Term Insurance

If you're wondering what term insurance is, we're here to help. In simple terms, term life insurance is an agreement between the policyholder (insured) and the insurance company in which in the event of the policyholder's untimely death, the insurance company pays a certain sum to the insured's family. The importance of term plans in long-term financial planning cannot be overstated. It is important to understand that term insurance is the purest form of life insurance that offers comprehensive financial protection to your family members. Your family will receive life insurance coverage or sum assured if you die within the policy period depending on the term insurance plan you buy. Discover what term insurance is and its benefits.

Benefits of Term Insurance Plan

You should thoroughly understand the meaning of term life insurance plans for your loved ones by checking the features and benefits of term life insurance plans now that you know what term life insurance is. Term insurance offers the following benefits:
1. Coverage for unforeseen events - As the sole breadwinner of your family, you can protect your loved ones from financial setbacks by understanding what term insurance is early on in life for a worry-free financial future. Under these term insurance plans, you can easily get a significant level of life insurance coverage for a relatively low premium.
2. Add-on riders are available - You can add riders to your term insurance plan once you know what it is and decide which one to buy. By paying additional premiums, you will be able to extend the benefits of your policy and get comprehensive coverage, which is one of the primary purposes of riders. 
3. Coverage for critical illnesses - Many people in their 20s and 30s assume they will never suffer from a critical illness like cancer or kidney failure, so they don't pay attention to what term life insurance means. Nevertheless, if this occurs, you may not only lose your health but also your hard-earned savings. A critical illness rider can increase coverage of a term insurance plan, although it includes a death benefit. In addition to providing additional benefits when attached to your term insurance policy, critical illness riders provide additional benefits i.e. if you are diagnosed with an illness that is covered by the rider, you will receive a lump sum payment to prevent your family from experiencing any financial setbacks during treatment.
4. Disability or death coverage in case of an accident - Accidents can happen anywhere and at any time. Medical expenses and lost income may require a significant amount of money, depending on the severity. Investing at the right time when you know what term insurance is can help you handle such situations with accidental death or disability riders.
5. Provide multiple payment options - Your family members may find it challenging to utilize a lump sum amount they receive under your term insurance policy as they may not be familiar with managing large amounts of money. However, you have the option of choosing from multiple payout options.
6. Benefits from taxation - The tax benefits of term insurance may be of concern to taxpayers. Tax benefits are available on premiums paid under Section 80C of the Income Tax Act, 1961 for term insurance plans. If you pay a premium of Rs.1.5 lakh, you can claim tax benefits. Additionally, you can also take advantage of additional tax benefits under Section 80D of the Income Tax Act, 1961 when you purchase critical illness insurance.

Features of Term Insurance 

There are multiple risks associated with life, such as disability, disease, accident, and death. It is these uninvited risks that cause a huge financial and emotional dent in one's life. To keep your family secures and protected, it is imperative to plan a financial arrangement for such exigencies in life. People usually mix insurance with investments and are always worried about returns on investments, which is a big mistake when it comes to life insurance. Term plans are the purest form of life insurance that will protect your family financially at a minimal cost. In the event of your untimely death, insurance and investments should not be combined as they will not provide your family with the complete financial support they require.

The most important features that make a term plan a must-buy life insurance product for you and your family are as follows.

1. Affordably priced - A term plan's greatest advantage is its affordability. A pure term plan offers life cover for a specified amount known as the sum assured and for a specified tenure known as the policy term. The life insurance company pays the death benefit to the nominee if the life insured dies during the policy term. If the life insured survives the policy term, no maturity benefit will be paid. Because the insurers have to pay only death claims, it is an affordable proposition. In the event of the untimely death of the bread earner, a term plan provides financial stability to the family. Compared to other life insurance products such as whole life plans, money-back plans, and unit-linked insurance plans, term plans have the lowest premiums. Term plans have a premium consisting of mortality charges and administration costs to issue the policy. As the first step in financial planning, a term plan protects your family against debts, and loans, and helps the family maintain a standard of living by providing financial protection.
2. It's easy to buy - Buying a term plan is comparatively easier than buying other types of life insurance products or financial instruments, just like buying clothes, shoes, and household items online. In a term plan, you don't need to worry about what returns the plan will offer, where the company will invest your money, etc. The framework is simple. The plan requires you to decide the appropriate sum assured amount according to your financial objectives, the standard of living, financial debts, etc. You can also calculate the right sum assured amount online.
Term insurance can be purchased in two ways:

(i)Offline: buying insurance through an intermediary like a broker or agent.
(ii)Online: Online purchasing is at your convenience with a few clicks and an internet connection. Online term plans are cheaper than offline plans with no physical paperwork hassles and fast processing. When an insurance company sells a plan online, it saves on intermediary commissions and other allied costs, so it passes the savings along to the customer. Online term plans are 5% to 20% cheaper than offline term plans.
3. Premium-return term plan - Since pure-term plans do not offer maturity value, some people hesitate to invest. Term plans with return of premium are a variant of term plans that offer maturity value equivalent to the return of all premiums paid if the insured survives the policy term. As TROPs offer both death and maturity benefits (whichever occurs first), they are slightly more expensive than pure vanilla term plans. The payout at maturity in case of TROPs may vary from company to company.
4. Rebates are offered - For nonsmokers and females, the insurance companies offer special discounted premium rates as a gesture of commemorating them as “standard lives” without adverse risks associated with them. For life insurance companies, a higher sum assured is rewarded with a rebate.

