TERM INSURANCE

"Protect your family from a life of compromises"

What is Term Insurance?

Term insurance is a type of life insurance policy that provides coverage for a certain period of time or a specified “term” of years. If the insured dies during the time period specified in the policy and the policy is active, or in force, a death benefit will be paid.

Term insurance is initially much less expensive when compared to permanent life insurance. Unlike most types of permanent insurance, term insurance has no cash value. In other words, the only value is the guaranteed death benefit from the policy.

Why Term Insurance?

  • Minimal Cost:Being a developing country, many families cannot afford to put aside a considerable sum regularly for life insurance. It could be detrimental to their material well-being. Structurally, term insurance is one of the most basic financial products. There are no savings or investment component in term insurance, which makes it significantly cheaper than other life insurance products.  

 

  • Financial Security:Indians are underinsured, which means that even people with insurance do not have the required cover. The sum assured is a significant factor in determining the amount of premium you will have to pay for the policy. Term insurance has made financial security affordable as you are assured of a substantial cover at minimal costs. With term insurance, you can live a secure life without worrying about the financial security of your family in your absence.
  • Comprehensive Coverage:Even though term insurance is a form of life insurance, it can be tweaked to perform functions of health insurance. You can modify term insurance plans with riders by paying an additional premium. Cover for critical illness and accidental death and disability can be added to a term insurance plan.
  • Fixed Premium:Term insurance is a basic product with the sole function of securing the financial future of the insured. The sum assured, or the premium is not indexed to the market, which makes it a very stable insurance product. Once an insurance company accepts your request, the premiums remain the same throughout the policy term.
  • Increased Life Cover: The needs of a family increase with an improvement in lifestyle. It is pertinent to hike the insurance cover in consonance with the increase in financial needs. Some term insurance policies offer insurance cover linked to life stages. The sum assured automatically increases at a certain rate as per the age of the insured.
  • Flexibility:The needs of every family is different. Some need regular income while some seek a lump-sum amount. Term insurance plans have flexible pay-out options. You can opt for a lump-sum payment or choose to receive a part of the sum assured as lump-sum and the balance in equal instalments. The premiums can also be paid on a monthly or annual basis.
  • Takes Care of Liabilities:Buying a house or a car through bank finance is common practice. But in the race to improve their material condition, many people inadvertently increase their liabilities. In the event of an unfortunate incident, liabilities can become an albatross around your family’s neck. Term insurance plans with short tenures like 10 years can be taken to secure your family against liabilities.
  • Income Tax Benefits:Buying a term insurance plan comes with a host of income tax benefits. You can claim a tax deduction of up to Rs 1.5 lakhs per year under Section 80C of the Income Tax Act, 1961 for the premiums paid for term insurance. The sum assured paid to the nominee is tax-exempt under Section 10 (10D) of the income-tax law.
  • Easy to Buy:The rising internet penetration has nudged insurance companies to launch a number of financial products that can be bought online. Being a simple product, almost all companies offer the option to purchase term insurance online. Buying it online is cheaper and saves a lot of time.

Types of Term Insurance

Insurers are offering innovative and better range of Term Insurance plans to face intense competition. Term insurance can be classified into the following types:

  • Regular Term Insurance Plans: A Regular Term Insurance plan is a Term Insurance plan that provides basic coverage, that is, the sum assured is given to the nominees in case of demise of the insured. It doesn’t offer any benefits upon maturity. The insured may opt for regular or a single payment of premium. Usually, the sum assured can go up to 10 times of your annual income. When the policy matures, the insurance cover ceases, as does the need to pay premiums for such a cover.
    On maturity, if the insured is still alive, no amount will be paid to the nominees or the insured. Regular Term Insurance has low premiums and high sum assured. This is the most cost-effective Term Insurance plan.
  • Group Term Insurance Plans: Group Term Insurance Plans are availed by an employer, organization, association, trusts, companies or societies. Companies take these plans to insure their employees. A Group Term Insurance Plans covers each and every member insured under the plan. It is cheaper than an Individual Term Insurance plan. The only problem is that the Term Insurance cover ceases to exist, once the employment or membership ends.
    Group Term Insurance Plans can be taken by a group that fulfils the minimum membership requirements. Usually, the members to be insured in a Group Term Insurance policy need not undergo medical tests. As the coverage of a Group Term Insurance plan is not very extensive and adequate, the insured can buy riders to enhance their coverage.
  • Convertible Term Insurance Plans: A Convertible Term Insurance Plan allows an insured to convert a Term Insurance policy into an Endowment Plan. The in-built conversion option is available as an add-on feature. Convertible Term Insurance plans have higher premiums to accommodate the conversion facility.
  • Term Return of Premium Plans (TROP): Term Return of Premium (TROP) Plan comes with survival benefits. TROP refunds the amount of premium paid by the insured upon the policy’s maturity, provided the insured survives till that date. TROP plans have a higher premium.
    In such a plan, the insured may opt to discontinue paying the premium and return the plan. All the premiums paid till date will be reversed minus deductions like medical examination costs and stamp duty charges.
  • Decreasing Term Insurance Plans: The sum assured and premiums on Decreasing Term Insurance plans decrease at a certain rate throughout the policy tenure. Such plans are designed to insure a property held as collateral against a loan like a home loan. Such plans ensure that the bank will be able to recover the dues in case of an unexpected demise.
    The main idea behind a Decreasing Term Insurance Plan is that an insured’s requirement for high insurance coverage decreases with age; when certain liabilities like Home Loan repayment and so on decrease with time, on regular repayment of EMIs. A Decreasing Term Insurance plan should be taken in addition to other forms of Life Insurance.
  • Increasing Term Insurance Plans: Increasing Term Insurance plans have a coverage increasing at specific durations. This is to accommodate and compensate rising costs in the future. These policies get more expensive with time.
  • Joint Term Insurance Plans: Joint Term Insurance Plans allow the insured to cover their spouse under the same policy. It is basically designed for couples. Depending on the policy, the sum assured is paid out either on the demise of the main insured or at the death of each insured member.