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What is Term Insurance? Definition & Meaning

Term insurance is a life insurance product that ensures financial security of your family or nominee by providing them the death benefit in case of your untimely death during the policy term. Term life insurance policy is the simplest and purest type of life insurance that offers coverage at affordable premium rates. Let us look at the term insurance meaning for a better understanding.

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Rhishabh Garg
Written By: Rhishabh Garg
Rhishabh Garg
Rhishabh Garg Term Insurance Head
Rhishabh Garg is the Business Unit Head of Term Insurance at Policybazaar.com. He has over 10 years of experience and currently plays a crucial role in shaping the future of term insurance in the company. Rhishabh also has experience in customer services and crafts new strategies for organizational success, one of which is Policybazaar’s claim assistance program.
Santosh Agrawal
Reviewed By: Santosh Agrawal
Santosh Agrawal
Santosh Agrawal Chief Business Officer
Santosh Agarwal is the Chief Business Officer- Life Insurance, Policybazaar.com and has over a decade of experience in the domain of insurance. She has helped shape the life insurance vertical of Policybazaar and ensures the effective execution of the company's overall strategy. Santosh is also responsible for the Term Insurance for Women domain in Policybazaar.com and educates the mass about its importance and benefits.

What is the Meaning of Term Life Insurance?

Term insurance plan or policy is a financial product where in case of the policyholder’s unfortunate death during the policy term, a specific amount is paid to the family of life assured by the insurer. When trying to understand what is term life insurance, it is also essential to know that It is the purest form of life insurance that provides financial protection to your family members at low premium rates. Term plans are considered an important financial product for long-term financial planning. Let’s discuss more about what is term insurance and the features and benefits offered by the plan:

What is Term Insurance? What is Term Insurance?

Why Do You Need Term Insurance Policy?

As we have discussed what is term life insurance, it is important to understand term insurance and its need.

  • Family’s financial security: If you are the sole breadwinner of your family, buying a term plan would take care of your family's financial needs in case of your absence. The insurer will pay out the life cover to your nominee in case of your untimely death, which can help them take care of their financial needs.

  • Protect your Assets: If you have taken a loan like a personal loan, education loan, or home loan, the repaying of loans can stress your family in your absence. The money from your term insurance plan covers your loans, ensuring your family doesn't have to deal with the financial responsibility.

  • Lifestyle-related risks: As you age, the risk of a lifestyle-related illness increases. Certain term insurance plans include critical illness protection, which safeguards your family in unexpected situations and provides financial security during your lifetime. To explain the term insurance meaning, this plan ensures you're financially protected if you face severe health conditions like cancer or heart attacks.

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Why is Term Insurance Better?

Term insurance plan is better for people looking for a large life cover at affordable premiums. With these plans, you get the flexibility and ease to customise the plan per your needs. However, certain types of term insurance have different benefits, and thus, you should always check their T&Cs for a better understanding.

What are the Key Features of Term Insurance?

Now that we have understood what is term insurance plan, you should also be aware of the term insurance meaning for your family members by going through the features of term insurance plans. Here is a list of some term insurance features and benefits:

  • High Cover at Low Premium Rates: Term insurance plans are affordable life insurance products. The premium amount you are required to pay for term insurance plans is typically much lower than other life insurance policies. You can get 1 crore life cover for a monthly premium of Rs. 473/-.

  • Entry Age: The minimum age of eligibility to buy term plan is 18 years. Buying a term plan early helps you get high coverage at affordable premiums.

  • Coverage against Uncertainties: If you're the sole earner for your family, you can ensure their financial stability by learning about what is term insurance at an early stage. With term insurance, people can get a large amount of life cover at low premiums, making it a preferable option for individuals who want to secure their loved ones.

  • Life Cover: A term insurance plan secures you from financial difficulties in case of an unfortunate event. Term plan provides a life cover (sum assured) that helps your family members avoid compromising the lifestyle you wish for them when you are not around.

