Term Insurance is a type of life insurance coverage that offers financial protection to the policyholder's family in case of the policyholder’s untimely demise. It provides coverage for a specified period, or term, and pays out a sum assured to the nominee in case the policyholder passes away during this period. Term insurance is one of the most affordable forms of life insurance in India, making it a popular choice among those who want to ensure their family's financial security. In this article, we will discuss the importance of payout terms in Term Insurance and the factors that affect them.
Life Cover Starting @ just ₹18/day*
Change Your Policy Term
As per your life stage and commitments
Hassle-Free Claim Settlement
99.38% Claim settlement ratio*
Smart Income Tax Savings
Save up to ₹54,600* on your taxes
Here are some crucial terms to know regarding Term Insurance payout. Please refer to your applicable policy wordings for precise details.
The death benefit is the primary payout that the nominee receives from the insurer in the event of the policyholder's death during the policy term. This amount is typically chosen by the policyholder at the time of purchasing the policy, and it is paid out as a lump sum to the nominee. The death benefit is tax-free under Section 10(10D) of the Income Tax Act, 1961 as per applicable terms and conditions.
Nominee in life insurance is the person who receives the death benefit in case of the policyholder's demise. The policyholder can nominate anyone in their family, such as spouse, parents, children, or any other loved ones as the nominee.
Some Term Insurance policies offer a Survival Benefit, which is paid out to the policyholder if they survive the policy term. It is important to note that adding Survival Benefit Rider to your term insurance comes at a cost and will increase the premium you have to pay. Some insurance companies also offer Critical Illness Coverage and Terminal Illness Coverage riders along with their term insurance plans.
If the policyholder wishes to surrender the policy before the policy term ends, the insurance company pays out the surrender value, which is a percentage of the premiums paid. The surrender value of a term insurance policy may be calculated based on the premiums paid by the policyholder, the duration of the policy, and other factors as specified in the policy terms and conditions. If the policyholder decides to surrender the policy, the insurance company will typically refund a portion of the premiums paid by the policyholder after deducting any applicable charges and fees.
A free look period in Term Insurance is a specified period of time, typically between 15 to 30 days, during which a policyholder can review and evaluate their term insurance policy after purchasing it. During the free look period, the policyholder can carefully review the policy documents and all the terms and conditions, including the coverage amount, premium, exclusions, and other important details. If they find any discrepancies or have any concerns, they can contact the insurance company and ask for clarification or amendments to the policy. If the policyholder decides to cancel the policy during the free look period, the insurance company will typically refund the premium amount paid by the policyholder after deducting any applicable charges or fees.
The following factors have a direct impact on Term Insurance payouts. Have a look.
The policy term is the duration for which the policyholder has taken the term insurance. It determines the time period for which the policy is valid, and the death benefit will be paid out only if the policyholder passes away during this term.
The premium amount is the regular payment made by the policyholder to the insurance company for the term insurance. It is calculated based on various factors such as the age, health, and occupation of the policyholder. The higher the premium amount, the higher the payout in case of the policyholder's death.The regularity of premium payments is also a crucial factor that affects the payout of term insurance. If the policyholder misses any premium payments or fails to pay the premium on time, the policy may lapse, and the nominee may not receive the death benefit. Therefore, it is essential to ensure that the premium payments are made on time, and the policy remains active throughout the policy term.
The age of the policyholder is one of the most critical factors that affect the Term Insurance payout. If the policyholder passes away at a young age, the payout will be significantly higher compared to if they pass away at an older age. This is because the policyholder has paid a lesser premium amount and the insurance company has to pay the death benefit for a more extended period.
The health of the policyholder is another critical factor that affects the payout of Term Insurance. If the policyholder has any pre-existing medical conditions or has a risky lifestyle, the premium amount will be higher, and the payout amount will be lower. This is because the insurance company assumes a higher risk in insuring the policyholder and may offer a reduced payout in case of death.
The reason for the death of the policyholder also plays a crucial role in determining the payout amount of the Term Insurance. If the policyholder passes away due to natural causes such as illness or old age, the payout will be made to the nominee. However, if the policyholder passes away due to suicide or any other illegal activity, the insurance company may not make any payout.
The nominee is the person who will receive the death benefit in case of the policyholder's untimely demise. It is essential to ensure that the nominee details are correct and up to date. If the nominee details are not correct, there might be legal complications, and the payout may be delayed.In case of the policyholder's untimely demise, the nominee needs to file a claim with the insurance company to receive the death benefit. The claim filing process can be a complicated and time-consuming process, and any errors or discrepancies in the claim application can delay the payout or even result in the claim being rejected. Therefore, it is essential to ensure that the claim filing process is followed correctly and all the required documents are submitted in a timely and accurate manner.
When you choose term insurance, one of the most crucial decisions you'll make is selecting the type of death benefit. The death benefit is the money your insurance company will pay your beneficiaries if you pass away during the policy term. Here's a closer look at the different types of death benefits:
This is the simplest and most common type of term insurance. The death benefit remains the same throughout the policy. It’s precise and predictable, making budgeting easier for your family since they know exactly what to expect.
With this type, the death benefit increases over time, usually at a predetermined rate. This can be particularly useful if you're worried about inflation or rising financial responsibilities in the future. It helps ensure that the money your family receives will have the same purchasing power in the future as it does today.
