Term Insurance is a kind of life insurance policy offered by insurance companies that provide financial coverage for a specified ‘term’ of years. Hence, if the insured dies during this period and the policy remain active, a death benefit will be paid to the beneficiary.
What is Term Insurance Policy?
Term insurance policies are less expensive as compared to permanent life insurance plans and offer a high sum assured amount at a lower premium rate. A term insurance policy provides nominees of the policy with a lump sum amount as death benefit upon the death of the insured during the term of the policy. Other than providing financial security to your family, a term insurance plan also takes care of your long term goals. Some insurance providers also cover partial or permanent disability if the policyholder’s regular income gets disrupted.
Why should I buy a Term Insurance Plan?
There are various reasons to buy a term insurance plan:
- When you are the only earning person of your family, then you should purchase a term insurance policy. In case of your unfortunate death, the term insurance plan will help your family to pay their regular expenses and also to achieve their important life goals.
- You should buy a term plan if you have any big liabilities like home, car, or personal loans. The term insurance pay-outs will help your family in repaying the loans in case of your unfortunate death.
- Some term insurance plans also offer critical illness protection against life-threatening diseases like heart attack, cancer, kidney failure, etc.
Best Term Insurance Plans in India 2020
|Insurers||Term Plan||Maturity Age (Maximum)||Claim Settlement Ratio||Monthly Premium|
|Aditya Birla Life Term Insurance plans||ABSLI LifeShield Plan||80 years||97.1%||Rs 623|
|Canara HSBC OBC Insurance Plans||iSelect + LumpSum||99 years||95.2%||Rs 480|
|Bajaj Allianz Life Insurance||Life Cover||85 years||95%||Rs 458|
|Edelweiss Tokio Term Insurance Plans||Zindagi Plus + Lump sum||80 years||97.8%||Rs 478|
|Exide Life Term Insurance Plans||Exide Life Smart Term Plan||55 years||97%||Rs 926|
|Future Generali Term Insurance Plans||Future Generali Flexi Online Term- Lumpsum||75 years||95.2%||Rs 486|
|HDFC Life Term Insurance Plans||Life Option||85 years||99%||Rs 709|
|ICICI Prudential Term Insurance Plans||iProtect Smart lumpsum||85 years||98.6%||Rs 647|
|IndiaFirst Term Insurance Plans||IndiaFirst e-Term Plan||65 years||94.2%||Rs 422|
|Kotak Life Term Insurance Plans||Kotak e-term Plan||75 years||97.4%||Rs 654|
|Max Life Term Plans||Max Smart Term Plan Life cover||75 years||98.7%||Rs 571|
|PNB MetLife Term Plans||PNB MetLife Mera Term Plan-Full lump sum amount||99 years||97.16%||Rs 585|
|SBI Life Term Plans||SBI Life-e Shield||80 years||95.03%||Rs 589|
|TATA AIA Term Plans||TATA AIA Maha Raksha Supreme Lumpsum||85 years||99.1%||Rs 927|
|Aegon Life||Aegon Life iTerm Insurance Plan||100 years||96.5%||Rs 479|
|Reliance Nippon Life Insurance||Reliance Digi-Term Insurance Plan||65 years||97.71%||Rs 500|
Types of Term Insurance Plans in India
There are several term insurance plans available in the market from several insurance companies in India. Let’s take a look at some of these term insurance plans in India:
1. Term Return of Premium (TROP) Plans
TROP plans are popular as the policyholder gets the money they have invested in the term insurance policy at the end of the policy period. It turns out to be fruitful if the insured stays alive after the term of the policy. These plans also give the policyholder the option to add on riders which they feel are crucial.
2. Group Term Insurance Plans
Group term insurance plans are designed for firms, associations, or big families that offer insurance coverage for all the members of the group. The overall coverage of these plans is more in terms of illnesses or other factors that are usually excluded in individual policies.
3. Decreasing Term Insurance Plans
In a decreasing term insurance plan, the sum assured of the policy decreases with time. The premium term of decreasing term insurance plans is comparatively lesser than the normal term plans. A decreasing term insurance plan is usually taken to clear debts and loans in case of the unfortunate death of the policyholder.
4. Increasing Term Insurance Plans
Unlike the decreasing term plans, the cover under this term insurance plan increases with time. Increasing term plans were specifically designed keeping in mind the rising inflation rates and other changing situations in life.
