Term Insurance

term insurance
Protect your loved ones against death, disability and Illness
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Life insurance policies are meant to cover the risk of premature death. The most basic and the essential form of life insurance is a term insurance plan. This is a plan which offers the highest coverage with the least premium. 

Let’s have a look at a term plan in details.

What is Term Insurance?

Term insurance is a life insurance policy which covers the risk of premature death. When you buy a policy you choose the sum assured and the coverage duration. Thereafter, in case of death during the policy tenure the sum assured is paid to the nominee. Usually, term insurance plans do not have any maturity benefit. That means, there’s no pay-out, if the insured survives till the end of the policy duration.

For example, if you buy a term plan with a term of 25 years and a sum assured of INR 50 lakhs. 

Scenario

With a Term Plan of 
INR 50 lakhs

Without a Term Plan of 
INR 50 lakhs

When the life insured dies during the policy tenure

Death Benefit of INR 50 lakhs is paid to the nominee

No benefit is paid

When the life insured survives the entire policy tenure

No benefit is paid

No benefit is paid

Thus, a Term Insurance Plan covers the risk on the life of the insured as long as the policy is in force and all due premiums are paid.

Features of Term Insurance Plans

Here are some salient features of term insurance plans which differentiate the plan from other life insurance plans –

  • Term plans offer the highest sum insured at the lowest cost as it is a pure protection plan
  • These plans are offered for the long term. You can avail coverage up to 85 years in some term insurance plans
  • If the insured dies within the policy tenure, the entire sum assured is paid to the nominee as death benefit and the policy terminates
  • Term plans allow you optional riders which you can take to enhance your coverage. Many plans also have inbuilt riders more a more inclusive scope of coverage

Types of Term Insurance Plans

Term insurance plans come in different variants. These variants are as follows –

1. Level Term Plan

Level term plans are those which have a uniform sum assured throughout the policy duration. When the insured dies during the policy tenure, the sum assured is paid and the policy is terminated.

For example, if you choose a sum assured of INR 1 CR, the coverage of INR 1 CR would be available for the entire duration of the plan. Also, your nominee would get INR 1 CR as death benefit in case of your death during the policy term.

Life CoverageSum Assured
Sum Insured for the entire policy durationINR 1 CR
Death Benefit paid to the nominee IF the life insured dies within the policy tenureINR 1 CR

2. Increasing Term Plan

Under these plans the sum assured increases every year either by a fixed amount or by a fixed percentage. In case of death, the increased sum insured is paid to the nominee. The rise in sum assured usually stabilises once it becomes 200% of the base sum assured chosen at the beginning of the policy tenure.

For example, in a term plan of INR 50 lakhs, suppose the sum assured increases by 5% every year. 

Life CoverageSum Assured
Sum Insured chosen at the beginningINR 50 lakhs
Increase in sum assured every year @ 5% p.a.INR 2.5 lakhs
Sum Assured in Year 2INR 50 lakhs + INR 2.5 lakhs = INR 52.5 lakhs
Sum Assured in Year 3INR 52.5 lakhs + INR 2.5 lakhs = INR 55 lakhs
Sum Assured in Year 4INR 55 lakhs + INR 2.5 lakhs = INR 57.5 lakhs
Thus, Sum Assured in Year 20INR 95 lakhs + INR 2.5 lakhs = INR 97.5 lakhs
Sum Assured after Year 20INR 1 CR (and it stabilises at 200% of the original sum assured)
Death Benefit paid to the nominee IF the life insured dies in year 4INR 57.5 lakhs

3. Decreasing Term Plan

Decreasing term plans are opposite of increasing term plans. Under these plans the sum assured decreases every year. These plans are usually taken along with loans and the decreasing sum assured coincides with the decreasing balance of the loan. 
So, the sum assured decreases every year by 5% from INR 1 CR.

Life CoverageSum Assured
Sum Insured chosen at the beginningINR 50 lakhs
Decrease in sum assured every year @ 5% p.a.INR 2.5 lakhs
Sum Assured in Year 2INR 50 lakhs - INR 2.5 lakhs = INR 47.5 lakhs
Sum Assured in Year 3INR 47.5 lakhs - INR 2.5 lakhs = INR 45 lakhs
Sum Assured in Year 4INR 45 lakhs - INR 2.5 lakhs = INR 42.5 lakhs
Thus, Sum Assured in Year 10INR 30 lakhs - INR 2.5 lakhs = INR 27.5 lakhs
Sum Assured after Year 10INR 25 lakhs
Death Benefit paid to the nominee IF the life insured dies in year 4INR 57.5 lakhs

4. Income Benefit Term Insurance Plan

These term plans are also called monthly income plans. Under these plans the sum assured is paid in instalments rather than in lump sum. So, in case of death, the sum insured is paid in monthly or annual instalments which create a source of income for the family after the breadwinner’s demise.
For example, say a term plan of INR 50 lakhs, pays the death benefit @10% of the sum assured every year for 10 years after the death of the insured. 

