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Term Insurance

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Things you must know about Term Insurance Plans

Term Life keyword

One of our main life goals is to give our family the best of life without any interruption. You cannot predict your Life Term, but a term plan can secure your prediction of a good life for your family in your absence. Buying a term insurance policy can help you secure your family's financial future and help them payoff your debts in your absence.

LUMP SUM BENEFIT OPTION

The sum assured is paid out in one whole 'lump sum' to the nominee of the policy.

INCOME BENEFIT OPTION

A percentage of the assured sum is paid in monthly instalments from the first month of the death.

What is Term Insurance?

Term Insurance Plans are one of the simplest & the cheapest forms of Life Insurance cover. It provides a lump sum amount to the beneficiary if the insured dies during the policy term if any contingency/ eventuality happens. This plan helps you to secure his family's finances, by offering a higher cover at an affordable premium.

It helps your family lead a secured and financially independent life, in your absence. However, this policy does not offer any survival benefit if you outlive the policy term.

Why Term Insurance Plan is Necessary?

Life is too unpredictable and uncertainties can rip you off emotionally, financially and physically too. This is because no one has control over one’s death, neither, can anyone predict it. Death of the breadwinner of the family can cause disastrous turbulence in the family member’s life.

To find solutions for these problems, term insurance plays a vital role in your life. Moreover, term plans are an excellent way to build a financial safety net and are the most simplest and affordable type of term life insurance. It will help your family to settle your loans and pay-off certain requirements in your absence. The death benefits are paid to the beneficiary or the nominee only upon the insured’s death. Therefore, in simple words, the death benefits are zero if the insured dies after the policy is expired.

How Does a Term Insurance Plan Work?

The premiums that you pay annually towards your term insurance policy is purely decided on factors like

  • Current Health Status,
  • Your Age,
  • Required Sum Assured,
  • The duration of the policy period, etc.

Needless to say, that the premium remains unchanged throughout the term of your policy. And the good news is you don’t have to invest a huge amount for the premiums every year. Depending on your age and the sum assured the premiums would hardly work up to Rs. 10,000 p.a. approximately.

The moment you start paying your premiums regularly, the insurance companies also start deducting its expenses, the cost of the death benefit and the taxes on the premiums.

The cash value buildup for term insurance is zero. Therefore, the values of the pure insurance coverage or the death benefits also remain unchanged throughout the policy term.

If you pass away during the policy period, then the insurance company pays the death benefit to your nominee or the beneficiary as mentioned in the term policy.

However, if you outlive the term insurance policy beyond the policy period, the coverage becomes zero and neither you nor your nominee gets any benefit from the insurance company. You do have the option to renew your term insurance plan, but definitely at a higher premium due to increasing age.

Benefits of Buying Term Insurance Policy

  • Financial Security: Benefit to the nominee or beneficiary for a secure financial future

  • Low premium: An attractive premium rate for a higher sum assured

  • Smoker’s included: Even those with tobacco-chewing and smoking habits can opt for a term policy. No one will discriminate or judge in any way.

  • Tax Exemption: The premium paid is also exempted from taxation up to a maximum of Rs.1.50 lakh under Section 80C of the Income Tax Act, 1961.

  • Higher sum assured for lower premiums: The premiums charged are inexpensive and the sum assured offered is high.

  • Choice of term plan: The term policy can be bought as per your choice by comparing quotes, benefits and features of different insurers

  • Death Benefit: The beneficiary receives a lump sum amount on the demise of the policyholder in case death during the policy period.

Types of Term Insurance Policy

It is very important to analyze your needs before you finalize on a term insurance plan. This is because there are so many different types of term plans available in the market. You can get in touch with Coverfox.com for our unbiased advice and quick resolutions for your financial planning. Below are the different types of term insurance plans available:

Standard Life Term Insurance Plan

Standard Life Term Insurance plan is the most commonly found types of term plan made available in India. The life cover, as well as the premiums you pay annually does not change during the entire policy period. The most common terms available are 10, 15, 20 and 30 years. This is one of the most regular types of term insurance available in the market.

Decreasing Term Insurance Plan

Decreasing Term Insurance cover is being structured in such a way that the cover as well the premium keeps reducing as when the tenure of the policy decreases. Mostly, banks and financial institutions covering major risks against housing loan, mortgage or liabilities etc. opt for this type of term plan. During any uncertainty, the insurance companies ensure that the funds are paid back to the bank or financial institutions.