5. Convertible Term Insurance Plan
Convertible term plan enables a term insurance policy to convert into a whole life/permanent life insurance plan at a future date. In this kind of plan, the policyholder does not have to go through a mandatory health checkup, and any kind of health issue won’t be considered when the term policy converts to permanent insurance.
6. Joint Life Term Insurance Plans
A joint term insurance plan is less expensive than individual term insurance plans since the features and benefits are almost similar in both types of plans. These term plans are one of the best options to purchase since it provides insurance cover for the surviving spouse. Joint term insurance plans provide financial coverage to the children if both parents pass away due to an unfortunate incident.
7. Level Term Insurance Plans
This is a basic type of term insurance plan where the sum assured amount is fixed throughout the policy period and the benefits will be paid to the beneficiary after the death of the life insured.
8. Offline and Online Term Insurance Plans
Offline term insurance plans are sold via an agent or a branch while online term plans are those that are sold over the internet. Online term insurance plans are offered by insurance companies at discounted rates than the offline plan. This is because, in an online term insurance plan, intermediaries like the agent or the branch are absent between the policyholder and the insurance company.
People can buy online term insurance policies very easily at the click of a mouse within a few minutes. Reasons for the low premium in an online term insurance policy are:
- Online term insurance plans provide a lot of scopes to compare the choices.
- No need to provide a commission to the agents in online term insurance plans.
Benefits of Term Insurance Plans
1. Easy to buy
Technological advancements have made buying term insurance plans easier than before. Now, it is easier to buy term insurance plans online at discounted rates within a few minutes.
One of the highlights of term insurance plans is that the premiums are lower than other life insurance products. Also, the sum assured offered under term plans is comparatively higher to the premium amounts.
3. Safety for Loans and Liabilities
In case of your unfortunate death, a term plan provides insurance cover to your family from debt obligations or loans that you have.
4. Covers Critical Illness and disability
A term insurance plan also offers protection against critical illnesses and permanent or total disability. By paying a bit more than the usual premium amount, Critical Illness cover offers lump sum payment if any critical illness like heart attack, cancer, stroke, kidney failure, etc is detected. It also provides additional income to the family of the insured if his/her income gets disrupted due to any disability.
5. Tax Benefits
Term insurance plans provide tax benefits on the premiums paid by the policyholder. You will be able to avail tax benefits under section 80C of the Income Tax Act, 1961 for the premiums paid and the sum assured of your term insurance plan.
6. Additional riders
You will be able to add riders to your basic term insurance plan for extra protection. Some key riders that are available with term insurance plans are accidental death rider, a disability rider, critical illness rider, income benefit rider, etc.
7. Flexibility in paying premiums
A term insurance policy offer options to pay premiums monthly, quarterly, half-yearly, or annually. Along with this regular payment of premiums, some term insurance plans offer a single pay premium option.
8. Pay-outs at different time intervals
As an insured if you feel that your family members might misuse the lump sum amount paid by the insurance provider after your death, you can opt for such term plans that provide the option to pay at different time intervals. Hence, your family will get a certain amount as a lump sum and the remaining amount as a monthly payout. Thus, this partial amount can be used for unforeseen emergencies and the monthly income can be used for monthly expenses.
9. Safeguards young families
Term insurance plans can prove to be a blessing for young couples coping with several costs like mortgages, car loans, care of offspring, etc.
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Key Features of Term Insurance Plans
Term insurance plans are specifically designed to secure your family’s basic financial requirements in case of any unfortunate incident.
Let’s take a look at some of the key features of the term insurance plans:
1. Claim Settlement Ratio
The claim settlement ratio can be defined as the percentage of claim settled by the insurance company compared to the total number of claims received.
The insurance companies having a higher claim settlement ratio are considered more reliable. With the help of this ratio, the policyholders get an idea of the ratio of claim settled by the insurance company in a financial year.
2. Death benefits
In case of the death of insured during the term of the policy, the beneficiary of the policy receives the total death benefit chosen at the beginning of the policy. Depending upon the various types of term insurance plans, this benefit may remain the same, decrease, or increase over the entire term of the plan.
3. Choice of a plan
When it comes to choosing a term plan, a lot of options are available for you. You can choose a term plan that only supports an individual earner to a joint life policy that provides financial coverage for both husband and wife. Most term plans offer the term policy on a first claim basis, that is, the term plan pays the sum insured on the death of either of the two insured.
