Having a suitable term insurance plan does not only provide a financial blanket to your loved ones but it also takes care of your financial liabilities such as any specific debt or mortgages and loans, which can be easily settled, in an unfortunate event of your demise or in your absence. One can also cover their spouse and dependent children under the same term insurance policy.
Here’s our guide to help you choose the best term insurance plan, offering the maximum benefits and coverage depending on your financial situation and goals.
The following are the documents which are required if one is planning to buy term insurance policies:
Pocket-Friendly Term Plan: A low-cost term plan is based on the age and health conditions of the policyholder. The premium charged would be automatically low for non-smokers or consumers leading a healthy lifestyle. Thus, it is advisable to buy a term plan at an early stage of life as one can avail the higher coverage at a very low premium cost.
Buy An Online Plan: It is also advisable to always purchase the term plan via online channels rather than through any agent. As online plans come with better offers and discounts and are available at lower premium rates as compared to the offline ones.
Inbuilt Policy Benefits: Before purchasing a term insurance policy, please refer to all the benefits and also the living benefits that are inbuilt in that plan. For example, at times most of the plans include terminal illness or accidental death rider at no or zero cost. So, it is always beneficial to check such details about these benefits and how they will be payable to the nominee or the policyholder in the hour of need.
Choose Your Policy Term Wisely : When buying a term plan, always make sure to enter the policy tenure and sum assured coverage as per your future needs and requirements. If your policy term ends at 10,20 or 30 years and then, if you renew the plan up to a certain age, it might cost you a lot of money as you will be renewing your policy at a later age. It is advisable to have the policy for as long as you retire so as to get rid of high renewal costs.
Claim Settlement Ratio (CSR): While choosing the best term plan, it is important to consider the CSR of the insurer which depicts the number of claims settled by the insurer versus the number of actual claims filed by the policyholder or their nominees. A CSR higher than 80% is generally considered as the good claim settlement ratio.
Forbes Advisor India analyzed 50 life insurance companies offering term insurance plans on these metrics:
A term insurance plan refers to a pure life insurance policy which provides death benefit to the nominee of the policyholder, if the covered policyholder dies during the specific policy tenure. It is a financial instrument which helps your family to be financially strong, even if you are not there.
It is to be noted that a term insurance plan is known as a pure life insurance product, as it only provides the death benefit with no investment or saving component, like the way it is found in endowment or ULIP plans. One has the option to purchase the term insurance plans for a tenure of 10, 15 or 20 years.
However, once the term insurance expires, the policyholder has the option of either renewing it or allow the policy to simply lapse.
Term plan is a traditional life insurance policy which offers a safety net to the heir/nominee of the policyholder, in the event of the unfortunate demise of the insured. A term insurance plan can be purchased by any individual who is a bread-winner of the family or financially supporting their household along with dependent parents or children.
It can be purchased by individuals such as parents or single parents, young working professionals or self-employed, newly-married individuals, working women, retired people.
Safeguards Your Family: if you have dependents at home and you’re a sole earning member, then do not forget to buy a term plan as per your needs and requirements. You definitely need a term plan as it will provide financial coverage to your spouse, children and parents, even when you are not around. This life coverage amount can be further used by the family members to pay off loans, debts and other financial obligations.
Low Cost High Coverage: One should also buy a term plan as it comes up with an affordable premium range and provides good coverage. The premium charged would be automatically low for non-smokers or consumers leading a healthy lifestyle. Thus, it is advisable to buy a term plan at an early stage of life as one can avail the higher coverage at a very low premium cost.
Inbuilt Policy Benefits: Nowadays, term plans are not just pure life cover but can be also clubbed with other benefits and optional riders which makes your life insurance much more useful. For example, many of the plans include terminal illness or accidental death rider at no or zero cost. So, it is beneficial to check such details about these benefits and how they will be payable to the nominee or the policyholder in the hour of need.
Provides Coverage for Longer Tenure: Term plans are offered with long-term policy tenure such as 10,15, 20 or 30 years. It is beneficial as it provides coverage for the longer period of life.
Even if your policy term ends at 10,20 or 30 years and then, if you renew the plan up to a certain age, it might cost you a lot of money as you will be renewing your policy at a later age. It is advisable to have the policy for as long as you retire so as to get rid of high renewal costs.
Huge Discounts on Online Plan: You can get a term plan online in a very easy and hassle-free process. It is also advisable to always purchase the term plan via online channels rather than through any agent. As online plans come with better offers and discounts and are available at lower premium rates as compared to the offline ones.
To know the difference between a term plan insurance and life insurance policies, read our article on Term Plan Vs Life Insurance.
