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What is Term Insurance?
Term Insurance is a type of life insurance coverage that assists your family financially in the case of your untimely death. It is a pure life insurance policy that provides the nominee or beneficiary of the policy with a lump sum payment if the policyholder passes away within the policy term.
Due to their accessibility and adaptability, Term Insurance policies have been popular in India for several years. They are the perfect option for individuals who want to ensure their family's financial security without having to pay a lot of money because they give a high sum assured at a low premium cost.
You choose a sum assured (the amount of money to be paid to your nominee/beneficiary in the event of your death) and a policy term (often ranging from 5 to 40 years) when you acquire a Term Insurance policy. Regular premium payments are made during the policy term, and if you die during that time, your nominee or beneficiary will be given the amount promised.
Note that Term Insurance policies don't offer maturity advantages. This means you won't get any money from the insurance company if you live past the policy's expiration date. This is because the policy only offers financial assistance in the case of your passing.
Why is it important to buy a Term Life Insurance plan?
Here are the reasons why buying a Term Life Insurance plan is important.
Financial protection for your loved ones
Your sudden death could put your loved ones in financial uncertainty if you are the family's sole breadwinner. However, if you buy a Term Life Insurance plan, your beneficiaries can get a lump sum payment, which they can use to cover living expenses, a mortgage, the children's college expenses, or any other financial requirements.
Affordable premiums
A Term Life Insurance policy often costs less than a Whole Life Insurance policy. The period of the policy and the level of coverage you select determines the price of Term Life Insurance. As a result, many families find it to be an affordable choice.
Flexibility
Term Life Insurance offers flexibility in terms of the policy's length and coverage level. You can pick a policy based on your requirements and spending limit. For instance, if you have young children, you might select a 20-year life insurance plan to protect them financially until they can support themselves.
Peace of mind
By purchasing a Term Life Insurance policy, you can relax knowing that your loved ones will be financially secure in the unfortunate event of your untimely death. This might lessen some of the stress and anxiety brought on by life's uncertainties.
Example of Term Life Insurance
Let's consider the case of Rohan, a 25-year-old construction supervisor in Mumbai, who purchased a Term Life Insurance plan to provide financial protection to his family in case of his untimely death.
Rohan purchased a Term Insurance plan with a coverage amount of Rs. 50 lakh for a policy Term of 20 years. He paid an annual premium of Rs. 6,000 for the policy, which was affordable for his budget.
Unfortunately, Rohan met with an accident at his construction site and passed away due to his injuries. Rohan's family filed a claim with the insurer, and after the necessary documentation and verification process, the insurer approved the claim and paid the death benefit of Rs. 50 lakh to Rohan's family.
Rohan’s proactive decision to buy Term Insurance helped his family to pay off their debts and cover their living expenses.
What are the different types of Term Plans available in India?
In India, there are several types of Term Insurance plans available. Here are some of the most common types.
Level Term Insurance: This is the most basic type of Term Insurance plan, where the death benefit remains the same throughout the term of the policy.
Increasing Term Insurance: In this type of plan, the death benefit increases over time, usually to keep pace with inflation. The premiums for Increasing Term Insurance are typically higher than those for Level Term Insurance.
Decreasing Term Insurance: In this type of plan, the death benefit decreases over time, usually to align with the decreasing financial obligations of the policyholder, such as a mortgage or other debts. The premiums for Decreasing Term Insurance are typically lower than those for Level Term Insurance.
Convertible Term Insurance: This type of Term Insurance plan allows the policyholder to convert the policy into a permanent Life Insurance policy, such as Whole Life Insurance, at a later date without the need for a medical exam.
Group Term Insurance: This type of Term Insurance plan is typically offered by employers or other organisations to provide coverage to a group of individuals. The premiums for Group Term Insurance are typically lower than those for Individual Term Insurance plans.
Who should buy a Term Plan in India?
The following people should consider buying a Term Life Insurance plan in India.
Married individuals with dependents
If you have a spouse and children who depend on you financially, a Term Insurance plan can provide financial protection to them in the event of your unexpected death.
