Term insurance plans offer financial safety in case of a policyholder’s unfortunate demise. You need to look at the claim settlement ratio of an insurer because this shows how trustworthy they are when giving nominees the benefit amount. Canara HSBC Life Insurance had a Claim Settlement Ratio of 99.23% for FY 2023-24.
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What is a Term Insurance Plan?
A term insurance policy is a pure protection life insurance. If the policyholder/insured passes away during the policy's term, the nominees will receive a sizable payout from the term insurance policy. The financial benefit from the policy is the death benefit, which you can select when buying the policy as the sum assured. In the event of an unfortunate death, the term life insurance cover will provide a large sum of money to the beneficiaries so that they can:
a) Look after their regular monthly living expenses.
b) Pay off any financial liabilities like a car loan or housing loan you had.
c) Invest money towards achieving important life goals like children’s education and marriage,a retirement fund for their spouse.
How Does Term Insurance Work?
Consider a term insurance policy the most conventional kind of insurance. Most term insurance policies feature a premium that only increases a little throughout the policy. It also includes coverage for the increased mortality risk and additional levies imposed over an extended time. This is how it functions:
- Choosing the cover
You need to buy a policy based on various factors such as age, income, lifestyle habits, needs, inflation etc.
- Adding Required Benefits
Add needed add-on covers, such as critical illness and premium waiver, and select the duration of the policy.
- Claim Details
Fill in the correct nominee details so that they don’t have problems while claiming the sum assured. - Buying the Policy
Choose how frequently to pay the premium for these policies - single pay, limited pay or regular pay.
Why Should You Buy a Term Insurance Policy?
There are several reasons to buy a term policy. The most basic type of life insurance is a term plan, which has reasonable rates and provides coverage for a predetermined amount of time.Throughout the policy period, it provides both financial security and life insurance. Besidessafeguarding your life, the following are reasons why you should consider buying a term plan:
Financial Protection
The passing of the family's breadwinner can completely disturb the lives of the surviving
members, making it difficult to manage expenses. When a policyholder dies, term life insurance
helps the beneficiaries handle the financial blow by paying a death benefit.
Affordable
Term plans have lower premiums than other kinds of life insurance coverage. Buying a term
plan as early in life is recommended, as the premiums are lower if you start a term plan early. The likelihood of contracting diseases also rises with age, making it costlier with time.
High Coverage
There is a significant level of coverage available. A term insurance policy can start at as little as
₹50 Lakhs and go up to ₹5 Crores. Moreover, certain term plans offer the option to return premiums minus taxes if you outlive the
policy's term and choose the return of premium option.
Flexibility
The freedom to choose how much to spend on premiums is another benefit of buying term
insurance. You can select the frequency of premium payments based on your financial
capabilities. These plans often come with quarterly, annual, and monthly frequencies.
Tax Benefits
Section 80C of the Income Tax Act allows you to deduct expenses and save money on taxes.
- A term plan's premiums can only be deducted up to ₹1.5 lakhs.
- The death benefit given to the beneficiaries is exempt from tax.
- The nominee's bonuses from the term plan
How Much Term Insurance Cover Do You Need?
Insurance experts recommend buying term insurance plans covering 15-20 times your annual income. For example, if your yearly salary is ₹8 lakh, a term insurance plan must include a minimum ₹1 crore life insurance. Human Life Value, or HLV, is a scientific method to calculate your life insurance needs.
Age
Younger adults can generally pay the premium for a long time with fewer chances of illness, keeping the premium rate low. Older people are more susceptible to diseases but have lesser capacity to pay and have to pay higher premiums. Buy a smart term plan that offers appropriate riders to enhance your current plan.
Current Cost of Family
Each family has its lifestyle and expenses. The amount needed to cover those regular expenses will vary from family to family. You don't want your family's lifestyle to suffer if something happens to you. Hence, you must consider the current expenses to ensure you buy a term insurance plan with the right sum assured.
Education
Your child’s future depends on your savings. Term insurance allows you to protect your child’s future even if you are not around. You don't want your children's education interrupted due to financial problems. Calculate the sum assured that covers children's education and buy the right term insurance plan.
Wedding
Financial issues may impact your child’s marriage. If you are concerned about your children's wedding and want them to have it the best - whether you are there or not - you must consider it while calculating the sum assured. The best term life insurance plan helps you at every stage of life – no matter what.
