What All Should You Know About Term Insurance?

All About Term Insurance Plan in India - BimaBandhu

Life is short and uncertain. It is difficult to predict what can happen at any moment in our lives. But when we have dependents to provide for, these uncertainties become the reason for our worries. We all think and fear about what will happen when we are not around our loved ones. It is where term insurance comes into the picture. As a type of life insurance plan, a term insurance plan helps you prepare for the tough, unpredictable times. Many people know term insurance in India is a cost-effective way to mitigate the risk associated with our lives.

In this blog, we will cover various facets of term insurance to help you buy a suitable plan.

What is Term Insurance?

Term insurance is one of the types of life insurance that provides financial safety to the insured. A pure term insurance plan provides a death benefit to the chosen beneficiary in case of the unfortunate demise of the policyholder. This benefit is payable as per the terms defined in the term insurance policy contract.

People buy term insurance to provide financial protection to their loved ones against the uncertain truths of life. You can buy a term plan with an adequate sum assured which will provide financial benefits to your family in case of your unfortunate demise.

Consider this example to better understand how a term insurance policy functions –

A 25-year-old healthy, non-smoking male individual buys term insurance with a sum assured of Rs. 1 crore for his family members. He chooses a policy period of 35 years and pays the calculated premium timely to keep the policy active. In case of any untoward incident leading to the loss of his life during the term insurance policy period, the nominee will receive Rs. 1 crore as the death benefit.

Next to this basic understanding of term insurance, you might be wondering about the need for a term insurance policy in everyone’s life. Let’s cover that aspect.

Why Should Everyone Buy Term Insurance?

With the pace of life rising every year and occurrence of uncertainties like COVID-19, every individual needs protection in the form of term insurance. A suitable term insurance plan primarily helps families deal with the financial impact of losing the breadwinner. They can use the insurance payout in maintaining their lifestyle or to fulfill their life goals.

Also Read: Need for Life Insurance

No matter how much you earn, there are many reasons you should buy a term insurance plan.

  1. To Protect Your Family’s Future

If you are an earning member in your family, you must be handling various financial responsibilities of all your loved ones. With a term insurance plan by your side, you can secure the future of your family financially so that they will not face problems when you are not around.

  1. To Help Them Deal with Financial Liabilities

You might have created financial assets like a home or vehicles using loans borrowed from banks or NBFCs. Buying term insurance also implies the financial stress of these loans will not pass on to your loved ones after you. They can easily repay such loans if any using the term insurance benefits.

  1. To Ensure an Income Source

The untimely demise of an earning individual often turns the lives of the family upside down. The financial benefits of term insurance will replace the income of your family in such a situation, making it easier for them to make ends meet.

  1. To Deal with Uncertain Times Like COVID-19

A severe uncertainty like the Coronavirus pandemic can impact our lives in ways unimaginable. A crucial benefit of buying term insurance is that the death resulting from COVID-19 disease is also covered under most of the term life insurance plans. You can stay prepared for such eventualities with the help of a term insurance policy.

Also Read: All About 1 Crore Term Insurance Plan

Is Term Insurance Purchase Useful for All?

Whether it is death, diseases, or disabilities, you cannot overcome these realities completely. A term insurance plan is a financial tool that can protect you and your family from possible hardships brought forward because of these realities.

In simple words, all those who handle the financial responsibilities of a family must buy term insurance. They can be:

  • Young, unmarried individuals
  • Married individuals
  • People with kids

Recommended Read: What is Sum Assured in Term Insurance?

What are the Benefits of Buying Term Insurance?

  1. Substantial Life Cover at Affordable Premium

Term insurance policies are known for providing significant life insurance coverage at a price that individuals can easily afford. The earlier you plan to buy a term insurance policy, the lower the premium amount you need to pay for a particular sum assured.

  1. Financial Protection for a Long Term

You can get term insurance coverage for your life for a long term till the age of 85 or more. The exact upper age limit to enjoy financial protection under a term insurance plan may vary from one policy to another.

  1. Additional Coverage for Critical Illness and Disability

Term insurance plans also offer additional benefits for critical illnesses and disabilities (permanent or temporary). These benefits are mostly available on paying an additional premium above the cost of base term insurance policy.

  1. Multiple Term Insurance Payout Options

While buying a term insurance policy, you can choose to receive the death benefit either as lumpsum or monthly income. You can select any of these options as per the needs of your family.

  1. Multiple Premium Payment Options

Another crucial benefit of term insurance purchase is the flexibility to pay the premium throughout the policy period or for a limited tenure that is less than the policy period.

  1. Tax Savings

With term insurance, you can also enjoy tax savings as per prevailing tax laws. These tax benefits are defined under various Sections of the Income Tax Act (Section 80C and Section 10(10D)).

How Does a Term Insurance Plan Work?

The following three pointers will help you understand the working of a term insurance policy:

  • The death benefit defined under the term insurance plan is payable to the insured’s family in case of his demise.
  • One can choose to receive the term insurance benefits either as regular monthly income or lumpsum.
  • One can further strengthen a term plan by adding term insurance riders to the base policy.

Also Read: How Does a Term Insurance Calculator Work?

Why Is It Essential to Buy Term Insurance During COVID-19 Pandemic?