This is an apt question that runs on everyone’s mind when one should buy a term insurance policy. Insurance experts believe that the right time to buy a term plan is when you are young and healthy. This is simply because the younger you will be, the premium payout will be also lesser. And, the older you grow, there will be more chances of life-threatening diseases, which means more premium.
Generally, if you have just started your family or unmarried and have a stable career, then this is the right time to buy a term plan which is not only very affordable on your pocket but also helps you to save on tax. However, due to any reason, if you have missed buying a term insurance policy early in your life, then sooner you buy one the better it is for you and your near and dear ones.
1. It is one of the most cost-effective and simple life insurance plans. The only aim is to provide financial help to the policyholder’s family, in their unfortunate absence due to death.
2. If the policyholder passes away before the end of the policy term, then the insurance company provides their family with a stated death benefit.
3. There is no need to pay the premium amount for the entire coverage tenure. Premium is paid only till when one is working. One has the freedom to choose a premium payment tenure which is in line with your retirement age.
4. Many insurance companies offer plans with return of premium benefits, where, if the policyholder survives the policy term and there have been no claims made, then the premiums are returned back to the policyholder.
5. The most important feature of the term plans is that they usually offer larger sums assured, which can even go up to INR 1 crore, available at most affordable premiums.
6. One has the full flexibility to choose for receiving payout as “monthly income” in addition to lumpsum amount. This monthly income is further divided into fixed monthly income plans or increasing monthly income plans.
7. There is an option to choose riders so as to make the pure term plan more extensive in coverage. The rider which can be added, such as:
8. The policyholder has the option to enhance the coverage at major life stages such as marriage, new addition in the family, children’s education or buying a home. The benefit of this upgrade option is that one has the full flexibility to increase their life cover without again going through medicals or documentation.
Level Term Plan: It is the most common kind of term plan which is provided by most of the insurance companies to its policyholders. In the level term plan, the sum assured amount selected at the beginning of the policy remains constant throughout the full policy term.
Increasing Term Insurance Plan: Here, the policyholder has been given an option to enhance their scope of sum assured amount at different stages of life which can be marriage, buying a new home, children’s education or for their marriage. This plan is definitely a great option which helps to keep up stable with the rising prices and thus ensuring that the sum assured cover that one opts for is sufficient enough to cover inflation also.
Decreasing Term Insurance Plan:As the name suggests, this is just the opposite of increasing term insurance plan. Here, the sum assured coverage amount reduces at a predetermined rate as and when age increases. These kinds of plans work on the notion that as if age increases the financial liabilities and obligations also decreases and therefore the need for a higher sum assured can be avoided.
Convertible Term Insurance Plan: A convertible term insurance policy is a policy which can be easily transformed into another kind of life insurance plan. Like, in a convertible option, a term insurance plan can be changed into a whole life plan or an endowment plan at a later stage as per one’s need and requirement. If a policyholder expects that their financial obligations or responsibilities might change in the near future, then they can opt for this type of term plan.
Term Return of Premium (TROP) Plans: This is the new and additional feature which has been recently added to the term insurance plans to make it more viable and attractive. A return of premium term plan, provides some sort of savings component, which is generally not offered by pure term plans.
A term plan with return of premium is designed to offer survival benefit to the insured individual, in case they survive the tenure of the policy plan. If the policyholder survives the policy term, then all the paid premiums till the maturity date are paid back to him as a survival benefit. However, the return of premium can be only made only if the policyholder has not made any claim during the entire policy term.
If you pay a premium towards a term insurance plan, then you are entitled to receive the tax benefits under Section 80C, Section 10 (10D) and Section 80D of the Income Tax Act. Following are the few tax deductions which can be claimed only by individuals and a Hindu Undivided Family (HUF), such as:
Section 80C: Tax deductions of up to INR 1.5 lakh under Section 80C on the premium paid towards the term insurance plan.
Section 10 (10D): The death benefit which is given to the family after the demise of the policyholder before the policy expires, the family receives the full death benefit amount without any taxes levied on it.
Section 80D – A tax deduction of up to INR25000 is available on premiums paid for term plans along with a critical illness rider option.
Following are the different types of riders which can be included in your insurance policy:
Accidental Death Benefit Rider: If you opt to choose this rider along with your term plan, then you will receive some extra coverage other than your basic term plan, in case you met with personal accidental death. With this rider, the beneficiaries of the insured receive the additional coverage along with basic coverage, if the policyholder dies due to an unfortunate accident.
Critical Illness Rider: This rider facilitates the policyholder to receive the lump sum payment if they have been diagnosed with any of the listed critical illnesses covered under the plan such as heart attack, cancer, brain stroke and so on. However, once the policyholder receives payout on the basis of critical illness rider, then the insurer might have to either continue with lower coverage or end the policy, depending upon the term and conditions of the specific policy.