Premium
You should calculate your ability to pay the premium. The premium amount must be more comfortable to pay so that you won't think of continuing with your term policy. Also, choose the right premium payment mode based on your finances. A term insurance plan offers multiple premium payment options that you can choose from.
A term insurance calculator is a useful online tool that helps you calculate the monthly/quarterly/annual term insurance premium amount you need to pay towards the insurance policy.
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Is it Safe to Buy a Term Insurance Plan Online?
Yes, buying term insurance online is safe. Buying an online term insurance has the following advantages:
● Knowledge at Your Fingertips
You may find all the information you need to buy a term insurance plan online by visiting the website. You receive everything, including the ability to add riders and eligibility.
● Safely Monitor Premiums
Among the primary motivations for buying a term insurance policy online is security. You can easily track policy payments, renewals, premium due dates, and other pertinent data.
● Economical
Buying online term plans is inexpensive. You save significant money because you have many options from many insurers.
● Online Insurance Plan Comparison
Comparing several insurance plans online is one of the best things about online term insurance. By comparing, you may select the finest term insurance plan.
● User-Friendly
With a user-friendly experience, the technology helps people make wise selections. The straightforward approach makes it simple to buy a term insurance policy online.
Documents Needed to Buy Term Insurance
An important aspect when buying a term insurance policy is paperwork. Before granting you insurance, the insurer needs to review financial information and documents. The following list of paperwork is needed when buying a term insurance policy:
1. Identity Verification
An official identity verification is helpful when evaluating the possibility of fraud and theft with a prospective policy buyer. Required documents to verify your identity:
● PAN Card
● AADHAR
● Passport
● Voter ID Card
2. Proof of Address
You will then need to present documentation of your permanent address. It is necessary to lessen the likelihood of fraud. It might be necessary for you to share:
● Bills for electricity and phone/mobile
● AADHAR Passport, Ration Card
3. Age Proof
Most term insurance providers also ask for an age-proof document to ensure you meet the eligible age range. Also, your age affects the premium of the term insurance plan you buy. To prove your age, you may have to share:
● Birth Certificate
● School or College Leaving Certificate
● Marriage Certificate
4. Proof of Income
The policyholder should be able to pay the premiums required for the entire tenure of their policy. Insurance providers ask policyholders for certified documents of their source and type of income to ensure this. The size of the sum assured for your term insurance policy is also heavily influenced by your income documentation.
● Pay Slips for the Past Three Months
● The last three assessment years' income tax returns (ITR) for the previous six months
● Bank Statement with your Pay/Salary for the Last Three Assessment Years
● Form 16 (Recent) Audited Profit & Loss Account; and Balance Sheet
● Most recent wage certificate issued by your employer (Form 26 AS)
5. Health Reports
The cost of a term insurance policy is determined by your present health status as well as any potential hazards. When you apply for a term insurance policy, the insurer could request that you take medical exams. In addition to the documents listed above, you might also need to submit recent passport-size photos.
Benefits and Features of Buying a Term Insurance Plan
Term insurance provides the policyholders with many advantages. Here are a few that you ought to know about:
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Who Should Buy a Term Insurance Plan?
A term insurance plan is one of the essential financial tools in your life. You must buy term life insurance coverage if you have dependents or relatives who would suffer financially and depend on you.
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Parents
Parents provide for their children until they grow up and start earning. The loss of a parent early in life can be devastating for a child. Thus, parents with minor children must have term life insurance coverage.
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Married Couple
Marriage is a union of love and a merger of responsibilities. Term insurance coverage is one investment in this common responsibility as the couple builds their lives around each other.
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Working Women
Working only elevates your status as a caretaker. Financial support covers not only immediate needs but also future ones. Use a term insurance plan to protect the future of your loved ones.
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Young Professionals
Making good financial decisions when starting a career lets you achieve your goals early and easily. Young professionals should buy term insurance at this age to support their parents’ well-being and their own.
Self Employed
As a self-employed individual, you are independent and enjoy freedom with your family. Term life insurance helps you provide an umbrella for your family. This will help your family retain control in any situation.
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Tax Payers
Policyholders can also save tax with a term insurance policy. The term insurance cover premiums can be deducted under the Income Tax Act. This can help you get tax benefits of up to ₹1.5 Lakhs on premiums.