Unlike increasing term, the death benefit decreases over time. This is often chosen by individuals who anticipate their financial obligations—like a mortgage or education loans—decreasing over the years. It's a cost-effective option for those who want to match their insurance coverage closely with their decreasing financial liabilities.
Each type has its place, depending on your financial goals and life stage. Choosing the right one involves considering your current financial situation, future plans, and how your family's needs might change over time.
Term insurance is not only a tool for financial security but also offers significant tax benefits, which can be a complex area but crucial to understand:
Generally, the death benefit from a term insurance policy is tax-free under Section 10(10D) of the Income Tax Act in India. This means your beneficiaries can receive the full amount without tax deductions, a huge relief during a difficult time.
Premiums paid on term insurance can often be deducted from your taxable income under Section 80C up to a certain limit. This reduces your total taxable income and your tax burden while alive.
While not a concern for everyone, in some countries, large insurance payouts can become part of your estate and might be subject to estate taxes. Consulting with a tax advisor to understand how your term insurance payout will be treated under your specific national and local tax laws is wise.
Understanding these tax implications can help you plan for your financial future and maximise the benefits your family will receive.
Policy riders are additional benefits you can add to your term insurance policy to cover specific situations that a standard policy might not cover. These riders increase the utility and adaptability of your insurance but come at an additional cost. Here are a few common riders:
This rider provides an additional death benefit on top of the base policy amount if death occurs due to an accident. This is particularly useful for those in high-risk occupations or lifestyles.
Offers a lump sum payment if the policyholder is diagnosed with one of the critical illnesses specified in the policy. This money can help cover medical expenses, lost income, or any other needs that arise due to illness.
If you become disabled and can no longer pay premiums, this rider ensures that your policy remains in force without further payments from you.
Each rider adds a layer of security but at an additional cost. When choosing riders, consider the scenarios most likely given your health, lifestyle, and family medical history.
The term insurance market is dynamic and influenced by broader economic, technological, and demographic trends. Some current trends include:
As average life expectancy increases and companies leverage technology to assess risk better, premiums have generally trended downward, making term insurance more affordable for a broader audience.
Insurers are offering more customisable policies that can be tailored to specific needs. This includes adjustable terms, a variety of riders, and variable payout structures.
One such term plan known for its flexibility and tailor-made features is the ACKO Life Flexi Term Plan. This Pure, Non-Linked term insurance plan allows you to customise your sum assured and policy term based on your evolving financial requirements. Additionally, it offers valuable add-ons such as ACKO Life Accidental Death Benefit Rider, ACKO Life Accidental Total Permanent Disability Benefit Rider, or ACKO Life Critical Illness Benefit Rider.
Online Integration: The process of comparing, buying, and managing term insurance policies is increasingly integrated online, making it more accessible and user-friendly. These trends make term insurance more attractive and accessible, but they require consumers to be informed to make the best choices.
The following points are taken into consideration while calculating Term Insurance payouts.
The insurer’s underwriting process is a crucial aspect of the Term Insurance policy, as it determines the premium amount and the eligibility of the policyholder to receive the death benefit. The underwriting process involves assessing the risk involved in insuring the policyholder.During the underwriting process, the insurance company evaluates various factors such as the age, health, occupation, lifestyle, and medical history of the policyholder to determine the premium amount. Based on the underwriting process, the insurance company may decide the death benefit.
The insurance company conducts these tests to assess the policyholder's health condition and to determine the risk involved in insuring them. Based on the results of the medical tests and health check-ups, the insurance company may adjust the premium amount or the payout amount.
It’s crucial to periodically review and adjust your term insurance to ensure it continues to meet your evolving needs. Here are some strategies to keep your policy aligned with your life circumstances:
Review your policy every few years or after significant life events such as marriage, childbirth, or house buying. This helps ensure your coverage is adequate.
Keep the list of beneficiaries up to date to avoid legal complications and ensure that the death benefit goes to the intended individuals.
Increase or decrease your coverage based on changes in your financial obligations. For example, reduce coverage once your mortgage is paid off or increase it if you have another child.
By actively managing your term insurance policy, you can ensure it remains a practical part of your overall financial plan, providing peace of mind that your family will be financially secure no matter what happens.
If you want to protect your loved one's financial future, a life insurance policy with substantial coverage can help you do so. A term life insurance plan is frequently seen as the best option for families wanting to cover future costs, loans, and financial needs. Finding the best insurance plan requires knowing several variables that may impact your coverage and rates.
If you have financial responsibilities such as home loans, other debts, or children's schooling, choosing the best term insurance plan for 1 crore is a wise investment. In addition to offering your family instant financial support in the event of your sudden death, it guarantees that your family's level of living will always be maintained. Use a term insurance calculator to find the best premium for your budget and ensure the plan meets your financial goals.
Here are some common questions and answers related to payout terms in Term Insurance.
Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.
1.7K Linkedin Followers 
Reviewed by Vaibhav Kumar Kaushik 
Acko Technology & Services Private Limited
#36/5, Hustlehub One East, Somasandrapalya, 27th Main Rd, Sector 2, HSR Layout, Bengaluru, Karnataka 560102
Products 
Company
Legal
Support
Car Insurance 
Bike Insurance
Health Insurance
Group Health Insurance
Travel Insurance
Life Insurance