Term Insurance

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What is a Term Insurance Plan?

A term insurance plan is a type of life insurance that provides coverage for a specified duration. The policy offers a fixed sum assured, which is paid as a lump sum to the beneficiary in case of the policyholder’s unfortunate death during the term. This financial support helps the family cope with the unexpected loss. The policy term typically starts from the age at which the policy is purchased and ends when the policyholder reaches the age outlined in the plan. Since term insurance carries a higher risk, policyholders have the option to choose a higher sum assured to ensure adequate protection.

How Term Insurance Works

term insurance provides coverage for the risk of untimely death by paying a lump sum to the nominee in the event of the policyholder’s demise within the term of the policy. Here’s how it works for the insured and their loved ones:

Choosing Coverage and Premium: The policyholder selects the coverage amount (the sum assured) and the duration (policy term) of the plan. The insurer then calculates the premium based on factors such as the policyholder’s age, health, and the chosen coverage amount. The premium amount remains fixed throughout the policy term.
Premium Payment Options: The premium can be paid in various ways, such as annually, semi-annually, or even as a lump sum for the entire term. The policyholder can choose the frequency and mode of payment.
Payout in Case of Death: If the policyholder passes away during the policy term, the insurer pays the coverage amount (sum assured) to the nominated beneficiary. This amount can be used by the family to cope with financial needs.
No Payout if the Policyholder Survives: If the policyholder survives the entire term, there is no payout, and the coverage ends. However, if the plan includes survival benefits, the policyholder may receive a lump sum upon maturity.
Policy Renewal: Upon the policy term’s expiry, the policyholder may choose to renew the term insurance, subject to the insurer’s terms. Renewals are generally allowed until a maximum age limit is reached, but the premium will be recalculated for the new term based on the policyholder’s age and health at the time of renewal.

In essence, term insurance acts as a protective financial safety net for the policyholder’s family, ensuring they are financially supported in the event of an untimely death, while the policyholder can also enjoy flexibility in terms of renewal and payment options.

Key Features of Term Insurance

Term insurance plans in India offer several key features that make them an attractive choice for individuals seeking affordable and effective life insurance coverage. Here’s a breakdown of the main features:

Affordable Premiums: Term insurance plans generally come with very low premiums because they focus only on providing death coverage. This makes them easily affordable for a wide range of people.
High Coverage Flexibility: There is typically no upper limit on the coverage amount. Policyholders can opt for a higher coverage level based on their financial needs and security requirements, ensuring that their family is well-protected in case of an untimely demise.
Long Coverage Duration: The coverage period for term insurance plans can extend for several years, even up to old age, providing long-term financial protection. This can be ideal for individuals who wish to safeguard their loved ones for an extended period.
No Paid-up or Surrender Value: Term insurance does not have any paid-up value or surrender value. If the policyholder discontinues premium payments, the policy lapses, and no benefits are provided. This makes it different from other types of life insurance that offer surrender benefits.
No Bonuses: Unlike some other life insurance products, term insurance does not declare any bonuses. In the event of the policyholder’s death, only the guaranteed sum assured is paid to the beneficiary.
Availability of Riders: Term insurance policies offer a wide range of add-on riders, such as critical illness cover, accidental death benefit, or waiver of premium rider. These riders help enhance the scope of coverage and provide more comprehensive financial protection.
Medical Tests: Most insurers require a mandatory medical test before issuing a term insurance policy. This ensures that the insurance company can assess the health risks associated with the policyholder, which could affect the premium and coverage.
Free Look Period: After purchasing the policy, the policyholder is allowed a “free look period” of 15 to 30 days. During this time, if the policyholder is not satisfied with the terms or features, they can cancel the policy and receive a full refund of the premium paid.
Grace Period: Insurers typically offer a grace period of 15 to 30 days for delayed premium payments. During this time, the policyholder can still make the payment without the policy lapsing, ensuring continuous coverage.

