term insurance in India? Let's dive into the details.
- Individuals with Financial Goals: If you have specific financial goals, like your child's wedding or building your dream home, term insurance can ensure that these dreams are fulfilled, even in your absence.
- Individuals Planning for Retirement: Term insurance can be used as income replacement during retirement planning. It ensures that your spouse continues to receive financial support after your retirement.
- Dual-Income Families: Families with two earning members should both have term insurance. It ensures that the surviving spouse has financial support if one of the earners passes away.
- Business Owners: Business owners can use term insurance for key person insurance. It safeguards the business by providing funds to cover the loss incurred due to the demise of a crucial employee or partner.
- Those with Loans and Liabilities: If you have loans or financial liabilities, term insurance can protect your family from these debts in the event of your demise. It ensures that your loved ones don't bear the financial burden.
How To Choose A Term Insurance Policy In India?
When choosing a term insurance policy in India, it is important to compare different policies from different insurance companies and choose the one that best meets your needs and budget. You should also consider your health and lifestyle when choosing a policy, as these factors can affect your premium.
1. Identify Your Coverage Needs
Begin by identifying your financial responsibilities, including loans, daily expenses, education costs, and future goals. As a general guideline, aim for coverage that is at least ten times your annual income.
2. Determine the Policy Term
Decide on the duration of your term insurance policy. It should align with your financial milestones, such as the age at which you plan to retire and the period during which your children will need financial support. Some policies offer coverage up to a specific age, while others provide lifelong coverage.
3. Compare Premiums
Compare premiums from different insurance providers to find an affordable policy that suits your budget. Be cautious of extremely low premiums, as they might not provide comprehensive coverage. Choose a premium payment frequency that aligns with your financial capacity.
4. Understand Policy Terms and Conditions
Check the policy document for a clear understanding of the terms and conditions. Learn about how to pay your insurance premiums, the extra time you have if you're late with a payment, and other important details about your insurance policy. Being aware of the policy's exclusions and inclusions is to avoid any surprises during claim settlement.
Confused about term insurance? Ask our experts today!
In conclusion, term insurance is a straightforward and cost-effective way to protect your family's financial future. It provides safety, offering a predetermined sum assured to your beneficiaries in the event of your untimely demise during the policy term. This can help cover outstanding debts, daily expenses, education costs, and more. Term insurance is especially crucial if you are the primary earner, as it ensures that your loved ones are protected from the burden of financial liabilities.
By choosing the right term insurance policy, you can achieve peace of mind, knowing that your family's well-being is secured, even when you are no longer there to support them.
Do you get your money back at the end of a term life insurance policy?
No, with a term life insurance policy, you don't get money back at the end. It only pays out a death benefit if you pass away during the term.
Which is better: Term life insurance or whole life insurance?
Term life insurance is usually better for most people due to its affordability and flexibility. Whole life insurance is more expensive and combines insurance with a savings component.
What is a terminal illness in Term Insurance?
A terminal illness in term insurance typically refers to a condition where the policyholder has a limited life expectancy, often less than 12-24 months, and can access a portion of the policy's death benefit while still alive.
What is Group-term life insurance?
Group-term life insurance is a policy provided by an employer to a group of employees. It offers coverage for a specified period and is often a benefit of employment.
What is zero cost term insurance?
Zero-cost term insurance is a marketing term that suggests you won't pay any premiums. In reality, premiums are typically covered by investment returns, making it complex and potentially risky.