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What is Term Insurance

TeamAckoMay 13, 2024

Term insurance is an essential component of a comprehensive financial plan, providing financial security and peace of mind to individuals and their families. In India, term insurance has gained significant popularity due to its affordability and extensive coverage. This article aims to provide a comprehensive guide to term insurance in India, covering various aspects such as benefits, types, features, eligibility, claim process, and more. This guide will equip you with the necessary knowledge to make informed decisions.




What is Term Insurance?

Term insurance is a special type of life insurance that's there to watch over you and your loved ones. It offers protection for a specific period, ensuring that if anything unexpected happens to you during that time, your family will be financially supported. Unlike other life insurance plans, term insurance doesn't have any fancy rewards if you make it through the term. It simply focuses on giving a helping hand to your beneficiaries by providing a payout if the worst should happen.

Why is Term Insurance Important?

Term insurance plays a vital role in securing the financial future of your loved ones. In the event of your unfortunate demise, the death benefit received from a term insurance policy can help your family meet their financial obligations, such as paying off debts, covering daily expenses, funding children's education, and maintaining their standard of living. It acts as a financial safety net, ensuring that your family's dreams and aspirations are protected even when you are not around.

Advantages of Term Insurance

Following are the advantages of buying Term insurance.

  • Affordability: Term insurance plans are relatively affordable compared to other life insurance policies, making it accessible to a broader segment of the population.

  • High Coverage Amount: Term insurance allows you to choose a substantial sum assured, ensuring that your family receives a significant financial cushion in your absence.

  • Flexibility: Term insurance plans offer flexible policy terms, allowing you to select a duration that aligns with your financial goals and responsibilities.

  • Additional Riders: You can enhance the coverage of your term insurance policy by opting for additional riders such as critical illness cover, accidental death benefit, and disability cover.

  • Tax Benefits: Premiums paid towards term insurance policies are eligible for tax deductions under Section 80C of the Income Tax Act, providing additional savings.

Types of Term Insurance

Term insurance plans come in various types, catering to the diverse needs and preferences of individuals. Let's explore the different types of term insurance available in India:

Level Term InsuranceLevel term insurance is the most common type of term insurance plan. It offers a fixed sum assured and a consistent premium throughout the policy term. The death benefit remains the same, ensuring that the nominee receives a predetermined amount in case of the policyholder's demise. Level term insurance is suitable for individuals seeking a straightforward and stable insurance plan.

Decreasing Term Insurance Decreasing term insurance is designed to align with specific financial liabilities such as home loans or other outstanding debts. The sum assured gradually decreases over the policy term, reflecting the reducing liability. Decreasing term insurance provides a cost-effective way to cover specific financial obligations that decrease over time.

Convertible Term InsuranceConvertible term insurance plans offer the policyholder the flexibility to convert their term insurance policy into a different type of life insurance plan, such as endowment or whole life insurance, within a specified period. This option allows individuals to adapt their insurance coverage based on their changing financial goals and requirements.

Renewable Term InsuranceRenewable term insurance plans provide the policyholder with the option to extend their policy term upon reaching the original policy's maturity. It offers the advantage of continued coverage without the need for undergoing medical underwriting again. Renewable term insurance is beneficial for individuals who wish to extend their coverage beyond the initial term.

Group Term InsuranceGroup term insurance is offered by employers or organisations to provide life insurance coverage to their employees or members. It typically offers a blanket coverage amount to all the members, eliminating the need for individual underwriting. Group term insurance is a cost-effective way to provide insurance benefits to a large group of people simultaneously.

Key Features of Term Insurance 

Here are the key benefits of Term Plans.

Death BenefitThe death benefit is the primary feature of term insurance. In the event of the policyholder's demise during the policy term, the sum assured is paid to the nominee or beneficiaries. The death benefit provides the much-needed financial support to cover immediate expenses, outstanding liabilities, and future financial goals.

Premium Payment OptionsTerm insurance plans offer various premium payment options to suit individual preferences. You can choose between annual, semi-annual, quarterly, or monthly premium payment modes. Opting for a regular premium payment mode ensures that your policy remains in force and provides uninterrupted coverage.

Policy TermThe policy term refers to the duration for which the term insurance plan provides coverage. It is essential to select an appropriate policy term that aligns with your financial goals and the time when your financial dependents will need support the most. Longer policy terms ensure extended coverage, while shorter terms are suitable for specific financial obligations.

RidersTerm insurance plans come with optional riders that can be added to enhance the coverage and customization of the policy. Common riders include critical illness cover, accidental death benefit, disability cover, waiver of premium, and income benefit rider. Evaluating and selecting riders based on your specific needs can provide comprehensive protection.

Maturity BenefitUnlike traditional life insurance plans, term insurance does not offer a maturity benefit. If the policyholder survives the policy term, no maturity or survival benefit is payable. Term insurance primarily focuses on providing financial protection in the event of the policyholder's untimely demise.