4. Limited Pay
Limited premium payment term insurance plans enable the insured to pay the term policy for a limited period, while the coverage continues for a longer period of time. This reduces the possibilities of term policy lapse.
5. Age of entry
The minimum entry age for term insurance policies is 18 years, while the maximum limit is 65 years. The premium of the term insurance plans increases with age. Hence, if you are looking for a term plan for a longer period then you should opt for the best term insurance policy when you are younger.
6. Maturity age
A good term insurance plan is the one that covers the insured for a longer period that is until the age of 75. Term plans with higher maturity age also charge a higher premium rate than the ones with lower maturity age. This is because they provide a term insurance cover against life risks for a longer period of time.
7. Renewable in nature
You can easily renew your term insurance plan at any time. This enables you to continue enjoying the benefits of the initial term insurance policy that you have chosen, including the same rate and premium.
8. Survival Benefits
Term Return of Premium (TROP) plans refunds the premium that the insured paid to the life insurance provider for cover at the end of the term plan period if the insured person survives the period. If you are looking for savings as well as insurance with your term plan, then you should opt for TROP plans.
9. Additional Rider Benefits
Additional benefits that include, critical illness, accidental death/disability are also available under the term plan. The benefits are often added to the term insurance plan by paying an extra premium amount. The best term plan is the one that offers these riders at a very low price rather than choosing such cover through individual plans. Term insurance riders cover accidental death, permanent disability, critical illness, income benefit, Waiver of premium, etc.
Factors To Consider Before Choosing Term Insurance Plans
Check the factors stated below before choosing the best term insurance plan:
1. Claim Settlement Ratio
The claim settlement ratio is released by the Insurance Regulatory and Development Authority of India every year. With the help of this ratio, the policyholders get an idea of the ratio of claim settled by the insurance company in a financial year. A good Claim Settlement ratio shows that the insurance provider has been prompt in its claim settlement process.
2. Company Reputation
The reputation of a company is very vital in the life insurance sector so that the customer can trust it. Hence, before choosing any term insurance plan, it is necessary to check if the insurance company is reliable.
3. Feature to add a critical illness benefit
Critical diseases like cancer/kidney failure/heart attack, etc costs a lot of money. Hence, opt for a term plan that covers critical medical issues in it, so that you can easily protect yourself from such life-threatening diseases.
4. Term insurance premium
The term Insurance premium rate varies among different insurers. Hence, before buying a term plan compare the term policies and choose the best term plan that offers higher insurance coverage at an affordable premium rate.
5. Premium Waiver Rider upon Diagnosis of Terminal Disease
If the insured gets infected by any kind of terminal disease, then the future premiums for their term plan will be waived off.
6. Solvency Ratio:
The solvency ratio states whether the insurance company will be able to settle the claims if the need arises. According to the Insurance Regulatory and Development Authority (IRDA) of India, every life insurance provider should have a solvency ratio of around 1.5
7. Rider benefits
Term insurance riders cover accidental death, permanent disability, critical illness, income benefit, Waiver of premium, etc. Hence before buying any term plan do check the rider benefits offered by the insurance provider.
8. Regular Income Payout Option
Opt for a term insurance plan that provides for regular payouts option along with some lump sum amount.
Guide to Purchase Term Insurance Plans Online
Things you should keep in mind while purchasing a term insurance plan online:
1. Check the sum assured
Figure out the amount of money your family will need in case you are not around.
2. Add your personal details
You need to enter your name, date of birth, gender, city of residence, annual income, smoking/non-smoking status, your mobile number, and email id. In the end, you may be asked to fill in details like your education and work.
3. Select riders of your choice
Riders are additional benefits that you can get if you pay some extra money in addition to your premium rate. This will make certain that your family is secured under various critical situations and not just death. Riders would provide you with accident/critical illness cover.
4. Read all premium payment terms
Depending upon the policy term you choose, you can also choose how often you want to pay the premium [Monthly- 12 times a year, Half-yearly-(2 times a year), Yearly (once a year). You can also pay in one go in the form of a lump sum amount.
5. Go through pay-out terms
Term insurance plans offer two options- either your family receives a lump sum amount after your death or they receive a part of the amount as a lump sum and the rest is received as a regular monthly income. Choose what percentage of the amount the insurance company should give to your nominees as a lump sum and how much as monthly payouts. While choosing an insurance plan, ensure that it offers this flexibility based upon your family’s needs.