Single individuals with financial obligations
Even if you are single, you may have financial obligations such as a mortgage, car loan, or personal loan. A Term Insurance plan can ensure that your debts are paid off in the event of your unexpected death.
Individuals with high-risk jobs
If you work in a high-risk job such as those in mining, construction, or transportation, a Term Insurance plan can provide financial protection to your family in case of your untimely death.
Business owners
If you own a business, a Term Insurance plan can ensure that your business continues to operate smoothly in the event of your unexpected death. You can name your business as a beneficiary, and the death benefit can be used to pay off debts or to provide funds to keep the business running.
Individuals with a history of health problems
If you have a history of health problems, you may face difficulty in getting life insurance coverage. However, Term Insurance plans generally have lower premiums than other types of life insurance policies, making them an affordable option for individuals with health problems.
List of things to consider before buying Term Insurance
If you are planning to buy Term Insurance in India, here are some things you should consider before making a decision.
Determine the coverage amount you need based on your financial obligations and the needs of your dependents in case of your unexpected death.
Consider inflation and potential future expenses while selecting the sum assured.
Choose the policy term that aligns with your financial goals and the needs of your dependents.
Consider the affordability of the premiums and ensure that they fit within your budget. You should also compare the premiums of different policies to find the best value for your money.
Consider adding available riders to your policy, such as Accidental Death benefit or Critical Illness rider, to enhance your coverage.
Research the insurer's reputation and financial stability to ensure that they have a good track record of settling claims.
Understand the exclusions of the policy, such as suicide or death due to certain pre-existing medical conditions, to ensure that you are aware of any limitations to the coverage.
Understand the process of filing a claim and the time taken by the insurer to settle the claim. You should choose an insurer with a fast and efficient claim settlement process.
Understand the surrender value of the policy in case you need to surrender the policy before the end of the policy term.
How to choose the right Term Insurance policy
Here are some tips for choosing the right Term Insurance policy.
Understand your coverage needs
Calculate your current and future financial obligations, such as outstanding debts and the needs of your dependents. This will help you determine the amount of coverage you need.
Compare policies
You can use online comparison tools or consult a financial advisor to help you find the best policy for your needs.
Check the insurer’s claim settlement ratio
Check the claim settlement ratio of the insurer to ensure that they have a good track record of settling claims. The higher the claim settlement ratio, the better the insurer's reputation.
Look for additional benefits
Consider policies that offer additional benefits such as Accidental Death benefit, Waiver of Premium, or Critical Illness rider. These riders can enhance your coverage and provide extra protection.
Read the policy document
Go through the policy document carefully to understand the coverage, exclusions, and limitations of the policy. If you have any doubts or questions, consult a financial advisor or the insurer's customer service team.
What are the tax benefits of buying Term Life Insurance?
Here are some of the tax benefits of buying Term Life Insurance. Note that the benefits might change based on government notifications.
Tax deductions on premiums
The premiums paid on a Term Plan during the corresponding year are eligible for a deduction under section 80C for the taxpayer. For policies issued prior to 31 March 2012 and for policies issued on or after 1 April 2012, the deduction is capped at 20% and 10% of the capital sum insured, respectively.
Tax-free Death Benefit
According to Section 10(10D) of the Income Tax Act, the death benefit received by the nominee in the event of the policyholder's death is tax-free. The nominee is not required to pay income tax on any of the money they receive.
FAQs
Here are some common questions about Term Plans in India.
What is the eligibility criteria for buying Term Life Insurance in India?
Most insurance companies require the policyholder to be a citizen or resident of India, be of a certain age (usually between 18 and 65 years), and have a stable income source.
How much coverage should I opt for in my Term Life Insurance policy in India?
You should consider factors such as your income, expenses, debt, and future financial obligations, such as children's education or mortgage payments, when determining the coverage amount.
Can I renew my Term Life Insurance policy in India?
Most Term Life Insurance policies in India come with a renewable option, which allows you to renew the policy for another term after the initial term expires.
What happens if I outlive my Term Life Insurance policy in India?
If you outlive your Term Life Insurance policy in India, the policy will expire and you will not receive any payout.
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.