Eligibility and Premium Calculation

To avail of a term insurance plan in India, certain eligibility criteria need to be fulfilled. Additionally, the premium calculation is based on various factors. Let's explore these aspects:

Age Limit

The minimum and maximum age limits to avail term insurance vary between insurance providers. Typically, the minimum entry age is 18 years, and the maximum age ranges from 60 to 65 years, depending on the insurer. It's crucial to consider the age limits specified by the insurance company before applying for a policy.

Sum Assured

The sum assured is the coverage amount provided by the term insurance policy. Insurance companies have a minimum and maximum limit for the sum assured. The maximum sum assured may depend on the applicant's income, age, and overall financial profile. The sum assured should be chosen considering the financial needs of the family and future obligations.


Certain occupations that involve higher risk factors may require additional underwriting or may have restrictions on coverage. Individuals engaged in hazardous professions such as mining, aviation, or armed forces may need to undergo specific medical tests or pay a higher premium due to the associated risks.

Health and Medical Conditions

Insurance companies assess the health and medical condition of applicants to determine the risk involved in providing coverage. Factors such as pre-existing medical conditions, lifestyle habits, and overall health affect the premium calculation. Applicants may be required to undergo medical examinations or provide medical records as part of the underwriting process.

Claim Process for Term Insurance

In the unfortunate event of the policyholder's demise, it is essential to understand the claim process to ensure a smooth settlement for the nominee. The claim process typically involves the following steps:

Intimation of Claim

The nominee or legal representative of the policyholder needs to inform the insurance company about the claim by submitting a written intimation. The intimation should include details such as the policy number, date and cause of death, place of death, and contact information of the nominee.


The insurance company will require specific documents to process the claim. These documents may include the original policy document, death certificate, medical records, identity proof of the nominee, and any other documents requested by the insurance company. Timely submission of all the required documents is crucial to avoid any delays in claim settlement.

Claim Settlement

Once the insurance company receives all the necessary documents and verifies the claim, the claim settlement process begins. The insurer reviews the claim application, and if everything is in order, the death benefit is disbursed to the nominee's bank account. The claim settlement is typically done within a specified timeframe mentioned in the policy terms and conditions.

Tips to buy the best Term Plan in India

Here are some tips to help you purchase the best term plan in India:

Determine your coverage needs: Assess your financial responsibilities, such as outstanding loans, dependents, and future goals. This will help you determine the appropriate coverage amount needed for your term plan.

Choose the right policy duration: Consider your financial goals and the time period for which you require coverage. Select a term duration that aligns with your needs, such as until your retirement age or until your children become financially independent.

Compare multiple insurance providers: Research and compare term plans offered by different insurance companies. Look into their reputation, claim settlement ratio, customer reviews, and the features and benefits of their policies. This will help you find a reliable and trustworthy insurer.

Evaluate the premium and affordability: Compare the premiums of different term plans to find one that fits within your budget. Ensure that the premium payments are affordable for the entire policy duration to avoid any lapses in coverage.

Assess the riders and additional benefits: Make sure to examine if the term plan provides any additional benefits or optional riders that might be useful for you. These can include things like coverage for critical illness, accidental death, or disability. Take a close look at these options to see if they can enhance your coverage according to your specific needs.

Understand the policy terms and conditions: Thoroughly read and understand the terms and conditions of the policy, including exclusions and limitations. Pay attention to factors like policy renewal, conversion options, and claim settlement process.

Seek professional advice: If you're unsure about the technicalities or have specific concerns, consider consulting with a financial advisor or insurance expert. They can provide personalised guidance and help you make an informed decision.Remember, buying a term plan is an important financial decision, so take your time, compare options, and choose a policy that best suits your needs and provides the necessary financial protection for your loved ones.

Frequently Asked Questions

Here are some common questions about term insurance


What is the minimum entry age for term insurance in India?

The minimum entry age for term insurance in India is usually 18 years. However, some insurance companies may have different age limits, so it's important to check with the specific insurer for their age eligibility criteria.

Can I increase the sum assured during the policy term?

In a regular term insurance plan, it is not possible to raise the sum assured during the policy term. The sum assured remains fixed for the entire duration of the policy. However, certain insurance providers might offer riders or additional coverage choices that permit an increase in the sum assured in specific situations.

What happens if I miss paying the premium on time?

If you miss paying the premium within the grace period provided by the insurance company, the policy may lapse or enter into a grace period. During the grace period, which is usually 15 to 30 days, you can make the premium payment without any penalties. However, it's important to pay the premium within the grace period to ensure uninterrupted coverage.

Can I surrender my term insurance policy?

Term insurance policies typically do not have a surrender value or maturity benefit. Since the primary purpose of term insurance is to provide financial protection in the event of the policyholder's demise, surrendering the policy is not a common practice. However, some insurers may offer surrender or termination options with certain conditions.

Is it possible to switch from one term insurance plan to another?

No, it is generally not possible to switch from one term insurance plan to another without surrendering the existing policy and purchasing a new one. Switching term insurance plans may involve the underwriting process again, including age and health assessment. It's advisable to carefully evaluate and select the term insurance plan at the time of purchase to avoid the need for switching.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making any related decisions.


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