Term Insurance Benefits

Term insurance is an essential financial safety net for individuals, families, and senior citizens alike, providing comprehensive coverage against the financial uncertainties of life. It ensures that your loved ones are financially protected in your absence. Here are the key reasons why term insurance is indispensable:

Financial Protection for Your Family: A term insurance policy is a crucial tool for anyone wishing to secure their family’s financial future in the event of their untimely demise. It offers a safety cushion to help them cope with the financial impact of your absence.
High Coverage at Affordable Premiums: Term insurance is renowned for offering high coverage at a fraction of the cost compared to other insurance policies. The low premiums make it accessible to a wide range of individuals, providing substantial financial protection for their families at minimal cost.
Unmatched Financial Security: No other financial product provides the same level of financial security as term insurance, offering peace of mind knowing that your loved ones will be taken care of in case of your unexpected death.
Rider Benefits for Enhanced Coverage: Term insurance policies often come with optional riders that can be added to the basic plan. These riders enhance the coverage by offering protection in specific circumstances such as permanent disability, accidental death, or critical illness, ensuring a more comprehensive safety net.
Tax Benefits: Premiums paid on term insurance policies qualify for tax deductions under Section 80C of the Income Tax Act, 1961. This allows policyholders to save up to ₹1.5 lakh annually in tax deductions for premiums paid for themselves, their spouses, or dependent children.
Convenience of Online Purchase: Term insurance plans can be purchased online with ease through a simple, hassle-free process. This digital convenience allows you to secure your family’s future from the comfort of your home.

Cost-Effectiveness: Term insurance remains one of the most affordable life insurance products, offering extensive coverage at lower premiums, making it an attractive option for individuals looking for effective yet budget-friendly coverage.

Types of Term Insurance

Term insurance comes in various types, each designed to cater to different financial needs and preferences. Below are the most commonly available term insurance variants:

Pure-Level Term Plans:
These plans offer a fixed sum assured throughout the policy term. In the unfortunate event of the policyholder’s death, the sum assured is paid to the beneficiary. Simple, straightforward, and cost-effective, pure-level term plans are the most basic form of term insurance available.
Increasing Term Plans:
Increasing term insurance plans are designed to adjust the sum assured annually, increasing it by a fixed percentage. This plan helps account for inflation and ensures that the coverage remains relevant over time. For instance, if you start with ₹10 lakh coverage, it may increase by 5% each year, ensuring that your family is adequately covered. If death occurs in the fourth year, the sum assured would be paid at the increased value (e.g., ₹11.5 lakh instead of ₹10 lakh).
Decreasing Term Plans:
In contrast to increasing term plans, decreasing term insurance plans reduce the sum assured each year, typically to match the decreasing balance of an outstanding loan. These plans are particularly suited for borrowers who wish to ensure their family is relieved of the loan burden if they pass away before the loan is repaid. The sum assured reduces over time as the loan balance declines, and upon death, the policy pays the reduced amount to the beneficiary.
Term Insurance with Return of Premium (TROP):
A return of premium (TROP) plan provides a unique advantage: if the insured survives the policy term, the total premiums paid during the term are refunded. If the policyholder passes away during the policy term, the sum assured is paid to the beneficiary as usual. This type of plan combines the financial security of term insurance with the added benefit of a refund of premiums, making it a preferred choice for individuals who seek both financial security and a return on their investment.
Group Term Insurance Plans:
Group term plans are typically offered by organizations, such as employers, banks, or unions, to cover a group of individuals under a single master policy. These plans are usually renewed annually, and premiums can be paid by the organization, individual members, or a combination of both. Group term insurance is cost-effective and provides basic life cover to employees, account holders, or members of the group, ensuring financial protection for the group as a whole.

Term Insurance Riders

As previously mentioned, term insurance plans offer the flexibility to enhance your coverage through optional add-on riders. Riders are additional benefits that can be attached to your base term insurance policy for an extra premium. These riders are completely optional and provide an opportunity to customize your coverage according to your specific needs.

Each rider carries its own sum assured, which typically aligns with the sum assured of the base policy, although there may be a cap on the rider’s coverage. If the base policy’s sum assured exceeds the rider’s maximum coverage, the rider will be limited to its maximum sum assured, while the base policy sum assured remains unaffected.

For example, if a rider offers a maximum sum assured of Rs. 10 lakhs, and the base policy has a sum assured of Rs. 25 lakhs, the rider sum assured will be restricted to Rs. 10 lakhs, while the base policy retains the full Rs. 25 lakh coverage.

While term insurance plans provide multiple rider options, the total rider premium cannot exceed the premium of the base policy. In some cases, the rider premium is capped at 30% of the base policy’s premium, while in others, it can be as high as 100% of the base policy’s premium.