When is the Right Time to Buy a Term Insurance Policy?
The right time to buy a term insurance policy is when you receive your first pay cheque. Buying a term life insurance early gives you a cost advantage. With term plans like iSelect Smart360 Term Plan, you can continue to increase your term cover as your life progresses.
You can increase your term cover without buying a new term plan, keeping the safety umbrella growing with your family’s safety needs.
The premium cost for a male, non-smoking proposer under iSelect Smart360 Term Plan is given below, for a ₹1 crore term cover of 30 years with regular premium payment mode:
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| Age in Years | Monthly Premium Amount |
|---|---|
| 25 | ₹712 |
| 30 | ₹915 |
| 40 | ₹1857 |
| 50 | ₹4254 |
| 60 | ₹10,921 |
How to Choose the Best Term Insurance Plan?
What Should Be the Duration of Your Term Insurance Plan?
Term plan duration depends on when you see yourself fulfilling all your goals. Choose the duration based on your and your family’s future needs. Consider these factors when deciding on the duration of a term insurance policy.
Financial Liability
Your financial liabilities will help you decide the policy terms you need. For instance, if an individual has a 10-year loan, the term insurance policy needs 10 years.
Dependents
Considering how long your loved ones will be financially dependent on you will help you decide the terms of your policy. Term life insurance policies help your dependents pay their expenses in your absence.
Large Expenses
It is a large one-time expense in the future. For e.g., if your child is 10 years old and you buy term insurance to provide coverage until their marriage or education, the policy duration could be 20-25 years.
Age
You should buy the best term plan at a younger age but for a longer duration. If you are 30 and opt for a 10-year plan, it will expire at 40. There are fewer chances that you will need coverage before this age.
Types of Term Insurance Plans in India
A standard term insurance plan pays a fixed sum regularly for a specific amount of life cover until retirement age. It is also called a level-term plan because the sum assured and policy premiums do not change throughout the policy's tenure.
For example, if you buy a Rs. 1 crore term insurance plan for 30 years at 30, you may need to pay about Rs. 10,000 per year as a premium. You will pay the same premium regularly for the next 30 years, and your coverage amount will remain the same throughout the term of the insurance policy's tenure. Once you complete the 30-year tenure, the term insurance plan will simply expire.
A whole life term plan allows you to use your term cover as a tool of wealth transfer to the next generation. The unique feature of the whole life plan is that the cover continues till the age of 99. Thus, the benefit payout from this term life insurance plan is almost certain.
For example, you purchase a Rs 1 crore term insurance plan for your whole life and choose to pay till 60. The term insurance plan will cover your family in case of early demise during your working years, like the standard term insurance plan. After retirement, the plan will pay the benefit even in case of natural death. However, if you survive the term of the policy, i.e., you attain the age of 99, the policy pays the entire sum assured to you.
An increasing term life insurance plan is similar to a standard term plan with one unique difference. The sum assured grows every year by a fixed percentage of the base sum assured.
For example, assume that you buy an increasing term cover with a Rs. 1 crore base sum assured. The life cover will grow at a rate of 5% per year. In the second year, your total life cover will be Rs. 1.05 crore, in the third, Rs. 1.1 crore, and so on.
The growth only stops in the following three cases:
The term insurance plan expires; that is, the policy tenure is over
A claim is made on the policy.
The total available sum assured becomes 200% of the base sum assured; i.e. the cover started with Rs. 1 crore and is now Rs. 2 crore.
A decreasing term plan is a term insurance where the life cover and sum assured continue to decrease over time. Such term insurance plans are usually linked to a long-term loan and protect the borrower’s family from the borrower’s early death. When linked to a loan scheme, the tenure of this term insurance plan is also limited to the tenure of the loan. The sum assured declines as per the principal loan balance.
For example, Rahul buys a decreasing term insurance policy with a sum assured of Rs 1 Cr and a decreasing rate of 5% per year. If he dies in the second year of the policy, his family will receive Rs 95 Lakhs, which is Rs 1 Cr less 5%.
This term insurance plan allows you to add your spouse under the same cover. This addition is also applicable to a homemaker spouse.