Life CoverageSum Assured
Sum Insured chosen at the beginningINR 50 lakhs
Death Benefit payout after the death of the life insuredINR 5 lakhs for 10 years = Total INR 50 lakhs

Thus, INR 5 lakhs would be paid to the family as death benefit.

5. Term with Return of Premium (TROP)

These term plans are those which have a maturity benefit. Under these plans the premiums paid during the policy tenure are refunded back if the insured survives till the term of the policy. In case of death of the insured, on the other hand, the sum assured is paid.

For example, say you buy a TROP with a sum assured of INR 50 lakhs and a premium of INR 20,000 payable every year for 25 years. 

Life CoverageSum Assured
Sum Insured chosen at the beginningINR 50 lakhs
Premium paymentINR 20,000 for 25 years
So, total premium paymentINR 20,000 * 25 years = INR 5 lakhs
If the Life Insured dies anytime between Year 1 and Year 25INR 50 lakhs is paid to the nominee as Death Benefit
If the Life Insured survives for 25 years, amount paid as Maturity BenefitINR 5 lakhs (total premium amount) to the policyholder

6. Joint Term Plan

Under a joint term plan, two or more lives are covered under a single policy. This policy can be taken by married couples or business partners. If any insured member dies during the term of the policy, the sum assured is paid and the policy is terminated.

For example, say you and your spouse invest in a joint term plan on your lives with a sum assured of INR 50 lakhs and a term of 25 years. Some term plans pay on first claim basis and some pay for both lives.

Life CoverageSum Assured
Sum Insured chosen at the beginningINR 50 lakhs
For Joint Term Plan is on first claim basis
If any one of the 2 life insured dies within the period of 25 yearsINR 50 lakhs is paid to the other and the policy terminates
For Joint Term Plan is on both claim basis
If any one of the 2 life insured dies within the period of 25 yearsINR 50 lakhs is paid to the other and the policy continues
If the second life insured also dies within the period of 25 years INR 50 lakhs is again paid to the nominee and the policy is terminated

However, there are many variants of a Joint Life Term Plan where income benefit could be paid to the surviving spouse, in-built riders could be added, etc.

7. Convertible Term Insurance Plans

Convertible term plans are those which can be changed to another type of policy after a specified duration. Convertible term plans usually allow you to convert them into endowment plans with a maturity benefit. This conversion option is allowed after the completion of specific coverage duration and if you choose the option, the policy is converted. If, however, you do not exercise the conversion option, the policy continues without changes.

For example, say a term plan allows you to convert it into an endowment plan after 10 policy years where the premiums are refunded on maturity. So, if you buy this plan you can choose to convert it into an endowment plan and get maturity benefits or you can choose to keep the plan intact and receive a death benefit on death during the term.

8. Group Term Insurance Plans

Group term insurance plans are available for a group of individuals. These groups can be employer-employee groups, banks and their account holders, clubs and their members, trade unions and labourers, etc. A single master policy is bought which covers all the group members. The policy is issued for one year after which it can be renewed. The premiums of the policy can be paid by the group, its members or jointly by both.

Benefits of Term Insurance

A term insurance policy is said to be the most important coverage which you should take. It should be an important part of your financial portfolio after which you can invest in other avenues for wealth creation. The reasons why term insurance plans are a must are as follows –

1. They provide financial security

The primary benefit of a term insurance policy is the financial security that the policy provides. The policy covers the risk of premature death and secures the family against possible financial repercussions which might incur if the breadwinner dies prematurely. So, if you invest in a term insurance plan, you can ensure financial security of your family members even in your absence or in case of an eventuality. 

2. They help in the fulfilment of your life goals

Term insurance plans have the lowest premium rate since they cover only the risk of premature death. These low rates help you opt for high sum assured levels which would be sufficient to take care of your financial goals. Thus, in your absence, the considerable coverage amount can give your family funds needed for your child’s future, their lifestyle needs, paying home loan, buying a home or even for retirement planning.

3. They provide an all-round protection

Gone are the days when term plans provided coverage only against death. Today’s term insurance plans have evolved and allow you different rider benefits to enhance your coverage. Some benefits are inbuilt while some are available at an additional cost. These riders help in providing an all-inclusive coverage so that your loved ones have financial assistance in emergencies other than death. For instance, you can opt for a personal accidental death to enhance the base term plan coverage.