6. Add the details of your beneficiaries
You need to fill in the name, age, gender, and the place of residence of all your beneficiaries, including your relationship with them.
7. Add your medical and lifestyle details
Certain insurance providers may ask you to get your health check-up done at specific centers allotted by them so that the report can be directly sent to the insurance company. You might also be asked to fill in details about past health issues so that your insurer can understand if you have ever been diagnosed, tested, treated, or experienced any conditions in your body.
8. Provide your identity proof details
You are required to provide your age proof details like Aadhaar Card, Pan Card, Voter ID, birth certificate, etc and for address proof, you can use utility bills, Passport, etc. Besides, you are required to share bank account details.
9. Read final decision and issue of policy
Depending upon the documents uploaded and the medical exams, the insurance provider will decide if they want to issue the policy or not. Read the policy documents thoroughly before going ahead.
Who Should You Buy A Term Insurance Plan?
Parents are usually the Best and only financial support for their children. Hence, the best way to secure your child financial future by buying a term insurance policy is good idea. In case of the unfortunate death of the policyholder, a death benefit will be paid to the beneficiary of the term policy.
2. Young Couples
A term insurance policy provides financial protection for your spouse even if you are not around. In case of any unfortunate incident, a term insurance policy provides financial security
One of the main highlights of buying a term insurance policy is that it offers the opportunity to save tax. The premiums paid towards the term plans are exempted from paying tax under section 80C of the Income Tax Act, 1961.
4. Young Professionals
A term insurance policy at a young age is more beneficial as compared to purchasing a policy at an old age. This is because the term plan offers a very low premium rate to younger people than compared to the older ones.
How Does Term Plans Work?
Term insurance is the most reasonable insurance plan that offers higher insurance coverage. Under the term insurance policy, the insurance provider gets into a contract with policy buyers. As per this contract, a lump sum (sum assured) amount is paid to the nominee/beneficiary of the policyholder as a death benefit in case of the unfortunate death of the insured during the term plan. The insurer will pay the sum assured amount to the beneficiary as mentioned in the term insurance policy documents at the time of policy purchase. The sum assured amount is paid either as a lump sum amount at one go or in the form of monthly income, depending upon the term plan chosen by the insured at the time of purchase.
How to Claim Term Insurance?
The steps to a claim for a term insurance plan is listed below:
- How to file a Term Insurance Claim?
You should keep in mind that a claim is formally registered and accepted only after receiving a written request for claim settlement with a duly signed and filled claim settlement form with other necessary documents.
Follow any of the steps stated below to file the claim:
- Visit the official website of the insurance provider for intimating the claim online.
- You can call the toll-free number of the insurance company
- Also, you can file the claim by visiting the nearest branch office of the insurer company
- Claim Process in case of death
The process of claim settlement will begin when the nominee of the policyholder submits a duly filled and signed claim settlement form along with all the relevant claim documents as mentioned at time of policy purchase.
- a) Documents required to claim settlement in case of natural death
- Documents of the term insurance policy or any other documents as asked by the insurance provider
- Duly filled and signed claim settlement form
- Photocopy/original death certificate of the life insured
- Statement of the applicant
- b) Document required to claim settlement in case of accidental death
- Police investigation report/Police FIR report
- Statement of attending doctor(s) and applicant, certificate released by the medical attendant
- Medical reports, hospital certificate, the discharge and admission details of the policyholder, test reports, death certificate, etc
- Post mortem report
- Other relevant documents required by the insurance company
- Filed Term Insurance Claim Approval
After verification of all the necessary documents, the insurance company accepts the claim. The payouts are then made as per the payment options available in the term policy. The payouts are given through ECS, for which the nominee is required to submit the bank details, photocopy of the passbook, and canceled cheque etc.
- Important points to know while applying claim of term plan
- In case the nominee dies with the policyholder then the payouts of the term insurance policy are provided to the next legal heir.
- In case of nominee dies before the policyholder, then the policyholder must appoint other person as his nominee before the policy expires.
Eligibility criteria of Term Insurance Policy
Eligibility criteria for the term insurance plans vary from one insurance company to another. However, the minimum entry age to apply for a term policy is 18 years while the maximum age limit is 65 years.
How Should You Calculate Term Insurance Premium?