Unexpectedly, many people have lost their lives during this pandemic, which has made it difficult for the family behind to make ends meet. Since the pandemic is not over yet, it is crucial for you to buy term insurance to plan for the financial wellbeing of your family.

In case you contract the virus and anything unexpected happens to you, your family will get the term insurance benefits on filing a claim for the same.

Read More: How to Compare Term Insurance Plans?

What are the Features of a Term Insurance Plan?

One reason behind the popularity of term insurance amongst the masses in India is that its features are quite easy to understand. Given below are some of the advantageous features of term insurance you should know about before buying a plan:

  1. Long Plan Tenure

You can select a term insurance plan for a long tenure to get extended life insurance protection. The maximum period of a plan depends on the insurance company you choose for such needs.

  1. Minimum Entry Age

An individual can easily buy a term insurance plan after crossing the age of 18 years. For most term plans, the minimum age at entry is 18 years. You can ask your insurer about it for further details.

  1. Death Benefit as Lumpsum or Regular Income

The new-age term insurance plans give you the flexibility to choose the death payout as a lumpsum or regular income in the event of your untimely demise.

  1. Return of Premium on Survival

You can buy term insurance policies that offer a return of premium benefit. Under these plans, you will receive all the premiums paid back on surviving the selected policy period.

  1. Disability Benefit Rider

Any disability, temporary or permanent, resulting from an accident or severe illness can impact the earning capability of an individual. To get additional benefits in such situations, you can add a disability benefit rider to your term insurance plan.

What are the Types of Term Insurance Policies in India?

Renowned life insurance companies in India offer several types of term insurance plans, each of which has distinct features and benefits. Given below are five types of term insurance policies you can buy as per your suitability and needs:

  1. Pure Term Insurance Plan

This is the simplest type of term insurance that provides life cover to the insured in the form of a lumpsum amount. There is no maturity or survival benefit associated with these policies.

  1. Term Insurance with Return of Premium

Also known as TROP, term insurance plans with return of premium are different from the pure term plans as they provide a survival benefit to the life insured. If you survive the chosen policy period, all the premiums you have paid will be returned on maturity as per the policy terms.

  1. Term Insurance with Monthly Income

This type of term insurance plans provides you the flexibility to choose a monthly income payout for your family besides the lumpsum death benefit. To ensure a stable income for your loved ones in your absence, you can select either monthly income or monthly income with lumpsum payout, depending on the plan terms.

  1. Term Insurance Plans with Increasing Monthly Income

These term insurance policies are designed by keeping in mind the impact of inflation on the insured’s family income. They provide death benefits in the form of growing monthly income to the nominee along with a lumpsum benefit. The plan-specific terms may vary from one insurer to another.

  1. Group Term Insurance Plans

These plans are meant for employers who want to provide financial protection to the families of all their employees under a common term plan. It is a budget-friendly way to ensure long-term financial security for employees working in an organization.

Types of Term Insurance Benefit
Pure Term Plan Death benefit to the nominee in the form of a lumpsum
Term Insurance with Return of Premium Return of premiums paid during the policy period as a survival benefit
Term Insurance with Monthly Income Regular income for family of the insured along with death payout
Term Plan with Growing Monthly Income Increasing monthly income for the family with lumpsum death benefit
Group Term Insurance Life insurance coverage for a group of people under one policy

What are Term Insurance Riders?

These are attachments or amendments for term insurance plans that further strengthen their benefits for the policy buyer. Term insurance riders provide additional coverage apart from the offerings of base term insurance plan. As a policy buyer, you should know that selecting any rider with your term plan is not mandatory but optional. It is up to you to decide if you would want to add riders to your term insurance plan based on your needs.

The availability of term insurance riders mainly depends on the insurer. In general, there are three term insurance riders that you can select with most of the plans:

Term Insurance Rider Benefits
Critical Illness Rider Lumpsum or periodic payout when the insured is diagnosed with a listed critical illness
Waiver of Premium Rider Waiver of future term insurance premiums payable in case of death, dismemberment, or critical illness
Accidental Benefit Rider Additional life cover in case of an unfortunate accident that leads to dismemberment or death of the insured

What are the Steps to Buy Term Insurance?

The process or steps to buy term insurance in India differ in terms of the mode you choose – offline or online. If you want to buy term insurance offline, you can visit the nearest branch office of a renowned life insurance company in your city and ask for the available plans.

On the other hand, buying term insurance online is quite easier and convenient. You can search for the best term insurance plans on the online portals of the insurance companies or those belonging to insurance aggregators. You can use an online term insurance premium calculator to get an estimate of the premium payable for a suitable plan.

Here are the few common steps followed to buy term insurance policies online:

  1. Select a Sum Assured

Firstly, you must analyse your financial needs and that of your family to zero in on an adequate sum assured.

  1. Enter Personal Details

Enter basic information as asked in the form of a term insurance premium calculator. This includes your age, income, contact details, smoking habits, and lifestyle.

  1. Choose Term Insurance Benefits

At this step, you need to select additional term insurance benefits like critical illness coverage, return of premium cover, monthly income payout etc. if needed.

  1. Pay Term Insurance Premium Online

Once you are done with the selection of term insurance benefits, you can simply move on to pay the premium online.

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