One of the term life insurance plans that people need to know about is 5-year level term life insurance.
What is 5-Year Term Life Insurance?
This plan covers the insured person for 5 years. The 5-year level term life insurance is one of the shortest term life insurance plans after the annual renewable term insurance policy. Unlike other short-term life insurance plans which are available at cheaper rates, the 5-year level term life insurance has higher rates as insurance companies do not consider the underwriting process worthy for a shorter policy. This insured person under this policy, too, has the option to convert their policy once it expires. But for this, it is recommended that the person who is planning to opt for this plan seeks help from an expert to ensure that the policy does have a conversion option.
The scheme may be a good choice for many individuals. However, some points need to be kept in mind while purchasing this plan. Here are some points that can help the policy buyer to select this plan over the others in the market.
Eligibility Criteria for 5-Year Term Life Insurance Policy
The table below displays the conditions that need to be fulfilled to avail of the 5-year level term life insurance:
Minimum age to avail the insurance
Maximum age to avail the insurance
- 65 years
- 55 years in case one opts to pay premiums till 60 years of age
Depends upon the insurance company
- 5-67 years,or
- Fixed-term coverage till 100 years age
Premium Payment Tenure
Depends upon the insurance company
Total Assured Amount
Depends upon the insurance company
Premium Payment Mode
Now that the eligibility criteria have been discussed, it is time to look at some features that make 5 year level term life insurance a better option than other term life insurance policies in the market.
Salient Features of 5-Year Term Plan
The 5 year level term life insurance has some salient features that can it stand out to be a good choice for future policyholders;
- Death Benefit: One of the prime factors that a policyholder looks for in a term life insurance policy is the death benefits. A death benefit is an amount received by the nominee under the policy after the unfortunate demise of the insured person. In the case of 5 year level term life insurance, the nominee is bound to receive a death benefit sum which would be higher than the traditional term life insurance plans.
- Income Tax Benefits: Section 80C of the Income Tax Act, 1961, has tax benefits for those who have a term life insurance plan. In this way, a policyholder ensures that the financial burden due to the annual tax payment is reduced due to the active term life insurance plan.
- Surrender Benefit: This is the amount the policyholder will get from the life insurance company while exiting the policy before maturity. The insured person can avail of this benefit under the 5 year level term life insurance.
- Additional Riders: A term insurance rider is an extension made to the existing term plan that provides the policyholder increased coverage. The policyholder is entitled to avail extra cover through the addition of these riders to the current plan, thereby enhancing the protection to help the future individual requirements.
- Low Premium: The 5 year level term life insurance is available are lower premium rates, depending on the age of the individual purchasing the plan. The plan has flexible payment modes and discounts that make it pocket-friendly.
- Loans: There is an option to avail of loan facilities against these policies.
- Smart Planning: The 5 year level term life insurance helps in planning wisely about the immediate future by gaining insights about where to invest money and thereby ensuring peace of mind during the duration.
- Level Cover Benefit: The sum that is assured under this policy remains fixed as long as the policy is in force. It is payable upon the death of the insured person. Then, the Sum Assured on death =Highest of ( 10 X Annualized Premium, or 105% of all the paid premiums as on the date of death, or the Absolute Amount Assured payable at the time of death.
- Increasing Cover Benefit: The assured sum under the policy automatically increases by a simple rate of 10% at the end of the 5th year.
In addition to the above-stated features, some more benefits are attached to this plan and they are as follows:
- Lower Premiums for Specific Groups: Smokers, who consume nicotine or tobacco in any form, like, cigars, cigarettes, beedi, gutka, khaini, flavoured pan masala, or nicotine patch, or chewing gums. Insurance companies do not differentiate between occasional smoking and frequent smoking. However, if an individual does not fall into the category of “Non-smoker”, then it can be highly advantageous as it would enable the policy buyer to avail the 5 year level term life insurance at a lower premium. Similarly, many insurance companies provide lower premium options for female policyholders.
- In-built Accelerated Terminal Illness Benefit: The 5 year level term life insurance has the provision of enabling the in-built accelerated terminal illness benefit to the insured person. Under this benefit, a lump sum amount is paid to the insured person if an end-stage illness has been diagnosed and is expected to die within 12 months. Depending upon the plan that has been selected, the payouts are decided.