In a term insurance policy, the policyholder is required to pay the premiums to avail of the continuous benefits of the plan. It aims to provide financial coverage to the family owing to the unfortunate demise of the insured. The policy buyers can make use of the life insurance calculator to get the approximate premium rate of the policy.
The premium rate of the policy is determined according to the plan you choose and credentials. Usually, the premium rate for young insurance buyers is comparatively lesser than the older ones. This is because the young policy buyers are considered healthy and pose less risk to the insurance company as compared to the old policy buyers.
The term insurance calculator enables policy buyers to choose the best term plan at a cheaper premium rate. While using the premium calculator, the policy buyers need to provide the following information:
- Name of the term plan
- Premium frequency
- Sum assured
- Date of Birth
- Proposer’s name
After entering the above details, the insured will get the approximate premium amount.
Term insurance is a good way to create a protective financial umbrella for your family. However, keep in mind factors like the living expenses of your family, your debt obligations, and future expenses before buying a term insurance plan.
Term Insurance FAQs
Q: Why is the term insurance plan important?
A: Term insurance plan gives financial coverage to your family in case of any unfortunate incident, and you get several benefits like tax exemption, planning your child’s higher education, and other long term goals.
Q: What is the term insurance premium?
A: It is the amount that the insured pays to the insurance company either monthly, quarterly, or annually in place of the guarantee of the death benefit.
Q: Who decides the premium amount?
A: The insurer decides the premium amount on the basis of several factors that can influence the insured’s life expectancy like age, gender, smoking habit, personal medical history, and family medical history.
Q: Is the gender of the insured important?
A: Yes, because several studies have suggested that the average Indian women live longer than the average Indian men, and hence the premium rates for women are lower than that of men of the same age, other things remaining constant, including smoking habit.
Q: Why is smoking a factor for determining the premium rates?
A: Smoking is a significant factor in determining the premium rates because a non-smoker is expected to live longer than a smoker in any country.
Q: What happens if I do not pay the term insurance premium?
A: If the premium remains unpaid for one month after the due date, the policy will lapse and all the premiums paid by the insured before will get wasted.
Q: What happens when the policyholder dies before paying the due premium?
A: If the policyholder dies during the term period before paying the premium, the due premium will be deducted from the death benefit.
Q: What happens if I become an NRI after buying a term insurance plan?
A: Your term insurance plan coverage will remain active even if you become an NRI. However, you should let your insurance company know about this change in status.
Q: If the insured pays all the premiums and does not die during the plan term, do they get the sum assured?
A: Since the main objective in a term insurance policy is to provide financial coverage to the family of the insured, the insured do not get any money if they outlive the plan.
Q: Are there any monetary benefits from investing in term insurance?
A: Other than providing financial coverage to your family, the term plan insurance offers several tax deductions and exemptions. The premiums paid towards the term plans are exempted from paying tax under section 80C of the Income Tax Act, 1961. Also, the money that your family gets when you are not around or the amount you get at the maturity of the term plan is tax-free.
Q: Which term insurance policy should I select?
A: Select the policy that provides you with maximum death benefits and is affordable.
Q: Can we buy 2 term insurance policies?
A: Yes, you can buy as many term insurance plans as you want to fulfill your insurance requirements.
Q: When should I buy term insurance?
A: You can buy a term insurance policy between 18 to 65 years of age. However, it is more desirable to buy the policy when you are younger since the term plan offers a very low premium rate to the younger people as compared to the older ones.
Q: Does life insurance requirement changes as we grow older?
A: This depends on the policy. In a term plan, the basic expenses, coverage limits, and other requirements remain the same during the tenure of the policy, whereas for whole life plans, it may remain unchanged but some changes can occur when you renew the policy.
Q: What is the difference between term insurance and whole life insurance?
A: Term insurance is a life insurance policy that provides financial coverage for a specific period of time whereas whole life insurance is a type of permanent life insurance that provides death benefits and gathers a cash value as long as you are alive.
Q: Can life insurance claims get rejected?
A: Yes, a life insurance claim can be rejected on the basis of:
- Misinterpretation of actual information
- Not revealing the correct information
Q: Do term insurance policy cover death due to natural disasters?
A: Yes, deaths due to natural disasters like storm, flood, earthquake, etc. are covered.
Q: What type of deaths is not covered under term insurance?
A: Deaths due to drunken driving, self-inflicted wounds, murder, death in a war, dangerous hobbies such as skydiving, and deaths due to sexually-transmitted diseases are not covered.