  • Add-ons: You can add term riders to your term plan to increase the coverage of your base plan at affordable rates. Here are the different term insurance riders available in India:

    • Accidental Death Rider

    • Accidental Total Permanent Disability Rider

    • Terminal Illness Rider

    • Critical Illness Rider

    • Waiver of Premium Rider

    • Hospicare Rider

  • Flexibility in Paying Premiums: Term plans allow you to pay premiums at your convenience. You can pay the premiums yearly, semi-yearly, monthly, and quarterly. Also, you can select the most suitable premium payment term from a one-time, regular payment or limited premium payment option.

  • Tax Benefits: As tax-payers, you must wonder about term insurance tax benefits. With term plans tax benefits, you can claim up to Rs. 1.5 Lacs on premium amounts paid u/s 80C of the ITA, 1961 and u/s 80D on hospital/medical riders. You can also claim tax exemption u/s 10(10D) of the ITA, 1961.

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5 Things to Know Before Buying a Term Insurance Plan

Apart from learning what is term insurance, here is a list of things you need to keep in mind when choosing the company to buy the best term insurance plans in India.

  • Claim Settlement Ratio (CSR): CSR indicates the total death claims settled by an insurance company annually. The higher the CSR, the better the reliability and credibility of the company.

  • Solvency Ratio: This ratio indicates the financial strength of the insurance company to settle claims. Always buy from an insurance company whose solvency ratio is at least 1.5.

  • Add-ons: Choose a term insurance plan that offers multiple benefits such as accidental death benefit, income benefit and waiver of premium.

  • Optional Riders: Choose a term insurance plan that offers multiple benefits such as accidental death benefits, income benefits, and waiver of premiums.

  • Insurance Cover: Determine the amount you want covered based on your age, loan liabilities, income and lifestyle.

  • Critical Illness Cover: Buy term plan with a critical illness cover. This can help cover the high medical treatment costs in case of a critical illness.

Note - It is suggested to use term insurance calculator to calculate the insurance coverage that would be required to protect your family financially.

How Much Life Cover Do I Need?

You can get the answer to your question by using a Human Life Value calculator. HLV is an easy-to-understand numeric process of calculating the life cover amount that you need. The simple thumb rule that can be used to calculate HLV is to have a term insurance cover that should be at least 15 to 20 times your annual income. This amount should be sufficient to meet future requirements and manage the rates of inflation.

For example, if a 30 year old male has an annual income of Rs. 5 Lakhs, the right life cover for him would be 1.25 Crores.

Human Life Value Calculator Human Life Value Calculator

Wrapping it Up!

Before deciding to buy a term plan, you need to understand the term insurance meaning. To understand term life insurance, you need to ask, “What is term insurance?” Term insurance is one of the most affordable types of life insurance plans and ensures your family’s financial stability in your absence. You can easily compare and buy term plans online from Policybazaar and get high life cover at low prices.

FAQs

  • What is term insurance meaning?

    Ans: To understand what is term insurance meaning, we need to understand what is term plan. Term insurance is a financial product that ensures your family’s financial security in your absence. In case of your untimely death, the insurer pays the life cover to the nominee, which helps them meet their financial obligations.
  • What is Term Insurance and how does it work?

    Ans. A term insurance plan is a pure life insurance product that offers financial protection to the family of the policyholder at low premium rates for a fixed time period. It provides large cover for a specific period in exchange for a fixed premium amount. The death benefit is paid to the nominee if the policyholder suffers an untimely death during the policy term.
  • What is an example of a term insurance?

    Ans.Let us understand the term insurance meaning with the help of an example: Suppose Karan’s friend told him about what is term insurance and encouraged him to buy a plan suitable for him. Karan bought a 1 crore term plan at a premium of just Rs. 473 per month. If Karan suffers an unforeseen death during the policy term, then the insurer will pay the sum assured to the nominee of the policy. This payout can help Karan’s family take care of their monthly expenses and live a financially stable life.
  • Which is better term or life insurance?

    Ans. Between term or life insurance, the better option depends on a person’s individual needs. To make the right decision, you first need to understand term and life insurance. Now, if you need a large life cover at low premiums, you can opt for a term insurance plan, but if you need a savings plan that offers wealth creation benefits, you can look at the different types of life insurance plans available in India.
  • Is it good to take term insurance?

    Ans. Yes, it is always considered a good idea to have a term insurance plan. This is because a term insurance plan provides a large life cover at affordable premiums to your family in your absence. Not only that, but you can also enhance the base cover using add-on riders to make it more comprehensive at nominal premiums.
  • What is the difference between term insurance and life insurance?

