Term Insurance
What’s the basic necessity of having a term insurance?
Term Insurance is a necessity because it provides temporary financial protection for your loved ones at an affordable price in the event of your death.
How to get the best value from your term insurance?
- Consider Your Life Stage and Dependents
- Decide your coverage needs
- Compare Quotes
- Determine the length of your term Insurance
- Choose between regular pay & Limited pay
What are the benefits of term insurance?
- Affordable Premiums - By making a small premium payment, you can obtain high-value security from a term insurance plan. Premium payments can be done monthly, semi-annually, or annually. The sooner you purchase a term insurance policy, the lesser is the premium
- Whole Life Coverage - Whole life insurance provides a guaranteed benefit upon the death of the insured, regardless of when they die. This offers a clear advantage over term life insurance, which only pays out if the death occurs within a specific time frame.
- Critical Illness Coverage - If your term insurance policy includes optional Critical Disease Coverage, you will receive a lump sum amount payment upon discovery of any critical disease covered by the plan.
- Accidental Death Benefit - The Accidental Death Benefit can be added to your term insurance policy. This will provide protection against potential mishaps.
- Coverage for Terminal Illnesses - In the event of a terminal disease or condition which cannot be cured and is likely to lead to someone's death, life insurance policies can provide lump sum pay-outs
- Tax Benefits - Tax advantages are available for premiums made under Section 80C as well as premiums paid for critical sickness benefits under Section 80D. The lump sum amount obtained as the sum assured/death benefit by trustees is also tax-free under Section 10 (10D) of the Income Tax Act of 1961.
Factors That Affect Term Insurance Premiums
- Age: The age of the policyholder is one of the most significant factor that affects term insurance premiums. Generally, the younger you are, the lower your premiums will be.
- Gender: Women usually have lower term insurance premiums than men as they tend to have a longer life expectancy.
- Health: Your health is another significant factor that affects your term insurance premiums. If you are in good health, you will have lower premiums than someone with pre-existing health conditions.
- Smoking: If you smoke or use tobacco products, you will have higher term insurance premiums as compared to non-smokers.
- Occupation: People with high-risk occupations such as pilots or firefighters may have higher premiums.
- Lifestyle habits: If you engage in risky activities such as skydiving, rock climbing, or bungee jumping, you may have to pay higher premiums.
- Coverage amount and duration: For higher coverage amounts with longer durations, the premiums also tend to be higher.
- Policy features: Additional policy features, such as riders that enhance the coverage, will increase the premium. Riders are add-ons or additional benefits which you can opt for along with your current life insurance policy at affordable rates. Riders are valuable tools that help you in expanding your life insurance coverage.
- Insurance company: Different insurance companies have different underwriting processes, and the premiums may vary depending on the company.
Term Insurance FAQ’s
With a term insurance plan, you are covered for a longer duration at low premium rates. It also provides financial security and protection for the entire family in case of the unforeseen demise of the policyholder. Also, you can receive optional coverage for accidental death or critical illnesses.
There's no limit on the number of term insurance policies you can have, but insurance companies will look at your total coverage amount. As a rule of thumb, your coverage typically can't exceed 15 to 30 times your annual income, depending on your age
The coverage amount depends on various factors such as the number of, dependents in the family, investment goals, affordability, and lifestyle. For calculating the term policy cover, you can opt for a sum assured that is 10-20 times your yearly income. Further, you should factor in your existing debt obligations and liabilities when you are deciding the coverage amount.
It is always best to invest in a term insurance policy as early as possible. For instance, the premiums tend to be higher for people in their 30s than for those in their 20s and so on. Buying insurance is always a good idea whether you are in your 20s, 30s, or above. But it's important to evaluate your personal financial situation, goals, and responsibilities. Each individual's circumstances are unique, and there is no one-size-fits-all answer.
"Term insurance premium rates are computed through an underwriting process that employs the use of various statistical and mathematical calculations around the insured person. Some of the major parameters which can affect the term plan premium rates are:
Age: Younger individuals are at a lower risk of getting life-threatening diseases. Younger people are offered lower life term insurance plan premium charges than an older person who is likely to claim much earlier.
Gender: As per various studies, women tend to live longer than men. So, many insurers charge a lower premium to women because they have a higher probability of paying more premiums.
Family’s Medical History: An individual whose family has a history of ailments such as cancer or heart attack, has an increased probability of contracting or diagnosing these diseases. This is the reason more instances of these ailments increase premium amounts.
Smoking and Drinking Habits: The premium rates for smokers and alcohol users are more in comparison to non-smokers.
Policy Duration: If the policy term is longer, then you will end up paying a high amount of premiums as the insurer will have to cover your life for higher risk. And, a small policy tenure will have a low rate of premium as compared to a longer one.
Occupation: Individuals working in industries such as shipping, transport, gas, mining oil, etc. are at higher risk of accidents. Thus, in such cases, the term plan premium rates will be higher as compared to a desk job."