Some of the most common riders available include:

Accidental Death Benefit Rider: This rider offers additional coverage in the event of death due to an accident. The rider sum assured is paid alongside the base policy sum assured, enhancing the death benefit for the beneficiary.
Accidental Death and Disability Benefit Rider: Similar to the accidental death rider, this rider also provides coverage for permanent total or partial disability caused by an accident. In case of accidental death or total disability, 100% of the rider sum assured is paid. For partial disabilities, only a proportionate amount is paid. Additionally, in case of disability, the benefits may be disbursed in weekly or monthly installments, with future premiums potentially waived.
Critical Illness Rider: This rider offers a lump-sum payout if the insured is diagnosed with a critical illness covered by the policy. It helps alleviate the financial strain caused by treatment and recovery costs.
Term Rider: This rider provides an additional death benefit in the unfortunate event of the policyholder’s death during the policy term, regardless of whether it is caused by an accident or natural causes.
Premium Waiver Rider: This rider benefits policyholders who are not the primary premium payer. If the person paying the premiums passes away during the policy term, the remaining premiums are waived, and the insurance company takes over premium payments, ensuring the policy continues.
Terminal Illness Rider: This rider is designed to provide a lump-sum benefit in case the insured is diagnosed with a terminal illness. It offers financial support for long-term treatment and helps ease the burden of medical expenses.

Term Insurance Buying Guide

Choosing the right term insurance plan can be overwhelming due to the variety of options available from different insurers. To help you navigate this process, the following buying guide outlines key factors to consider before purchasing a term insurance policy.

Who Should Buy a Term Insurance

Term insurance is essential for individuals who want to secure their family’s financial future in their absence. It is especially beneficial if:

You are the primary breadwinner of your family.
Your family depends financially on you.
You have specific financial goals to achieve, such as funding your children’s education or your spouse’s retirement.
You wish to ensure financial coverage for major life events like your children’s marriage or higher education expenses.
You want to provide financial stability for your family’s day-to-day expenses in the event of your untimely demise.

When to Buy a Term Insurance Plan

The best time to purchase term insurance is when you are young and healthy. By purchasing early, you benefit from lower premiums, as younger policyholders present a lower risk to insurers. Additionally, you are more likely to secure a higher sum assured at a lower cost. As you age and health conditions may arise, premiums tend to increase, and the sum assured offered could be lower.

How to Decide the Duration of Term Insurance

Selecting the right term for your insurance plan is crucial. While you can opt for a short-term policy, typically lasting 5 to 10 years, a long-term policy that extends up to your retirement age is advisable. This way, you won’t have to worry about premium payments after retirement. Furthermore, upon policy maturity, the payout can support your post-retirement living expenses. If you want continuous coverage, you can convert your term policy into a whole life policy before it expires.

How to Decide the Sum Assured?

The sum assured determines the financial security your family will receive in case of your untimely death. When choosing the sum assured, consider factors such as:

The cost of your children’s education and marriage.
Your spouse’s retirement needs.
The medical expenses of your dependent family members.
Day-to-day living expenses to ensure your family’s well-being.

Make sure the sum assured is substantial enough to cover these essential expenses and provide financial stability in your absence.

Which Factors Affect Term Insurance Premium?

Several factors influence the premium rates for term insurance policies. Understanding these factors can help you choose the best plan that suits your budget:

Gender: Women generally receive more favourable premiums since they tend to have a longer life expectancy.
Occupation: High-risk jobs, such as those in aviation, mining, or hazardous environments, may result in higher premiums.
Age: Younger individuals typically pay lower premiums due to a lower risk factor.
Lifestyle: Unhealthy habits such as smoking or consuming alcohol can increase your premium due to the higher health risks associated with these behaviours.
Family Medical History: A family history of chronic diseases like heart disease, diabetes, or high blood pressure can lead to higher premiums as insurers account for the likelihood of these conditions being inherited.

Term Insurance Calculator

Before purchasing a term insurance plan, it’s crucial to understand the premium you’ll be required to pay. The premium amount depends on various factors, including your age, health, occupation, lifestyle, and the coverage you choose. To simplify this process, Finvaid provides an easy-to-use Term Insurance Calculator.

This tool allows you to precisely calculate the premium amount based on your unique requirements. It takes into account all the relevant factors that influence your premium, offering you an accurate and personalized estimate. The calculator helps you determine the ideal sum assured for your policy and the corresponding premium, enabling you to make an informed decision.

