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Many insurance companies in the market offer an array of term insurance plans. Most people are often confused about the meaning of term insurance.
Term insurance is one simple and comprehensive form of the insurance policy, which helps an individual to financially secure the future of their family and their loved ones in the most economical way.
Let us quickly understand the meaning of term insurance plan and what does it imply with the definition of term insurance.
Types of Term Insurance Plans
Today, the Indian market is flooded with different types of term insurance plans designed to cater to the interest of individuals from every walks of life. On the premise of the requirements and suitability, the individuals can compare the term insurance plans online and zero down the plan accordingly.
Now that we understand what is term plan moving ahead let us take an insight into the different types of term insurance plans available in the market.
1. Standard Term Insurance Plans
The standard term insurance plans are one of the most common and simplest forms of term plan, which offers life protection to the policyholder’s family in the form of the death benefit in the event of the untimely death of the insured holder during the policy term.
2. Group Term Insurance Plans
Group term insurance plan is specifically designed for businesses, companies, societies, and associations. It provides life coverage to all the members of a specific group or company. The benefits offered by group life insurance policies are the same as the individual term insurance plan. However, group term insurance plans provide high coverage when compared to individual term plan.
3. Term Return of Premium (TROP)
Term Return of Premium (TROP) is a type of term insurance plan, which offers survival benefit as the return of premium. In case, the policyholder lives the entire term of the policy then the whole premium amount paid by the policyholder excluding tax is paid back to the policyholder. This plan is a great investment option for individuals who want to create a corpus for a long run along with the benefit of life protection.
Term Life Insurance Plans
4. Increasing and Decreasing Term Plans
With the increasing term insurance plan, the coverage provided gets increased at a particular duration during the tenure of the plan. The policy calculates the risk according to the rising cost during the term of the policy and compensates. The policy coverage keeps on increasing until the time the policy acquires a value, which is 1.5 times higher than the actual policy coverage.
Under the decreasing term insurance plan, the rate of premium payment, as well as life coverage offered by the policy, keeps on decreasing at a specific rate during the entire policy tenure. Decreasing term insurance plans are generally used by financial institutions and banks that cover the risks of the home loan or mortgage provided to their customers.
5. Convertible Term Plan
Convertible term insurance plans are traditional insurance policies, which has a limited number policy term and can be converted into whole life insurance permanent life insurance policy. The major benefit of a convertible term insurance policy is that while converting the term plan into whole life insurance, the policyholder does not require submitting any medical proof.
What are the Features of the Term Insurance Plan
Wondering what is term insurance's major role. Well, the major objective of a term insurance policy is to offer financial stability to the policyholder’s family in case of an unfortunate event or decease of the policyholder.
There are several other features of the term insurance plan. Let’s take a look at some of the following features offered by the term insurance plan:
- Entry Age: The term insurance plans offer minimum eligibility age of 18 years, whereas, the maximum age eligibility to purchase a term plan is 65 years. Along with the increase in the age of the policyholder the premium rate of the policy also increases. Therefore, it is recommended to buy a term insurance plan at a young age so that one can secure their family’s future at an affordable premium rate.
- Maturity Age: The most advantageous term insurance plans are those, which offer coverage to the policyholder for a lifetime. Most of the term insurance plans offer a maturity age of 65-70 years. The plan that offers a higher maturity age also has a higher rate of premium as it provides insurance coverage for a long-term. Besides this, the age of an individual plays an important factor to determine the premium amount of the policy as the risk factor also increases simultaneously.
- Enhanced Cover: Certain insurers offer the flexibility to enhance the coverage of the policy while achieving the major milestones of the insured’s life. For example, the policyholder may have the facility to enhance the coverage of the policy by 50% at the time of marriage and by 25% at the time of becoming parents. This makes it possible for an individual to start with a low cover and enhance the coverage along with the increase of responsibilities and also increase the premium rate of the policy.
- Larger Life Cover: As the premium rates of a term insurance policy are more affordable, it possible for insurance buyers to choose a policy with higher life coverage for the same premium as of endowment plans. For instance, a 30-year-old person can purchase a term plan with a life cover of Rs 1Crore for a term period of 30 years by paying a minimum premium.
- Policy Tenure: A term insurance plan offers a minimum tenure of 5 years whereas; the maximum term period of the policy can differ from 25 years to entire life. For single premium payment policy, the tenure of the policy ranges from 5 years-15 years.