    Ans. The difference between term insurance and life insurance is that a term insurance plan provides a death benefit in case of a policyholder’s death within the policy term, whereas a life insurance plan offers both a death benefit and maturity benefit to the life assured. You should always try to understand what is term insurance and life insurance before making a suitable choice.
  • Why should you buy term insurance in India?

    Ans. Term insurance in India are available at affordable rates than the leading insurance companies in foreign countries. Indian term insurance for NRI is around 50% cheaper than abroad. So, if you are planning to relocate to a foreign country or have settled in a foreign country and are planning to purchase a term insurance plan, you should think about purchasing it from India.
  • What are the minimum and maximum age limits to buy a term insurance plan?

    Ans. Generally, term insurance eligibility can vary for each insurance company and plan. All insurers offer plans with unique T&Cs. However, as per the usual conditions, the minimum entry age to buy a term plan is 18 years and the maximum age differs as different insurers have different criteria.
  • What are the factors that affect the term insurance premium rates?

    Ans. Anyone who knows what is term insurance, also knows that there are a number of factors that affect the term insurance premium rates. The premium of a term plan varies depending on several factors like age, yearly income, term and amount of insurance coverage, health conditions, and lifestyle habits (smoker/non-smoker).
  • What is Term Insurance Rider?

    Ans. To answer what is term insurance riders, you need to understand its meaning. Term riders are add-on benefits that are attached to your regular term plan. They can be purchased at low rates. They also allow the policyholder to personalize the plan according to their requirements. Different insurers offer these riders- Critical illness, waiver of premium, accidental death, and permanent or partial disability.
  • How much Term insurance do I need?

    Ans. As per the insurance experts, the life cover in term insurance should be at least 10X of your yearly income, while 15-20X is always a good option to go for. You can get a clear answer to this question by computing HLV (Human Life Value) using Human life value calculator. HLV is an easy numeric process of calculating the term cover amount that you may require.
  • What documents are needed to buy term insurance plan?

    Ans. To buy a term plan, you will require the below-listed documents:
    • Identification Proof: PAN Card, Voter ID, or Aadhar card
    • Address Proof: Driving License, Voter’s ID card, Aadhaar ID, passport, and other identification documents 
    • Income Proof: Income Tax Returns, Salary Slips, bank statements
    • Age Proof: Aadhaar card, passport voter ID card, driving license.
  • What are the Tax Benefits of Term Insurance?

    Ans. Let us take a look at what is term insurance tax benefits. With a term plan, you can avail of exemptions on tax to reduce your tax liabilities. You can receive a tax deduction on your premium up to Rs. 1.5 Lakh u/s 80C of the ITA, 1961. Also, in case of critical illness benefits, you can get tax savings benefit up to Rs. 25,000 u/s 80D.
  • Can I buy a Term insurance plan for a spouse?

    Ans. Yes, you can buy a term plan for your partner. Joint-term insurance plans offer various benefits. All these plans cover you and your partner under a single plan. Purchasing a joint-term insurance plan for yourself and your spouse can be hassle-free, simple, and effective to buy term insurance.
  • Is it possible to add a term rider to a current term plan?

    Ans. Yes, you are allowed to add a rider at the time of renewing your current term plan. However, different insurers may have different T&Cs. Thus, you should always check with the insurer and understand what is term insurance rider benefits and features.
  • What are the Exclusions Under a Term Insurance Plan?

    Ans.Here is a list of all the exclusions of a term insurance plan:
    • Suicidal death is not covered under the policy.
    • The policy does not provide any death coverage in case of self-inflicted injuries.
    • Death due to HIV/AIDS is not covered under this plan.
    • Death due to an overdose of drugs or intoxication is also not covered under the plan.
  • What is terminal illness in term insurance?

    Ans. Terminal illness in term insurance provides a financial benefit to the policyholder in case they have a terminal illness and their life expectancy is expected to be less than a year (12 months).
  • Does the term plan offer terminal illness benefits?

    Ans. Yes, most term plans offer an option to opt for term riders like critical illness riders that provides extra cover against terminal illnesses.

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