- Medical Second Opinion Service: The medical second opinion report provides a treatment plan offered by the attending physician. This facility is an add-on benefit to the 5 year level term life insurance plan. Many insurance companies do provide this facility to the insured person to be assured about the expected medical expenses soon due to the arising illness.
- Tax Advantage: All the premiums paid and the benefits yielded from the 5 yearlevel term life insurance plan is eligible for tax benefits under section 80C and section 10(10D) of the Income Tax Act, 1961. The death benefit offered under this plan is subjected to tax benefit as per the selected benefit structure by the insured person. Many individuals opt for a term life insurance plan as they get tax benefits on the payment of premiums.
- Maximum Life Coverage: A prime benefit of the 5 year level term life insuranceis the maximum life coverage it provides, which is up to 100 years of age.
- Limited Premium Payment Option: An individual has the option to pay premiums under this plan for a limited tenure till the age of 60 years. Many insurance companies offer this flexibility to the insured person.
But how does a policyholder benefit from 5 year level term life insurance, what would be the advantages of purchasing this policy? It’s time to look at some of the benefits this policy has to offer to the insured person.
Advantages & Benefits of 5 Year Term Life Insurance
The following are some advantages under the policy;
- Predictability: The insured person under the 5 year level term life insurance will always be aware of the amount of coverage that will be left behind for the members of the family post the demise. However, it is important to understand that the maturity amount of the level term life insurance plan can fluctuate in case the insured person outlives the term of the policy.
- Budgeting Efficiency: The insurance company and the insured person under this scheme can additionally set a single maturity amount and then proceed further. The benefit of budgeting efficiency comes here due to intend-level premiums.
- Stability: The amount of the premium or the coverage remains constant every year. Therefore, there is no need to worry about premium increasing any time during the policy being active.
- Health Benefits: If the person intending to purchase a 5 year level term life insurance is in good health, then there are high chances to reap benefits out of this in the policy. Based on the prevailing health conditions of the person planning to get insured under this scheme, the equivalent sum may increase 15, 25, or even 30 years of coverage.
- Annual Renewal: These plans are replenished every year, with the coverage allowances progressing up as the insured person grows older, without questioning for additional health reports with each term life insurance plan renewal.
Before purchasing a 5 year level term life insurance policy, a responsible policy buyer must research the various policies in the market and then plan their investment. Many insurance companies offer different benefits, therefore it is advisable to study each plan thoroughly before investing. Now that the features and advantages have been covered, it is time to look at the process involved in the purchase of the 5 year level term life insurance.
The Process to Purchase the Plan
Like every other term, insurance purchase begins with some procedure that the parties, the insurance company, and the policy buyer, need to follow, the 5 year level term life insurance to have the same methodology.
- Good research is to be conducted by the policy buyer to find out the most appropriate term plan that provides comprehensive coverage as well as is not heavy on the pocket.
- Get in touch with the insurance company and discuss the benefits and the disadvantages they have to offer with the scheme provided.
- A medical test is being conducted by the insurance company to examine which plan is best suited for the potential policy-buyer.
- Based on the results of the medical tests, there are multiple options produced that can be added to the main term life insurance plan.
- Final discussion on the tenure of the plan, the premium, and the mode of premium payments is finalized and the plan begins to secure the policy buyer.
More or fewer insurance companies and responsible insurance buyer follow the above-mentioned process to get insured. There may be some variation in the process depending upon the insurance company and the nature of the policy. But what exactly do insurance companies want to verify and examine while offering the insurance plan to the prospective insurance buyer? Below is a small list of the important factors that go into verification about the policy buyer at the time of insurance purchase.
Important Factors required for the 5-Year Level Term Life Insurance
Each insurance company needs to verify some details about the insured person, and for the same reason, there is an underwriting process that is being conducted before proceeding to finalize the policy to the person. The details verified during the process are as follows:
- Tobacco Use
- Family History
- Health Condition
- Medication History
- Death Benefit Amount
- Information about the nominee
- And many other factors
These factors, among others, go into determining the person’s, who is purchasing the policy, rate class. Depending on the rate class of the policy buyer, the premium can vary to a great extent. Get in contact with a responsible agent to see which class the policyholder would fall into. The rate class is the biggest factor when determining the average cost of the term life insurance of the insured person.
Now that so many details about the 5 year level term life insurance have been discussed, there has to be some exclusion that the policy does not cover.