Permanent Disability Rider: This rider provides benefit to the policyholder, If they become permanently disabled in an accident. For extensive coverage, the policyholder can combine this rider along with the accidental death benefit rider.
However, when one has opted for a permanent disability rider with their pure term plan, the insurance company has to pay a periodic amount to the policyholder, in case if he or she becomes disable due to accidental injuries. This payout is for a certain period of time which provides an income assurance to the policyholder when they are unable to work due to an such accidental disability.
Income Benefit Rider: If the policyholder is the only earning member in the family, then this rider can be opted along with the basic term plan. With this rider, the beneficiaries receive extra income every year for a pre-specified period, in case of an unfortunate demise of the policyholder. It is to be noted that Income benefit is over and above the regular benefits which are available under your basic insurance plan.
Waiver of Premium Rider: Here, the policyholder’s future premium payments get waived-off by the insurer, if the policyholder is not able to pay premium amount, due to loss of income or accidental disability. However, your inability to pay the premium will not impact your coverage and benefits, these shall remain the same and intact as per the policy.
One-Time Payout: This is the basic kind of payout, which an insurance company provides in terms of a pure term plan. Here, the insurance company provides one single payment of death benefit to the beneficiaries of policyholder. For instance, if you purchase a term plan having life coverage of INR 50 lakh, then this full amount would be paid to your beneficiaries as a single payout at the time of your demise.
One-Time Payout with Fixed Monthly Lump Sum Payment: Here, the beneficiary receives a single death benefit along with the fixed amount of monthly payment for a specific period as decided by the policyholder at the time of purchasing the policy. This monthly payment generally helps the beneficiary to meet all their daily expenses.
One-time payout with Increasing Monthly Payouts: Here, the beneficiary is entitled to receive one time single payout which is the total sum assured coverage amount at the time of death of the insured. Along with a one-time payout of death benefit, the beneficiary will also receive monthly payouts which tends to increase with every passing year for a specific period of time.
It is advisable to buy a term insurance plan when you are young. The minimum entry age of purchasing a term plan is 18 years. Buying a term plan at an early stage will always come at low premium cost. So, once you are earning on your own and have dependents in your family, you must not delay to buy a term insurance plan.
Term insurance coverage amount totally depends upon your age, family medical history, income and number of dependents in your family. If you have a spouse, dependent children and financial obligations, opt for a higher sum assured coverage which will help your family, even if you are not there.
In this case, if you have a term insurance plan and you survive the policy maturity date, then your coverage will be stopped and no further premium payments have to be made by you towards your term plan. However, if you have chosen “return on premium” benefit, then you will be entitled to receive back all the premiums paid by you till maturity of the policy.
Terminal illness are those diseases which cannot be cured and mostly result in death. If the policyholder is diagnosed with terminal illness, then they receive some percentage of the sum assured coverage amount and all the future premiums get waived off.
The main advantage of this limited premium payment option is that you just have to pay premium for a limited pre- specific period while your plan runs throughout the tenure.
If the nominee dies, then the policyholder has the option to change the nominee name. And if the nominee dies after the death of the main policyholder but before receiving the death benefit, then the payout is given to their legal heirs.
There is no specific limit which restricts changing the nominee in term insurance plan unless mentioned by the insurance company. The policyholder has the full right to change the nominee, as and when they want.
Technically, in most of the cases, the policyholder cannot change the duration of life cover, after it has been already purchased. However, at the time of renewing the policy, one has the full right to modify the term insurance policy.
The right age to buy a term plan is post 18 years or as soon as you have started earning. You can surely buy a term plan till the maximum entry age of 65 years or beyond, depending upon the insurance company. But at this stage of life, you have to shell out more money for premium even for decent coverage.
No, you cannot buy a term plan without showing any income proof. The policyholder needs to submit the salary slip or Income Tax return filings to be eligible for buying a term insurance.
The term insurance plans offer death benefit as a pure life cover plan whereas life insurance policies provide maturity benefits along with the life cover. The term plans do not have a saving component like insurance policies, but offer high cover at low premium rates. Also, they do not promise any maturity or survival benefits like life insurance policies, however, certain plans have Return on Premium benefit, which pays back the entire premium paid if the policyholder outlives the maturity of the term insurance policies. Both the plans offer death benefit but the compensation is much higher in the term plans rather than any life insurance policy.
Yes, the term plans offer such flexibility under the joint life cover benefit, where the policyholder can cover their spouse under the same plan. This benefit is optional and can be chosen at the inception of the term insurance plan at an additional premium cost.