No, the premium amount you pay for a term plan will remain the same throughout the term of a policy.
As per the experts, the average Indian woman lives longer than their male counterparts, the premium amount is lower for women than that of men belonging to the same age bracket. Some term plans also offer discounts to women on their premium amounts.
Tobacco/nicotine use directly affects the life expectancy of a person. Considering that non-smoker is expected to live longer, their term insurance premiums are consequently lower.
If premiums remain unpaid even after the grace period, the policy shall lapse along with its benefits. Some Insurers provide a revival period within which one can revive their lapsed policy.
If the death of the life assured occurs before the payment of due premium, the policy will still be considered valid. In such a case, the death benefit reduces by the amount of due premiums that remain unpaid. The due amount is basically deducted from the sum assured on death.
Term insurance policies do not offer maturity benefits unless you have opted for the ‘return of premium’ variant. Therefore, if you were to outlive the policy term, you do not receive any benefits. This is why term insurance plan is rendered as a pure risk policy. It is the chance that you take to ensure a strong financial safety net for your loved ones in case you are not around for them
"Yes, claims raised against a term insurance policy can be rejected under certain circumstances. Here are some common reasons why a claim might be rejected:
Non-disclosure of information: When applying for term insurance, you are required to provide accurate and complete information about your health, lifestyle, and other relevant details. If it is discovered that you withheld or misrepresented important information during the application process, the insurance company may reject the claim.
Suicide clause: Many term insurance policies have a suicide clause, typically within the first two years of the policy. If the insured person dies by suicide within that timeframe, the claim may be denied.
Policy exclusions: Certain situations or events may be excluded from coverage under the policy. For example, if the insured person dies as a result of participating in hazardous activities or illegal acts specified as exclusions in the policy, the claim could be rejected.
Lapse in premium payments: If you fail to pay the required premiums within the grace period specified by the insurance company, the policy may lapse, resulting in the claim being denied.
Misrepresentation of age: If it is discovered that the insured person's age was misrepresented at the time of policy application, the insurance company may reject the claim or adjust the payout amount accordingly."
Surrender value is not paid for regular premium pay option. However, for limited pay it varies from company to company.
No, you cannot avail for a loan on your term Insurance policy.
Term insurance plans with Critical illness cover provide a lump sum payment if you are diagnosed with any of the illnesses in the pre-specified list of the policy. This typically includes paralysis, heart attack, lung diseases, cancer, and others.
The critical illness cover provides you financial protection and security against several life-threatening medical conditions such as stroke, cancer, cardiovascular diseases, and kidney failures. This cover includes a lump sum payment if you are diagnosed with stated illnesses in the policy.
Yes, you can take critical illness cover with a term insurance plan, if you already have health insurance plan, the critical illness cover provides lumpsum benefit if you are diagnosed with any of the listed critical illness. During any critical illness, this cover can be helpful to enhance an existing term insurance plan.
Yes, it is a good idea to opt for riders with term policy as it enhances the effectiveness of a base term plan at minimal premiums. They are optional attachments and adding them to your base plan can be very useful when an unexpected event takes place with life assured. You can have extra benefits under a single term insurance plan such as critical illness, waiver of premium, income on disability, accidental death benefit, etc. Choosing which riders to attach to your term policy shall depend on your risks, requirements, and preferences.
"Let us take a look at some of the important term insurance riders that you can add to your base plan:
Accidental Death Rider: One can opt for this rider to the base plan to increase his risk cover if death happens due to an accident during the rider’s tenure.
Accelerated Death Benefit Rider: In this, the individual receives a partial advance amount of their sum assured in case of a terminal illness.
Critical Illness Rider: Critical Illness benefit is paid when you get diagnosed with kidney failure, heart attack, cancer, stroke, etc.
Family Income Benefit Rider: The family gets regular income each month if the life assured dies or meets with an accidental permanent total disability or is diagnosed with any critical illnesses.
Permanent and Partial Disability Rider: Additional benefit equivalent to the rider sum assured is paid on total and permanent disability due to an accident.
Waiver of Premium Rider: This rider waives off future premium payments when assured can no longer pay premiums because of critical illness or permanent total disability, or death because of an accident."
Although the selection of a rider depends on risks, your needs, and preferences; one of the best options is the waiver of premium rider. The rider protects policyholders against policy lapses in case of non-payment of insurance premiums due to an illness or under critical circumstances.
Most of the riders are comparatively inexpensive. A rider usually costs around 5 to 10% of the total premium you pay for your base cover. There is no limit to the number of riders that you can add to your base term cover, but the premium amount on all the term insurance riders should not be more than 30% of your base premium.
Additional Coverage, Cost-effective, Tax-saving Benefit, Multiple benefits in a single policy etc according to the riders you choose
Before purchasing a term insurance plan you must check your insurance objectives, your income, your life insurance existing policies (if any), your assets, liabilities, and your expenses.