By using Finvaid’s Term Insurance Calculator, you can ensure that the plan you choose aligns with both your coverage needs and financial goals, helping you secure the right protection for your family’s future.

How to Choose the Best Term Insurance Plan

With numerous options available, selecting the best term insurance plan can be a daunting task. However, by considering the following key factors, you can make a well-informed decision:

Opt for the Right Sum Assured: Ensure the plan allows you to choose the sum assured that meets your financial goals. Check the maximum coverage allowed under the policy to confirm it aligns with your needs.
Affordable Premiums: Look for a plan with a premium that remains affordable over the long term, ensuring it fits comfortably within your budget.
Comprehensive Coverage: Seek plans that offer a broad scope of coverage and the flexibility to add riders for enhanced protection. Riders can offer additional benefits such as critical illness cover or accidental death coverage.
Flexibility and Customization: Choose a plan that allows you to adjust coverage as your needs evolve over time, providing a tailored approach to your life insurance requirements.
Premium Discounts: Look for plans offering attractive premium discounts, which can significantly lower the cost of your insurance.
Efficient Claim Settlement: Ensure the insurer has a streamlined and hassle-free claim settlement process, ensuring peace of mind in the event of a claim.
Claim Settlement Ratio (CSR): Opt for an insurer with a high Claim Settlement Ratio, which is a testament to their reliability and customer satisfaction.

Additionally, comparing different term insurance plans is essential. A thorough comparison enables you to find a plan that provides comprehensive coverage while keeping premiums at a competitive rate.

At Finvaid, we offer an easy-to-use platform where you can compare a wide range of term insurance plans from top-rated insurers. Our partnerships with leading life insurance providers ensure that you have access to the best plans in the market, allowing you to choose and purchase the most suitable policy with ease.

Eligibility for Buying Term Insurance Plans

Before purchasing a term life insurance policy, it’s important to determine whether you meet the eligibility criteria. The following parameters are typically considered:

Citizenship: Indian residents are eligible to purchase term insurance. If you relocate abroad for work or studies, your eligibility remains unchanged after purchase.
Lifestyle: Individuals with unhealthy lifestyle habits, such as smoking, drinking, or high-stress levels, may face restrictions or higher premiums due to the increased health risks associated.
Age: Most insurers offer term insurance to individuals between the ages of 18 and 65. Policies can be extended to cover you up to 99 years of age, depending on the plan.
Medical Tests: Many insurers recommend a medical examination before finalizing the policy. This helps assess your health status and determine the risk level for the insurer.

Documents Required for Buying Term Insurance Plans

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How to Buy Term Insurance Plans Online

Purchasing term insurance can be done through both offline and online channels. While you can opt to visit an insurance company’s nearest office or connect with a life insurance agent, this traditional approach can often be time-consuming and cumbersome. Alternatively, buying term insurance online offers a more streamlined, efficient, and transparent process. Finvaid makes it easier for you to explore and compare term insurance plans from top life insurers, empowering you to make an informed decision. Follow these simple steps to secure the best plan for you:

Visit the Finvaid Website: Head over to www.finvaid.com/life-insurance.
Select ‘Term Life Plans’: Enter your details, including age, gender, smoking habits, annual income, and marital status, for personalized recommendations.
Compare the Best Plans: A list of the best term insurance options will be displayed. Compare their features, coverage limits, and premium rates.
Choose the Plan That Suits You: Select the term insurance plan that meets both your coverage needs and budget.
Fill Out the Application Form: Complete the online application form and make the payment securely through our platform. Your policy will be activated immediately.

By choosing Finvaid, you gain access to an intuitive and user-friendly platform that helps you make the best decision without unnecessary delays or complications.

Conclusion

Term insurance is a critical financial tool that guarantees long-term security for your loved ones in your absence. It provides peace of mind knowing your family’s financial needs will be met, even if you are not there to support them. By adding optional riders, you can further customize your coverage to suit specific needs, offering extra protection. Moreover, many insurers are now offering competitive premiums, making term insurance more affordable than ever before.

Choosing the right term insurance plan doesn’t have to be overwhelming. With Finvaid, you can easily compare plans, select the best one, and secure comprehensive coverage for your family’s future. Start your journey today with Finvaid—your trusted partner for all your term insurance needs.