4. They give tax benefits

Term insurance plans, like other life insurance policies, offer tax benefits on the premiums that you pay. Premiums paid are allowed as a deduction under Section 80C of the Income Tax Act, 1961 up to a maximum of INR 1.5 lakhs. The death benefit paid by the plan is completely tax-free. Moreover, if you opt for return of premium plans, the premium refunded on maturity would also be a tax-free income under Section 10 (10D) of the Income Tax Act, 1961.

What is Covered?

Term insurance plans primarily cover premature death. Whether you die in an accident or due to an illness within the policy tenure, the death would be covered under the policy and your nominee would receive a death benefit. 

What is Not Covered?

Term plans do not cover 

  1. Suicidal death of the life insured within 12 months of buying the policy or reinstating it. Only 80% of the total premium paid for the term plan would be refunded on suicidal death of the life insured within the 1st policy year
  2. However, suicidal deaths after the completion of 12 months from policy inception or revival date would be covered
  3. Death under intoxication or self-inflicted injury
  4. Death due to homicide or any other criminal activity
  5. Death due to illegal activities or as a result of war or terrorism
  6. Death due to pre-existing lifestyle habits like smoking or participation in hazardous or adventure sports, if not declared at the time of policy inception

Some term plans have additional exclusions like death due to childbirth and pregnancy, sexually transmitted diseases like HIV, etc. but it varies from company to company. You must read the exclusions well before purchasing the policy.

How to Compare Term Insurance Plans Online?

Since term insurance plans are quintessential for financial security, all life insurance companies offer one or more term insurance policy for your coverage needs. Amidst more than two dozen term plans you have to choose one policy which gives you the best benefits. How can you do so?

To find the best term plan, you should compare the available policies on different parameters. These parameters include the following –

1. Coverage offered 

The first thing which you should check is the coverage offered by the term insurance plan. Though term plans usually cover only premature death, modern day plans provide a holistic scope of coverage by adding riders into the scope of the coverage of the policy. Thus, you can find term plans with additional inbuilt benefits which cover accidental deaths, disablements, critical illnesses, etc. So, compare the plans on their coverage and choose a policy which provides the most comprehensive scope of cover against all possible contingencies.

2. Policy tenure

Term plans come to your aid in case of death during the policy tenure. So, when buying term plans, choosing the maximum possible coverage tenure is better as it allows longer coverage. So, check the maximum policy tenure offered by the policy. Some plans might also offer lifelong coverage which is better since you can enjoy coverage till 99 or 100 years of age and get complete financial security in case of premature death.

3. Premium rate

The premium of the term plans should be reasonable to the coverage that the plan offers. So, compare the premium of different policies vis-à-vis the coverage that they offer. The policy offering the widest coverage at the lowest cost would be the best term plan.

4. Claim Settlement Ratio of insurance company

Claim Settlement Ratio (CSR) of an insurer shows the percentage of claims settled by the company against the total claims made on it in a financial year. If the ratio is high it shows that the company settles maximum of its claims. Thus, when comparing term plans, you should compare the CSR of the insurers and choose a company which has a high CSR so that your claims would have a higher probability of being settled.

Term Insurance Premium Calculator

Term insurance premium calculator is an online calculator which helps you calculate the expected premium of a term insurance policy. 

To use the calculator, you should enter in the following details –

  • Coverage needed (The maximum coverage is limited based on your age and annual income)
  • Age and gender
  • Term of the policy
  • Premium payment term and frequency
  • Riders needed
  • Lifestyle habits like smoking
  • Country of Residence, whether India or not

Once the details are provided, the calculator would calculate and show the premium of different term insurance plans. You can compare the premiums and coverage and then choose the best policy.

Usually, the maximum coverage any one would get is approximately 20 to 25 times of the annual income. However, this may vary from insurer to insurer. The percentage also varies with age. As you get older, it reduces to even 10 to 15 times of the annual income.

If you are wondering how the premium is calculated, here are the factors which affect your term insurance premium calculation –

  1. Age – the older you are the higher would be the premium rate
  2. Sum assured chosen – the higher the sum assured, the higher would be the premium
  3. Term of the plan – the longer the tenure the lower the annual premium
  4. Premium payment term – the longer the premium payment term the lower the annual premium
  5. Premium payment frequency – premiums paid monthly or quarterly would be more expensive  than premiums paid annually and half-yearly
  6. Medical history – if you have adverse medical history, your premiums would be higher
  7. Smoking habits – if you smoke, your premiums would be higher
  8. Gender – females are charged lower premiums than males
  9. Occupation – if you work in a dangerous occupation which increases the chances of death, premiums would be higher

Term Insurance Claim Process

In case of death of the insured during the policy tenure, a claim is said to take place. In case of a claim, the following process should be followed –