Increasing Term Insurance Plan

Increasing Term Insurance cover is equally opposite to the Decreasing Term Insurance. Here, with the increasing age, the life cover also tends to increase. This type of a term plan is usually dependent upon inflation and therefore has been structured keeping inflation in mind. You can lower your stress of remaining under-insured by purchasing this type of term plan. Your life cover increases at a predetermined rate in this plan.

Return of Premium Term Insurance Plan

Return of Premium Term Insurance is another type of term insurance wherein the insurer pays back all the premiums paid by you every year on the expiry of the insurance policy. But again, to reap this benefit, you need to survive too. For example, if you pay Rs. 7,000 p.a. for 25 years for a cover of Rs.50 lakhs, you would get an amount of Rs. 1,75,000 (exclusive of service tax) only if you survive the policy period. The premiums here are usually higher than the other types of term plans.

Lump sum benefit Term Insurance Plan

In the lump sum benefit term insurance, the full claim amount is paid to the beneficiary or the nominee at one shot. Once the payout is done, the policy closes immediately. This type of term insurance is considered as one of the simplest types amongst the others. Usually, all lump-sum benefit term insurance have a fixed sum assured benefit, whereas there are certain plans that may offer higher or lower death benefit at the time of death.

Income Benefit Term Insurance Plan

Income benefit plans are the ones where the insurance company promises to pay the beneficiary certain amount in lump sum and certain amount monthly for a fixed number of years. This plan assures the beneficiary or the nominee of the term plan for a regular flow of the income in the absence of the insured. Some insurance companies offer to increase the percentage of the monthly income.

How to Choose a Term Insurance Plan

Do keep in mind the below parameters while you gift yourself the best term insurance plan.

Bank loans or any outstanding liabilities

So you have already built up a big mountain of housing loan, car loan, business loan and a mortgaged property too. Little did you know how your beloved family would cope-up with these outstanding debts that you have left and gone forever? Therefore, before you narrow down on your search check online term insurance plans offered by different insurers and buy a policy that would pay off your debts once you are gone.

Income gap

Imagine you are the sole earner of your beloved family and some unforeseen situation arises. How would the income be replaced due to loss of regular income? How would this gap be met? Therefore, compare term insurance quotes online for different insurers to get a better idea of the sum assured. This will help you in maintaining the current lifestyle of your family members in your absence.

Coverage of funeral expenses

Keep in mind the expenses related to medical, funeral and the final rites that would be an additional expense to your family members. A term plan that will help your family pay for your funeral expenses would be an apt policy to opt for.

Don't forget the inflation

Always keep a track of inflation while you narrow down your search for a particular term plan. This is because, the amount you finalize right now will not always be sufficient. For example, the proceeds might take a couple of years in case you have young dependent children. Therefore, reviewing your coverage is extremely important. You can always compare term insurance quotes from different insurers before buying the right plan.

Key Features of Term Insurance Plans

Term insurance plans are structured in a specific way to protect your family from the financial crunches that may arise once you are gone. The below are some of the key features of a term insurance plan:

  • Policy Term: So, the good news is that you have the right to choose your policy term. For example, for a regular term plan, the minimum term is 5 years, while the maximum may vary up to 25 years. Whereas, the policy term would range from 5 to 15 years for policies with a single premium payment. It is advisable to opt for a longer term policy since the premium remains unchanged for the entire policy term.

  • Entry & Exit Age: The minimum entry age to qualify for a term plan is 18 years, while the maximum age (exit age) is 65 years. You can also opt for riders that may enhance your term plan. It is advisable to buy a term plan at an early age since the premium tends to increase with growing age.

  • Plan Choice: You have the full leverage to choose the plan you wish for. For example, if you are the only breadwinner of the family, then you opt for a single life basis term plan. However, if you wish to cover your spouse too, then you may opt for a joint life basis term plan. Most of the insurers offer a term plan on the first claim basis. Which means, the beneficiary would get the death benefit on the demise of either of the two insured.