Types of Term Insurance Plans

1. Plans with level terms - In this form of term insurance, the death benefit is paid to the nominee on the death of the life insured, and the sum assured remains fixed throughout the policy term.
2. Return of Premium Plans (TROPs) - The total premium paid with these plans will be returned to the life insured if he or she survives the policy tenure, as opposed to level-term insurance.
3. Plans with increasing terms - During the policy tenure, the policyholder can increase the sum assured on an annual basis while maintaining the same premium amount. Because of this, these plans have higher premiums than level-term plans.
4. Plans with a decreasing term - These plans differ from increasing term plans in that the sum assured decreases every year to meet the decreasing insurance requirements of the life assured. These plans are useful for policyholders who have already taken out a home loan or personal loan or are paying an EMI (Equated Monthly Instalment). As EMIs are paid, the sum assured decreases at a chosen frequency. Additionally, it decreases the total loan amount.
5. Plans with convertible terms - At a future date, these plans can be converted into any other type of plan by the policyholder.  For instance, if you bought a term insurance plan for 20 years, but later decided you wanted to convert it into an endowment plan, a whole life insurance plan, etc., you can do so without any hassle.
6. Plans with riders for term insurance - By paying a small premium, you can purchase riders such as accidental death cover, critical illness coverage, etc. along with the normal term plan. If an individual opts for a rider and gets a premium waiver benefit, he/she will not need to pay any future premiums for the particular rider.

Why Should Anyone Buy Term Insurance?

It is unfortunate that diseases, disabilities, and death occur. By providing you with the necessary coverage, term insurance can help you save your family's financial future. Term insurance is recommended for the following individuals.
1. The parents - Raising children is always a burden for parents. Your goal as a parent is to secure your child's future, provide him/her with the best education, accumulate money for their wedding, etc. Even if you were to pass away, your child would be taken care of financially with a term plan.
2. A group of young people - Young professionals have fewer family responsibilities, but few are sole breadwinners and have liabilities such as vehicle loans, personal loans, etc. to pay off. In the event that the insured dies within the tenure of the policy, the family can repay the loans and liabilities of the insured. Additionally, term life insurance has a lower premium than other types of life insurance.
3. Couples who have just married - By purchasing term insurance, married couples can ensure their spouse's complete financial support in the event of an unfortunate event. In order to secure their future, young couples can benefit from this type of life insurance.
4. Women who work - The majority of young working women today provide financial support for their families. By creating a term plan, these women can ensure the future of their parents, spouses, and children.
5. The taxpayers - Tax benefits are also available with term insurance. In addition to the premiums paid, the death benefit paid to the nominee is also deductible under section 10(10D) of the Income Tax Act, 1961.
6. The retired - In retirement years, term insurance provides financial security to your spouse, allowing them to maintain their lifestyle without having to compromise.

Term Insurance Companies

Things To Consider While Buying Term Insurance

1. Calculate the amount of coverage - In order to determine the amount of coverage you need, you must assess and consider the following factors:

a. Age
b. Responsibilities regarding finances
c. The financial needs of your family in the future
d. Based on your lifestyle, your basic expenses
e. Your current loan portfolio
f. Taking inflation and rising costs into account
2. The period of the policy should be determined
a)Depending on your age - Based primarily on your age, you can determine your policy period. "The younger you are, the longer your policy period should be.
b)Depending on when you plan to retire  - When you have a retirement plan, then you can choose a policy period until you reach retirement age, which is usually 60-65 years for most people. In the event of the untimely death of an earning member, your family will be financially secure throughout your working years.
c) Based on your other financial obligations - Depending on your other financial commitments and when they are due, you can choose what policy period is right for you. If you have taken a house loan for 30 years, you should have a term life insurance policy for at least 30 years so that your family is protected from any financial burden if something unfortunate were to happen.
3. Choose a payout option that suits you - Depending on your payout option, your policy's premium amount will vary. A lump sum payout or a regular monthly income payout (if available) are both options.  As the premium also varies depending on the payout option you select, you should choose the payout option according to your requirements.
4. Make sure you choose the right insurer - As there are many insurance companies offering different types of plans in the market, choosing the right insurance partner is very important. Check some basic things before choosing your insurer. Verify their claim settlement ratio, solvency ratio, financial background, and market reputation.
a. The ratio of claim settlements - A claim settlement ratio, also known as a claims paid ratio, is the percentage of claims that are paid/settled by an insurance company. A high claim settlement ratio is an important factor to consider when selecting an insurance company.
b. The ratio of Solvency - An insurance company's solvency ratio reflects its ability to meet its long-term liabilities. As a measure of financial strength, choosing an insurer with a higher solvency ratio is recommended.
c. A brief financial history - Ensure that the insurer can handle its short- and long-term liabilities in the event of a crisis by checking its financial background.
d. Reputation in the market - Learn more about customer complaints and grievance ratios by researching the insurer's market reputation.

Who Should Buy A Term Insurance Plan?

Everybody should invest in a term insurance plan, but people with certain roles and responsibilities should invest in a term insurance plan. Term insurance is a good idea if: 

• Being a young professional in your 20s has its own advantages, such as no dependents and fewer financial obligations. If you plan ahead, you can get good coverage for a low premium.
• In your early 30s and 40s, if you have dependents and responsibilities such as non-earning spouses, children, and elderly parents.
• A person in their late 40s and 50s who wants to fund their children's higher education and plan their wedding has serious financial goals and milestones.
• When you are approaching retirement and want to make sure you retire debt-free, retirement plans are also on the radar. You also need a strong pool of financial resources when you are approaching retirement.