Term-Life Insurance

Term-Life Insurance

Live a Long Life With Protection

Definition

Term life insurance is a type of insurance plan where the insured is comprehensively covered in the event of their demise during the fixed term period of the policy. The sum assured is paid as death benefit to the beneficiary of the policy.

Why should you buy term insurance?

Life is short and unpredictable. Unforeseen circumstances may arise anytime, leaving your family's financial future insecure in your absence. Term life insurance prevents this and ensures that should such a condition arise, your family remains financially secure. Here are a few reasons why you should go for a term life insurance policy:

  • Financial Security to your family in case of your unfortunate demise.
  • Coverage for liabilities such as loans and debts incurred by you that needs to be repaid by your family.
  • Lower premium rates than dedicated life plans for the same coverage.
  • Highly flexible plans regarding policy conditions as well as premiums.
  • Attractive riders to increase your policy coverage beyond the simple death benefit only.
  • Tax exemption on your premiums under Section 80C and 10(10D) of the Income Tax Act.

How Much Term Insurance Do You Need?

How much Term Insurance you need to purchase depends on your lifestyle and needs, subject to your income. As a general thumb rule, it is advisable to purchase cover for up to 10-15 times your annual income. This typically is sufficient for your family to sustainably maintain their lifestyle in your absence. However, this is only a thumb rule, and the amount of policy you must buy can vary according to your individual needs.

Age plays an important role in this decision as well. In general, if you are young and have a significant portion of your earning life ahead of you, you can and should go for a larger insurance coverage as opposed to when you are older and closer to retiring. Policy providers commonly charge lower premium rates for youth, which increase as you grow older.

Benefits:

If you have a term life insurance plan, you can avail a number of benefits such as:

  • Financial security for your family in your absence
  • Financial support to you and your family in case of temporary or permanent disability, as well as critical illnesses
  • Higher sum assured with lower premiums compared to other life insurance plans
  • Financial protection against debts and liabilities such as loans
  • Tax benefits on premiums and returns under Sections 80C and 10(10D) of the Income Tax Act, 1961

Key features:

Common features found in almost all term life insurance plans are:

  • Life cover to you with financial protection for your family against the risk of your unexpected demise during the term of the policy
  • Pocket friendlier policies than other life insurance plans
  • Free look period where policy can be terminated without inviting penalties
  • Optional add-ons and riders that enhance the basic term plan
  • Lower premium rates for females and smokers
  • Complete flexibility in choices of policy period, premium payment modes, frequency of premiums, etc.

Types of term insurance

The various types of term insurance policies available in India are:

  • Standard Term Insurance: The standard term insurance plan is the type of insurance plan where the insured pays premiums on the policy at fixed annual, half yearly, quarterly, or monthly periods, and the insurance amount is paid as death benefit in case of the death of the policyholder. No payment is disbursed if the policyholder survives the policy term.
  • Term Return of Premium (TROP): the return of premium term plan ensures that all the premiums paid are returned at the end of the policy term if the insured does not pass away during this time.
  • Increasing Term Insurance Plan: This term plan ensures that the payout amount to be paid by the insurance provider increases at a fixed rate every year while the premiums to be paid remain the same.
  • Life Stage Event Term Insurance Plan: This type of term insurance plan allows a fixed increase in your insurance payout as well as premiums with every life milestone you reach, such as marriage, birth of first and second children, etc
  • Convertible Term Plan: Convertible term plans give you the flexibility to switch from term plan to whole life plan or endowment plan you wish. Payouts and premiums adjust accordingly.
  • Joint Life Term Plan: The joint life term plan provides financial coverage to you and your spouse in a single policy. These policies do not lapse on the death of one partner, but survives till the death of the other partner or end of policy term, whichever is earlier.
  • Group Term Insurance: Group term insurance policies are standard term policies but purchased for a group of people. These policies are typically purchased by companies for their employees, and the premiums, coverage, and terms and conditions of the plan are designed accordingly.