- Death Benefit: In case the policyholder passes away during the tenure of the policy then the insurer pays a total sum assured amount to the nominee of the policy as a death benefit. According to the type of policy chosen by the policyholder the amount of sum assured remains the and the death benefit is paid as lump-sum or at particular intervals of time.
- Maturity Benefit: A traditional term insurance policy doesn’t offer any maturity benefits. However, if one wants to avail survival benefit then he/she can choose to invest in the term return of premium plan (TROP).
- Survival Benefit: A traditional term insurance plan does not provide any maturity benefit. However, to provide a comprehensive policy to the insurance buyers, many insurance companies offer Term return of Premium Plan (TROP). Under the TROP plan, the entire premium of the policy is returned to the policyholder as maturity benefit in case of his/her survival at the end of the policy tenure. As compared to the pure term insurance plan, the premium rate of TROP is higher and is a remunerative option of investment for individuals who want to gain the combined benefit of insurance cum savings.
- Additional Rider Benefit: An extra coverage is offered under term insurance policy accompanied by basic policy coverage as add-on rider benefit. To avail the rider benefit, the policyholder will have to pay an extra premium along with the basic policy premium. Let us take a look at the rider benefits offered under the term insurance plans.
- Critical Illness Rider
- Accidental death benefit rider
- Hospital cash rider
- Premium waiver rider
- Total and permanent disability benefit rider
- Annual Renewable: As each year completes, the term insurance policy is renewed with a higher premium since the age of the policyholder also increases. The major advantage of annual renewable term insurance is that it offers guaranteed coverage. However, it may not be a cost-effective option for many insurance seekers due to the increase in premium rates over time.
- Tax Benefit: Term Insurance plan also offers the benefit of tax exemption. The policyholder can save on taxes within Section 80C and Section 10(10D). Additionally, the premium paid by the policyholder towards critical illness benefit is also qualified for tax benefit u Section 80D.
What are the Key Advantages of Buying Term Insurance Plan?
As we have already talked discussed what is term insurance plan, let us quickly take a look at the listed below advantages of term insurance plans:
- Offers death benefit as a lump sum amount to the nominee of the policy when the policyholder passes away.
- The term plan also takes care of loans and liabilities.
- Offers financial security to the family of the policyholder so that they can continue to maintain a good lifestyle and meet the everyday expenses.
- The term insurance policy also offers a supplementary income to the policyholder in case he/she is suffering from income loss due to accidental disability or critical illness.
- In case of accidental demise of the insured an extra sum assured amount is paid to the beneficiary of the policy if the policyholder has opted for accidental rider benefit.
- It offers discounts to non-smokers and female policy buyers.
- The premium rate of term plans is much economical as compared to other life insurance plans.
- It offers a low premium rate to healthy and young individuals.
- A healthy individual can purchase a term plan online without taking a medical test.
Why Term Insurance is better?
Why buy Term Insurance early?
Your premium is decided on age at which you buy the policy and remains same, throughout your life
Premiums can increase between 4-8% each year after your Birthday
Your policy application could be rejected or premiums increase by 50-100%, if you develop a lifestyle disease
See how age affects Term Insurance Premiums
See how age affects Term Insurance Premiums
Many people do not consider investing in term insurance plans as it only provides a death benefit in event of the demise of the insured and does not offer any add-on benefit or profitable returns. Moreover, people are mostly not completely aware in regards to what is term insurance plan benefits and features. As of now, we understand the features and advantages of a term plan. Moving ahead, listed below are some of the key reasons for choosing the best term insurance plan:
- Financial Protection: Term Insurance plans are the simplest and best way to create a financial protection net. As the term plans financially secures the dependents of the life assured in case of his/her unfortunate demise.
- Adequate Coverage: The insurance buyers can choose the coverage of term insurance plans by comparing a wide range of term insurance plans online.
- Offers Affordability: Along with the death benefit, there are various other additional benefits offers by term plan at an economical term insurance premium rate.
- Competitive Pricing: Term insurance policies are easily comparable, mainly based on price. In terms of their operation and structure, term plans are similar to other life insurance policy, which allows the insurance buyers to compare various policies with greater ease. One of the simplest ways one can distinguish between term plan and other life insurance policies is through competitive pricing. Due to the affordable cost of term plans, it is preferred by most of the individuals.