The biggest advantage of buying the best term plan – jointly is that the surviving spouse may not need to pay the premiums to continue their life cover after a claim. If you are looking for a smart term plan that covers you and your partner, then iSelect Smart360 Term Plan is your go-to option, as it allows you to add your spouse to the same policy. Another aspect is that you can manage a single policy far more easily. You can select any option while searching for the best term insurance plan.
Convertible term plans are those that you can convert to another life insurance plan after buying. Usually, you can convert this term plan to a whole life or guaranteed savings plan. The conversion window could be limited to the first few years of purchase. What plan the convertible plan can change to is also decided by the insurer and is limited in some senses.
For example, you bought Rs 50 lakhs of term insurance at 25. Before reaching 30, you decide to use whole life insurance with added benefits. When you convert the plan, the premium and sum assured are adjusted to suit your needs.
Group term life insurance is a popular employee benefit for many companies today. Insurance helps employers secure their employees’ families financially, helping the workforce focus and relax about the safety of their family’s future.
Group term insurance is a type of life insurance in which one contract covers a whole group of people. Typically, a policy owner is an employer or business similar to a trade union, and the policy includes employees or team members. Group-term insurance is often provided as part of a comprehensive employee benefits package.
This is a win-win deal for both the employer and employees. Also, if you do not have any other insurance, a group term life insurance will offer a basic safety umbrella.
Step By Step Guide to Buy a Term Insurance Plan
Every insurer has a different online term plan buying procedure, but the overall procedure is the same. The following is a step-by-step guide to buying a term insurance plan:
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Go to the insurance company's official website.
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Enter your login information or create an account.
Enter the guaranteed amount.
Select the duration of the policy.
Select the term for the premium payment.
Based on the previously provided inputs, the premium will be shown.
Pay the premium.
Factors to Consider When Looking to Buy a Term Insurance Plan?
When buying the best term insurance plan in India, conducting thorough research and
assessing your specific needs is crucial.
● Evaluate the Coverage Need
Start by evaluating your financial situation, future obligations, and the lifestyle you want
to secure for your dependents in case of an unforeseen event.
● Compare the Policy
Understand the coverage amount required to support your family and account for
outstanding debts, and daily living costs. Compare different insurance providers
regarding factors like premium rates, claim settlement ratios, and customer reviews.
● Align Your Needs with Coverage
Pay attention to policy features like riders and add-ons to tailor the plan to your unique
requirements. Additionally, take note of the policy duration and whether it aligns with
your long-term financial goals.
● Consult Experts
Consult with insurance experts to gain insights into the terms and conditions of various
plans. Ensure that you make an informed decision that provides comprehensive
coverage for your loved ones.
How Age Impacts Term Insurance Plan Premium
When you're young, you're more likely to find cheaper premium insurance because your mortality risk is minimal. You may also have additional debts, liabilities, and financial obligations later in life. As a result, it is preferable to purchase a term insurance policy when you are young, preferably in your twenties. As soon as you start your first job, you should purchase term life insurance plan. Premiums increase as you get older. As a result, the sooner you buy - the better. As you become older, you get closer to your life expectancy, which increases your insurance costs.
When you're young, you're more likely to find cheaper premium insurance because your mortality risk is minimal. You may also have additional debts, liabilities.
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Important Term Insurance Terminology
A policyholder is a person buying the policy. In other words, the policyholder fills the proposal form of the insurance plan and applies for the insurance cover. The policyholder is also responsible for paying premiums of the cover.
For example, if a father buys a term life insurance policy covering all the family members, the father is the policyholder while the family members are the beneficiaries.
The person whose risk the policy covers is called the Life Assured. For e.g. when a son buys a life insurance policy for his father, the son is the policyholder whereas the father is the Life Assured.
Sum assured is the guaranteed benefit amount in case the covered risk or risks materialise. For example, in a term insurance policy, the covered risk is the death of the insured. If insured dies within the policy term, the policy is liable to pay at least the sum assured.
If you buy a term insurance policy of Rs. 1 crore. Rs. 1 crore is the sum assured of the policy.
Policy term refers to the duration for which a policy remains in force. For example, if you buy a term plan online at the age of 30 and wish to continue the same till you reach 60, your policy term has to be 30 years.