Documents are required topurchase the 5 Year Level Term Life Insurance
Here is a list that is often asked by the insurance company from the policy buyer;
Officially Valid Documents (Any of the below-mentioned documents)
- Voter’s ID
- Duly signed Job card issued by NREGA
- AADHAAR Card
- National Population Register letter containing details of name, address and AADHAAR number
- Or any other Central Government document
In addition to the Officially Valid Documents
If the Officially Valid Documents do not have the address updated:
- 1-2 month’s old Utility Bill of any service provider (telephone, electricity, post-paid mobile connection, water, piped gas)
- Municipal or Property Tax Receipt
- Pension orders issued to retired
- Employees of Government Department or PSUs, if they contain the address
- Letter of accommodation allotment from employer , i.e., by State / Central Government departments/ PSUs/ regulatory bodies/ scheduled commercial banks/ financial institutions /listed companies
For Salaried Individuals (Any one of the below-mentioned documents)
- Bank statement showing salary credit for latest 3 months
- Latest 2 years Income Tax Returns
- Latest year Form 16
Here is a list of common exclusions that generally term life insurance policies do not cover
- Death due to consumption of alcohol or drugs
- Death due to the event of war
- Death due to participation in the racing activity or a hazardous activity
- Death due to activity that is criminal in nature
- Death due to pregnancy or childbirth or complications arising out of it
- Death due to pre-existing illness.
Smokers are likely to succumb to lifestyle diseases and are categorized under high-risk pools. This is the prime reason why they are charged a higher premium.
Now it is time to address the frequently asked questions by the policy buyer
A1. Each insurance company has its own term insurance premium calculator. Many of them are available on the internet so an interested individual can check the plans and the premiums online.
A2. There is no correct age here. Any individual between 18 to 60 years or 65 years of age can go ahead with this plan. The upper limit of the age window depends on the insurance companies and their respective policies.
A3. Term insurance riders are add-on special covers with the term insurance policy. They provide additional coverage to the plans. They have their own core death benefit; at the same time they offer the following additional benefits:
- Accidental Death Rider: When the insured person gets diagnosed with a terminal illness, the family is subjected to investing against the medical expenses and the treatment. This rider takes care of such costs by paying in advance a portion of the Sum Insured. This saves the family members of the insured person from depleting their funds for emergency expenses.
- Accidental Disability Rider: In the event that the policyholder has a permanent disability or an accident, and is unable to pay the premium, then this rider arranges for the payment of the premium on his behalf. This payment of premiums will continue till the policy is active or for a specific duration, depending upon the plan selected and the insurance company.
- Critical Illness Rider: In case the person insured suffers from a critical illness like cancer, heart attack, kidney failure, etc., this rider pays a single fixed amount upon a valid diagnosis.
- Premium Waiver Rider: In such cases when the policyholder is not able to work and stops making payments due to disability or income loss, this rider waives off the payment of all future premiums but keeps the term policy still active until maturity.
Income Rider: In case of the policyholder’s unfortunate death, this rider arranges for his family members to receive regular income along with the Sum Insured in his absence.
A4. The claim settlement depends on the organization and the documentation. It is expected that an insurance company must settle down a claim within 30 days from the receipt of the information.
A5. A nominee is expected to produce relevant proof to the insurer which includes the death certificate, original policy documents, FIR/ hospital report (if applicable), and valid identity proof. There may be other additional documents that can be expected by the insurer from the nominee depending upon the case.
A6. Certain insurance companies do provide rebates ranging from 0.50% to 1.00% in case the sum assured to the insured person exceeds a particular limit.
A7. Generally, the maximum age at the entry in 5 year level term life insurance is restricted to 60 to 65 years of age, and this depends upon the policy as well as the insurance company providing these policies.
A8. Yes, the plan supports the nomination and assignment of a beneficiary as per the Sec 39 & Sec 38 of the Indian Insurance Act.
A9. The individual can either contact the insurance company regarding the same; else you can simply stop paying premiums.
A10. An individual pays premiums and gets protected for a specific period. The nominee gets the death benefit post the insured person’s demise.
A11. There is no maturity benefit under the scheme and an individual is not entitled to any monetary return on the maturity of the policy.
A12. The individual can cancel the policy without penalties within the free look period, which is the time immediately after buying the policy. Premiums paid under the free look period are fully refunded.