Riders in Term Insurance

Basic term life insurance plans are simple and straightforward in their scope and approach: They provide the sum assured as death benefit upon your demise to the beneficiary you specify. They do not provide any additional coverage beyond this basic premise.

Riders are extensions added on to the basic term life insurance policy you purchase for a nominally increased premium. A number of riders are provided by the insurance companies which can be added on to your basic term life plan to extend it's coverage.

Types of riders:

Some common riders include:

  • Accidental Death Benefit Rider
  • Accidental Total and Permanent Disability Rider
  • Critical Illness Rider
  • Waiver of Premium
  • Accelerated Death Benefit Rider
  • Hospital Cash Rider
INCLUSIONS EXCLUSIONS
Death due to natural causes or non-sexually transmitted diseases Death due to suicide (on First Year)
Death due to accident, except driving under the influence of alcohol or drugs Death due to self harm or self inflicted injury
Death due to large scale natural calamities if the plan includes coverage for the same Death due to sexually transmitted diseases like AIDS
Death due to participation in hazardous activities like adventure sports or racing
Death due to substance abuse or overdose
Death due to participation in illegal or criminal activities
Death due to lifestyle related conditions such as smoking, as well as pre existing diseases

How to Choose the Best Term Plan?

While the word 'best' is highly subjective, it is worthwhile to compare the various features of the term insurance policy you intend to purchase and the provider you want to purchase it from. Following are the key points you can keep in mind:

  • Claim Settlement Ratio: Settlement ratio of an insurance service provider refers to the number of claims settled by them for every hundred claims.
  • Company Reliability: The value of reputation does not need an explanation. Buying your insurance policy from a reputed and well established policy provider to make sure your money stays secure all the way through.
  • Premium: Premiums are vital for an insurance. Therefore, compare policies from different providers to select a plan that offers the highest coverage for the lowest rates of premium. Look out for discounts you may be eligible for.
  • Solvency Ratio: Solvency ratio is a measure of the total capital of your insurance provider against the amount of liabilities they have taken up. This gives you an idea of whether they can cover their claims without going bankrupt.
  • Enhanced Cover: Certain policies allow the policyholder to increase the coverage in certain critical situations arising during policy period without you having to pay extra.
  • Riders: While comparing policies, check the riders you can avail to increase the coverage scope of your policy to beyond what it would originally have been without riders.

Claim process

The process for claiming term insurance is pretty straightforward, and involves the following three steps:

  1. Intimation: Upon the demise of the policyholder, inform the insurance service provider as the beneficiary and submit the necessary documents within 90 days of occurrence of death.
  2. Assessment: The claim documents are thoroughly scrutinized and any further requirements are informed to the beneficiary. The company may also appoint a medical team to investigate the claim.
  3. Settlement: Once the documents are verified and investigation is complete, the claim is disbursed to the beneficiary directly.
Term Insurance - FAQs

Let’s Clear Your Doubts

The documents that you need to submit to make a claim on a term insurance policy include:

  • Duly filled up claim form
  • Policy document
  • Death Certificate, and FIR, post-mortem/autopsy report as applicable
  • Deeds of assignments if any
  • Discharge form
  • Certificate of the medical attendant last consulted
  • Other documents specified by the insurance provider

Term insurance policies do not normally provide any maturity benefit. The sum assured is paid as death benefit in the event of the policyholder's demise during the term period, and no payment is done if death does not occur. However, there is a maturity benefit in the case of Term Return of Premium policies. In case of such policies, if the policyholder survives the term period, all the premiums paid by them during the term is paid back by the insurance provider. This is in addition to the death benefit normally available under term plans.

The documents that are necessary when purchasing a term insurance policy include:

  • Photo Identity Card, preferably government issued
  • Proof of age and address
  • Proof of Income such as salary slips, income tax returns, etc.
  • Other documents specified by the insurance provider

Insurance providers have a specific list of procedures where this is applicable. Additionally, different insurance providers have different sets of conditions for the clause to be inapplicable.

No, since term insurance plans do not have a maturity benefit, you cannot normally avail a loan based on such policies.

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