Term insurance is a life insurance product that provides coverage for a specific period (the term) in exchange for regular premium payments. In case of the policyholder’s unfortunate demise within this term, the nominee receives a lump sum payout (death benefit).

In this blog, we will explore

Types of Term Insurance Plans

Level Term Insurance

Level Term Insurance Plans are those life insurance policies where the policyholder pays a fixed premium throughout the policy term. These plans are commonly referred to as basic term insurance and serve as the foundation of what a term insurance policy typically entails.

Decreasing Term Insurance

A Decreasing Term Insurance Plan is a type of life insurance where the sum assured (coverage amount) decreases by a specified percentage or amount each year throughout the policy term. Essentially, it works in the opposite way of an increasing-term plan.

Term Insurance with Return of Premium (ROP)

A Term Insurance Plan with a Return of Premium (ROP) works similarly to a standard term insurance plan, with one key distinction – the maturity payout. In a Term Plan with ROP, if the policyholder survives the entire policy tenure, they are entitled to a return of all premiums paid during the policy term. This ensures that the premiums paid over the years are refunded in full, making it an attractive option for those who want life insurance coverage and the benefit of receiving their premiums back if they don’t make a claim.

Convertible Term Insurance

Convertible Term Insurance plans offer the flexibility to convert a term policy into a permanent life or universal life insurance policy without undergoing a new health evaluation. Essentially, it’s a standard term insurance plan with the added benefit of conversion.

Benefits of Term Insurance

Affordable Premiums

Term insurance plans are among the most cost-effective life insurance options, offering substantial coverage at an affordable premium. These plans allow you to secure a high sum without burning a hole in your pocket.

Flexible-Premium Payments

Term insurance plans offer flexible premium payment options, depending on your chosen insurer.

Additional Riders to Strengthen the Policy

Term insurance plans come with riders that you can choose to enhance the basic term insurance benefits. You can add these riders to your term insurance plan by paying a nominal additional premium.

Income Tax Benefits

Term insurance plans offer valuable tax benefits. Not only are the premiums you pay tax-deductible under Section 80C of the Income Tax Act, but the payouts your nominee receives are also tax-exempt under Section 10D, as per current tax laws. This makes term insurance an even more attractive option for securing both your future and your financial well-being.

Whole Life Coverage

A standout benefit of many term insurance plans is the option to extend coverage for your entire life—up to 99 or 100 years. With whole-life coverage, you can have peace of mind knowing that your loved ones will be financially protected for their entire lifetime, regardless of when the policyholder passes away.

How to choose the right term insurance plan?

Assess Your Coverage Needs

As a rule of thumb, your sum assured should be at least 10-15 times your annual income. Consider your liabilities, such as home loans, outstanding debts, and future expenses like your children’s education, when determining the amount of coverage you need.

Consider Your Age

The younger you are, the lower your premium will be. Ideally, buy a term insurance plan in your 20s or 30s to lock in lower premiums.

Understand the Policy Terms

Make sure you fully understand the policy’s terms and conditions. Check the exclusions, waiting periods, and the claim process to avoid any surprises in the future.

Look for Additional Riders

Add-ons or riders can increase the coverage and offer enhanced protection. Critical illness cover, accidental death riders, and hospitalization benefits are common riders that can make your term insurance more comprehensive.

Compare Plans from Multiple Providers

Don’t settle for the first plan you come across. Compare premium rates, policy terms, and customer service ratings from multiple insurers before making your decision.

How to Claim a Term Insurance Plan

Claiming a term insurance policy is a straightforward process, but it’s important to follow the necessary steps to ensure a smooth experience. Here's a general guide on how to file a claim under a term insurance policy:

Inform the Insurer

Contact the insurance company immediately after the policyholder's death. Most insurers have dedicated claim support helplines or online portals to facilitate this process. Provide the policy number and the death certificate of the policyholder as the initial information.

Gather Necessary Documents

You will need to submit certain documents to process the claim. These may vary depending on the insurer, but typically include:

  • Death Certificate:
  • Claim Form
  • Policy Document
  • Proof of Identity
  • Medical Records (if applicable)
  • FIR or Police Report (in case of accidental death)

Submit the Claim Form and Documents

Once you have all the necessary documents, submit them to the insurance company. You can do this online (if the insurer provides an online claims portal) or at the nearest branch office.

Ensure all documents are authentic and complete, as missing or incorrect details may delay the claim process.

Claim Assessment

The insurance company will assess the claim to verify the details provided and ensure that the policy terms are met. This may include checking the cause of death, policy validity, and any exclusions.

If the cause of death is natural, the process is typically quicker. However, in the case of accidental death or suspected foul play, the insurer may conduct further investigations, which can take a little longer.

Claim Approval or Rejection

If everything checks out, the insurer will approve the claim and disburse the death benefit to the nominee as per the policy terms. If the claim is rejected, the insurer will inform the nominee about the reason for rejection, which may include non-disclosure of health conditions or policy exclusions.

Payout of the Claim

Once the claim is approved, the insurer will disburse the death benefit to the nominee. The payout is typically made via cheque or bank transfer.

Claim Settlement Time

The time taken to process and settle a claim can vary, but in most cases, insurers aim to settle term insurance claims within 30 to 60 days of receiving all necessary documentation.

Bottom Line

Term insurance is a crucial component of any sound financial plan. It provides affordable coverage, flexibility, and peace of mind for you and your loved ones. Whether you're looking for a simple life cover or a plan that provides enhanced benefits through add-ons, term insurance is an accessible and effective way to ensure financial security for your family, no matter what life throws your way.

FAQs on term insurance

Q: What is the benefit of term insurance?

Term insurance offers several key benefits, such as affordable premiums, multiple payout options, customizable plans, return of premium options, various riders/add-ons, and income tax benefits. It provides comprehensive protection for your loved ones at a budget-friendly cost.

Q: What is covered in term insurance?

Term insurance provides life coverage that ensures a predetermined sum is paid to your nominees in case of your untimely demise. In addition to the basic death benefit, term insurance plans can also cover critical illnesses, accidents, and more, depending on the chosen riders.

Q: Does term insurance have maturity benefits?

Term insurance primarily focuses on offering protection to your family during the policy tenure. Typically, it does not provide maturity benefits. However, if you choose a return of premium option, you can receive the premiums paid during the policy term back if you outlive the policy.

Q: What is the best age to buy term insurance?

The ideal age to buy term insurance is as early as possible. Purchasing a plan in your 20s can result in significantly lower premiums, making it a highly affordable option. The earlier you buy, the more you save.

Q: How to choose the Term Insurance Amount?

A good rule of thumb is to choose an assured sum that is at least 10-15 times your annual income. This ensures your family has adequate financial support in your absence.

Q: Can I purchase multiple-term insurance plans?

Yes, you can buy multiple-term insurance plans based on your specific coverage needs. Having more than one plan allows you to tailor your coverage to different life stages or requirements.