  • The nominee should inform the insurance company of the claim
  • The claim form and other relevant documents should be submitted to the insurance company so that the claim can be processed
  • The company processes the claim and pays the sum assured to the nominee

Documents Needed for Term Insurance Claims

In case of term insurance claims, the following documents should be submitted for claim settlement-

  • Claim form, filled and signed by the nominee
  • Policy bond
  • The identity proof of the nominee
  • Death certificate of the insured
  • Police FIR or Medico-Legal Certificate if the insured died in an accident
  • Medical report, coroner’s report, panchnama, police inquest report, etc. in case of accidental death
  • Bank account details of the nominee

Reasons Why Claims Can Get Rejected

Though term insurance claims get settled, sometimes the claims can be rejected. Following are the reasons for such rejection –

  • The policy was lapsed due to non-payment of premium
  • The correct claim process is not followed
  • The relevant documents have not been submitted
  • The insured hid important information when buying the policy which affected the mortality risk or there was misrepresentation or non-disclosure of material fact
  • The claim is a fraudulent claim
  • The insured dies due to any of the mentioned reasons for exclusion, then the claim would be rejected.

Best Term Insurance Plans in India (2020)

Here is a list of top 5 term insurance plans in India which give the best coverage benefits at the most competitive premium rates –

Term Plan Name

Salient Features

CSR of the Insurer

HDFC Life Click 2 Protect Plus 3D

·   Comprehensive term plan with nine coverage options to choose from

·   Coverage for death, disability and disease

·   Whole life coverage is also available under the plan

99.07% for the financial year 2019-20
AEGON Life iTerm Plan

·   Coverage can be availed till 100 years of age

·   You can choose from three coverage options

·   Death benefit can be taken in lump sum or in monthly instalments

98.01% for the financial year 2019-20
ICICI Pru iProtect Smart

·   Coverage can be availed till 99 years of age

·   The premiums of the policy are low allowing you to easily afford the plan

·   Optional critical illness rider can be availed which covers 34 illnesses

98.58% for the financial year 2018-19
Max Life Smart Term Plan

·   You can avail the refund of premiums on maturity of the plan

·   The plan allows critical illness rider which covers 40 illnesses

·   There are seven death benefit options to choose from

99.22% for the financial year 2019-20
LIC’s Tech Term Plan

·   You can choose a level term plan or increasing term plan under the policy

·   The death benefit can be taken in instalments

·   You can pay the premium once, for a limited period of for the entire plan duration

97.79% for the financial year 2018-19

Term Insurance Tax Benefits

Term insurance plans allow you tax benefits both on the premiums paid as well as the benefits received from the policy. The applicable tax benefits of term insurance plans are as follows –

Tax Benefit SectionTax Benefit Allowed
Section 80CThe premium paid towards a term insurance policy is allowed as a deduction from taxable income U/S 80C up to INR 1.5 lakhs per annum
Section 10 (10D)

If the term plan pays any maturity benefit in the form of premium refunds, such a benefit is allowed as a tax-free income in the hands of the policyholder provided the premium is not more than 10% of the sum assured. 

Death Benefit paid to the nominee is also considered tax-free except in the case of a Keyman Plan.

Section 80DThe premium paid towards health benefit along with term coverage is allowed as a deduction U/S 80D up to INR 25,000 per annum

Term Insurance Riders

Term insurance plans allow riders with the base policy. Riders are optional coverage benefits which might also be inbuilt under many term plans. Riders are additional coverage clauses and they help in increasing the scope of the policy. If the rider is inbuilt in the plan’s coverage, no additional premium would be payable and you can avail the rider when you buy the plan. However, if the rider is allowed as an optional coverage benefit you would have to pay an additional premium and opt for the riders that you need.

A range of riders are offered with term insurance plans. Some of the most common and popular ones are as follows –

RiderMeaning
Accidental death and disablement riderThis rider covers accidental death or disablements suffered during the policy tenure and pays an additional benefit in such cases
Critical illness riderIt covers a range of critical illnesses and if the insured is diagnosed with any covered critical illness, a lump sum benefit is paid
Premium waiver riderThe rider waives future premiums if the policyholder dies but the insured is still alive. The plan, however, continues and premiums are paid by the insurance company on behalf of the policyholder.

This rider may also be beneficial if the life insured suffers any disability and is unable to pay future premiums
Disablement riderIt covers accidental disablements and waives the premiums if the insured suffers permanent disability during the tenure
Surgical benefit riderIt covers major surgeries and pays a lump sum benefit if the insured undergoes a major surgery during the tenure
Term riderIt pays an additional benefit in in case of death during the policy tenure
Family income benefit riderIt pays regular incomes to the family for a specific period after the insured dies during the policy tenure
Frequently Asked Questions
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