Usually, you are supposed to pay a regular annual premium for any insurance policy until the claim or expiry. For example, if your policy term is 30 years you need to pay 30 annual premiums. Thus your premium payment term will be 30 years or equal to the policy term.
However, your premium payment term or PPT can be shorter than the policy term. With a shorter PPT, you can pay the premiums of the entire 30-year term cover within five years.
Terminal illnesses are those diseases which are life-threatening due to their unpredictable and rapid growth nature. Few examples of such diseases are cancer, heart failure, renal failure, etc.
Surrender Value, also known as cash surrender value, is the amount of money that the policyholder receive if they decide to surrender or terminate their life insurance policy before the maturity date or before the policyholder passes away.
Maturity claim is a claim procedure that the life insured is entitled to claim the maturity benefits of the life insurance policy or term life insurance policy if all the premiums have been duly paid.
It is the age when the policyholder becomes eligible to receive the benefits as defined under the life insurance policy they have bought.
The policyholder can choose the frequency of receiving the Sum Assured at maturity of the term insurance policy, or any other life insurance policy. Usually, policyholders are given the option to choose from
(i) Lump Sum
(ii) Monthly
(iii) Part Lump Sum and Part Monthly.
A free look period is the buffer time given to the policyholder within which they can cancel their term life insurance policy, or any other life insurance policy without any penalties.
A nominee is registered by the policyholder while buying a life insurance policy. In case, the policyholder passes away, the nominee or the beneficiary receives the benefits of the policy.
Know all about a nominee.
A rider is an add-on that can be opted by the policyholder to enhance the term life insurance plan. Riders provide additional coverage options like Accidental Death Benefit, Child Support Benefit, Waiver of Premium, Accidental Total and Permanent Disability Benefit.
Learn what are term insurance plan riders and how it can benefit you.
It is a rider that waives the premium payments when the policyholder becomes critically ill, injured or disabled.
What are Riders in a Term Insurance Plan?
Term insurance riders are optional in-built covers that offer additional coverage to the policyholder. These are charged separately. Here are some riders that you can add to your term insurance plan:
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Frequently Asked Questions (FAQs) for Term Insurance Plans
You should have term insurance coverage of at least 10 or 12 times your yearly income. This sum may be sufficient to cover future expenses and stay afloat during inflation.
Yes, upon the insured's demise within the policy term, the insurer pays the full amount as a death benefit. However, if you had chosen a lump sum plus regular income payout, the amount dedicated to regular income will be paid monthly.
Yes, you can have two or more term insurance policies. However, your total life cover may not exceed 20 times your annual income. There is no restriction on the number of policies you can buy, but your financial status limits total life cover. Generally, the insurer will consider your annual income, but your net worth also influences your maximum insurance eligibility.
Generally, pure protection term plans only offer financial safety to your family in case of your early death. Term insurance will not provide any wealth-generation opportunities. However, the whole life term plan option of iSelect Smart360 Term Insurance also offers wealth creation benefits. You can receive a sum of 60 equal to all the premiums paid or a regular income.
Yes, the iSelect Smart360 Term Plan covers all types of deaths, including accidental, natural or illness-related, provided the death occurs within the active policy period. The only death that the policy does not cover is suicide within the first 12 months of commencement of the policy. The suicide clause also applies at the time of the revival of a dormant policy.
The Insurance Laws (Amendment) Act 2015, Section 45, states that an insurance company cannot deny a claim once the policy has been in effect for three years, or three years after the date of policy reinstatement.
Anyone who is of legal age (18-65) and has dependants can buy term insurance in India.
A term insurance supports the surviving spouse or the children in the policyholder’s absence. Getting adequate life insurance to pay off debts such as school loans, mortgages, or large credit card bills might be a smart move if one or both partners have any of these obligations.
To purchase a term plan, the policyholder must provide proof of income. Consequently, a person without an income might not be able to purchase a term plan.
The length of the term depends on how long you want to guarantee your family's financial security in the event of an unlucky event. Insurance providers offer terms for policies that range from 5-40 years. You should base your policy term selection on your intended retirement date.
Most of the time, an applicant must undergo required medical testing to determine his eligibility before purchasing a term insurance policy.
If the policyholder outlives the policy, only a term insurance plan with return of premiums is provided to reimburse all premiums paid during the policy's duration. The premiums are not refundable if the policyholder dies while the policy is in effect.
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