You can cancel the policy stating the reasons why you disagree with terms and conditions of the policy within the free lock-in period as per regulations of IRDAI. For term Insurance policies, the free-look period is of generally 15 days (30 days for online policies) from the date of receiving policy documents.
Yes, you can purchase a new term insurance policy despite already having one. It helps a policyholder get an increased life coverage along with all other benefits of a term insurance plan.
"Term insurance policy can help an individual to ensure financial security of their family. In case of your unforeseen demise during the policy tenure, the financial burden of fulfilling financial requirements will move on to your family members who were fully dependent on your income. Under such circumstances, a term insurance policy will provide a death benefit to your family members which will allow them to fulfil their financial requirements in your absence."
"Young Professionals:
Young professionals who are just starting their careers and a lot of them are not married and have no dependents may get married and have to financially support their dependent parents and kids. It is better to buy a term plan at a young age because after buying the plan, the premium amount stays the same throughout the life of an individual. The younger the age of the policyholder, the lower the term insurance premium will be. Similarly, the older your age is, the higher the term plan premium will be.
Newly Married:
A term insurance plan is a financial safety net for your spouse even in your absence. In case you are not with your life partner, the term insurance policy provides financial coverage to the nominee and takes care of their liabilities.
Working Women:
With a life term policy, women can protect the financial future of their spouse, children and parents. The payment benefit from this plan could help take care of any outstanding loans, and debts, or even help their family members meet their future financial obligations.
Taxpayers:
Term policy offers tax benefits under section 80C which helps taxpayers to lower their tax liabilities.
Parents:
Parents are usually the only financial support for their kids. Thus, the best way to secure the financial future of your children is to have a term insurance policy. During the policy term, a death benefit is paid to the beneficiary of the term insurance plan in case of the unfortunate demise of the insured person i.e., parents. With this financial safety net of term plan, they never have to worry about their children’s dreams.
Self-Employed People
As a self-employed individual, you don't earn a fixed income monthly because of an uneven income source. Along with that, you may have also availed of personal or business loans from banks and creditors. Buying a term plan to protect your family members becomes essential as it ensures that your dependants remain financially protected even in your absence."
"The features of term insurance plans are:
High sum assured at affordable premium
Protection for your family
Can avail tax benefits on premium paid
Can enhnace your risk cover by adding riders
Protection of liabilities"
"Here is a step-by-step guide on how to file a term insurance claim online:
Step 1: Intimate the Term Insurance Claim
Your nominee needs to inform the insurance company of the policyholder’s death as soon as possible and submit the company’s claims form with the required documents. Your nominee can download the claims form online from the company’s website.
Step 2: Assessment of Claim
The insurance company will receive and assess the authenticity of the claim and check if the documents and details provided are accurate or not.
Step 3: Settlement of Term Insurance Claim
Depending on the outcome of the assessment the insurance company will either accept or reject the term claim. If all the documents and details provided are correct, the insurer will approve and transfer the claim amount to the nominee’s bank account within 30 days of claim intimation."
"Your nominee can file a term insurance claim by submitting the following documents:
Duly filled term insurance company’s claims form (available online and offline)
Medical records like the death/discharge summary, admission note, and test results
Original term policy documents
Post-mortem report (if applicable)
Death Certificate
Photo and ID Proof of the nominee (Voter ID, Adhaar Card, PAN Card)
Nominee’s canceled cheque and NEFT mandate form"
The minimum is 18 years and the maximum age is 65 years.
"Incase the CKYC journey could not be processed then the following documents will be required:
Photograph
PAN card
Address & Age Proof such as Driving License (DL), passport, Aadhar card, Voter ID, ITR, Form 16 etc.
ID Proof
Income Proof such as salary Slips for the last 3 months etc.
Medical documents"
It is extremely important that you do not withhold any information mandated by the insurer while investing in term insurance plan. Even if you have smoked a couple of times in the last 12 months, you are obligated to declare yourself as a tobacco user. If this information is later found to be wrongfully withheld, the insurer has the right to consider the policy as null and void, without benefits.
Under normal situations, a term policy covers all kinds of death that might fall under Natural or accidental, or illness-related death. Death claims arising out of sexually-transmitted disease, drunk driving, accidents while intoxicated, self-inflicted wounds, murder, death in a war, or while participating in hobbies like skydiving, are not covered by most insurance companies.
The policy terms and conditions remain the same.
You can avail of tax benefits under section 80D of the Income Tax Act, 1961. if you have opted for critical illness rider.
If you are opting to invest in term insurance, you may be required to provide ITR. However, it is not mandatory in all cases. Insurance companies may insist on ITRs mainly in case the sum assured amount is high i.e., Rs 50 lakhs to Rs. 1 Crore or above.
In a regular term plan, there is no return, maturity, or money back at the end of the policy. But in case you have opted for a return of premium term plan, the premiums are paid back, at the end of the policy term as a maturity benefit. This returned amount is subject to some deductions like GST, Admin charges, and other nominal charges.
If you are currently living in India and a married man, you are eligible to buy a policy under Sec 6 of the MWP Act.