- Easy Access to Quotes and Information: The quotes and information related to a term insurance plan can be easily checked online. Also, with more and more insurers entering the industry with affordable plans, the insurance buyers have the facility to compare the plans online and choose the most lucrative plan as per their requirement and suitability.
- Flexibility: As compared to policies that offer cash value as maturity benefit, it is easier to choose a term insurance policy. The process of term insurance plan is quite simple. If the insured stops to pay the premium of the policy then the coverage of the policy ceases and the policy is no longer applicable. Considering that term insurance does not provide any maturity benefit, the insured will not receive any maturity benefit. On the other hand, under life insurance policies only maturity benefit is offered as survival benefit in case the insured survives the entire tenure of the policy. In case, the insured ceases the premium payment of the cash value policy before the completion of the policy tenure then he/she will be in the greater loss as they won't be able to recover the savings made under the plan.
- Low Claim Rejection: As the policy tenure of term insurance plan is more than 10 years; the ratio claim rejections are observed to be lower. Therefore, purchasing a term insurance plan is ideal if the individual wants to make sure that their claim is honoured.
- Riders: Along with the basic life coverage the term insurance plans provide add-on rider benefit to enhance the coverage of the policy. The insurance buyers can buy rider benefit by paying an extra premium along with the basic premium of the policy. Some of the riders offered by term insurance plans are an accidental death benefit, critical illness, partial and permanent disability and waiver of premium.
Is it Possible to Buy Term Insurance Plans Online?
For the convenience of insurance buyers, most of the insurance companies provide online term insurance plans. The policy buyers can purchase the term insurance plans online in a very easy and simple way. Along with an easy option of premium payment, the insurance buyers can also compare various term insurance plans online and zero in on the most beneficial plans according to their requirement and suitability. Moreover, online term insurance plans also offer reliability and transparency to customers.
With the rise in inflation, a term insurance policy with high coverage amount has become a necessity more than a choice. Nowadays, an individual earning an average salary can also secure his/her family with a higher sum assured amount of Rs 1 crore after his/her demise.
Rs 1 crore term insurance plan can be purchased by individuals falling between the age group of 30-35 years. If an individual is a single breadwinner of the family or having more earning years should consider purchasing Rs 1 crore term insurance plan.
How to Buy the Best Term Insurance Plan?
As there are inclusive ranges of term insurance plans offered by the insurance companies, it is very important to consider the various important aspects before purchasing a term plan. Now that we are of the important details of what is term plan is, here are the important things that should be kept in mind while purchasing a term insurance plan.
- Determine the amount of coverage.
- Assess the budget and needs.
- Choose the right insurer.
- Determine the period of the policy.
- Choose a suitable payout option.
Smokers/Drinkers Criteria in the Term Insurance
The insurance companies verify the smoking habit of individuals in different ways. Some of the common questions asked by the insurer are:
- Do you consume nicotine/tobacco products?
- Have you consumed a nicotine/tobacco product in the past 4 years?
Moreover, apart from these questions the insurance companies also do not differentiate between frequent smokers and occasional smokers. Even if an individual is an occasional smoker then he/she will fall into the category of smokers.
The premium charges of term insurance plans for smokers are higher as compared to non-smokers because the life expectancy ratio of smokers is low and they are more prone to chronic diseases like lungs cancer, heart problems, and bronchitis. The higher premium to be paid by the insured varies from insurer to insurer. Apart from the smoking habit, there are various other factors considered by the insurance company while determining the premium rate of the policy such as the age, income and so forth.
*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply
Can the NRI’s Buy Term Insurance?
Yes, NRI’s can buy a term insurance plan in India. The process of availing term insurance plan for NRI’s are very simple and hassle-free. The person living abroad can apply for a term insurance plan in the following two ways:
- The individual can purchase the term plan while visiting India. Once the individual completes all the formalities related to the underwriting of the policy, the policy will be considered the same as other policies purchased by an Indian citizen.
- By the process of mail-order business, the NRI can purchase the plan from the country he/she is presently residing in. The policy will be verified by an Indian diplomat, notary or Indian embassy officials. The NRI students applying for term insurance plan can also approach the supervisor or dean for verification.
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What are the Exclusions Under a Term Insurance Plan?
The term insurance provides death coverage to the family of the insured in case of natural death of the insured, accidental demise of the insured or death caused due to a health issue. Besides this, there are certain cases, which are excluded under the 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 overdoes of drugs or intoxication is also not covered under the plan.