  • Tax benefit: The Income Tax Act, 1961, helps you save tax if you opt for a life insurance plan. The premiums that you pay for your term insurance plan gets you. 1) A tax exemption under Section 80C, 80CC, 80CCE up to Rs. 1.5 lakh. 2) Under Section 80D, tax exemption for Self, Spouse and dependent children Up to Rs. 25,000; for parents (Additional) up to Rs. 25,000 and Senior Citizen Parents up to Rs. 30,000. 3) Under Section 10 (10D) for amounts received under term insurance

  • Death Benefit: During an uncertain event like death of the insured, the insurance company would pay a lump sum amount, a monthly payout or a combination of both to the beneficiary or the nominee as assigned during the commencement of the term plan. This amount is termed as the death benefit.

  • Additional Riders: Additional paid benefits like critical illness rider, hospital cash rider, waiver of premium rider, accidental death benefit rider, total and permanent disability benefit riders etc. can be bought by paying an extra amount. These riders are add-ons that may enhance your term plan. However, it is advisable to opt for riders after analyzing your requirement.

Term Plans Available in India

PlanEntry Age (Min/Max)Claim Settlement Ratio (2015-16)
Bajaj Allianz iSecure Online Term Insurance Plan18/60 years91.30%
Aegon Life iTerm Insurance Plan18/65 years95.31%
ICICI Pru iProtect Smart Term Insurance Plan18/65years96.20%
Canara HSBC eSmart Term Insurance Plan18/70 years92.99%
Kotak Preferred Term Insurance Plan18/65 years89.09%
LIC eTerm Plan18/65 years98.33%
PNB MetLife Mera Term Insurance Plan18/65 years85.36%
Max Life Super Term Insurance Plan18/60 years96.95%
SBI Life eShield Term Insurance Plan18/65 years93.39%

Term Insurance Plan Exclusions

Like any other insurance, term insurance has its limitations for specific circumstances. Mentioned here are some common exclusions that a term insurance would not cover.

  • Suicide: This is one of the common exclusions that most of the insurer’s would not cover. The dependents would not get any compensation if the insured commits suicide in the first year of the policy. But, suicide won’t be compensated at all in a group insurance policy.

  • Dangerous activities: Death due to race car driving, SCUBA diving, rock climbing, etc. are not covered under a term plan. In simple terms, if you were involved with these dangerous activities, then your beneficiary would not get any compensation during any uncertainties.

  • Act of war: Any death occurred due to acts of war or due to natural calamities like drought, floods, earthquake, etc. are not covered under a term plan.

  • Drugs abuse or alcoholism: Any death occurred due to consumption of alcohol or drugs is not covered under a term plan. The insurance company would not be liable for any compensation to the dependents.

Term Insurance Claim Process

In case of any uncertainties or unforeseen circumstances, the dependents as allocated by the policyholder during the policy commencement are required to file a claim. This process is simple as compared to other insurances.

Below is the claim process explained in brief:

  • Registering the claim with the insurer: The dependents of the policyholder need to intimate the insurance company about the claim. They can either visit the insurance company or contact as declared in the insurance policy document.

  • Submission of policy documents: Documents such as death certificate, original term insurance policy, proof of claim, history of medical documents etc. as per the insurance company’s requirement. The insurance company may ask for additional documents too, if need be.

  • Final decision: On successful submission of the documents and verification by the insurance company, the claim will either be selected or rejected.

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FAQs on Term Insurance

What is the right age to buy a Term plan?

  • There really is no right age for making an investment when it comes to Term Insurance. Like any other insurance plan, the earlier you opt for it, the better. If you do manage to buy the plan at an early age:
  • The premiums will be relatively lower. Now that's a win-win situation!
  • Your liabilities are at a low, hence you might not require to insure a big sum, which will eventually result in lesser premiums.
  • As health risks largely depend on the age, getting covered is easier and hassle-free. Who doesn't like that?

What are the things you need to know when you are investing in a Term Insurance plan?

  • You take a term insurance plan with the sole purpose of ensuring that your family members are adequately supported in case of your death. In such a sensitive case, you must always weigh your options on all possible parameters:
  • Coverage: Be sure that the coverage being offered will be sufficient for your family or the nominated person. Never ever compromise on it for the sake of a lower premium.
  • Claim Settlement Ratio: The insurer's claim settlement ratio and market reputation will ensure that your claims are honored when needed, so always keep that in mind.
  • Inflation: Keeping inflation in mind, always consider how sufficient the coverage amount will be in the future.
  • Add-on feature: Always supplement your term insurance plan with suitable riders for the most comprehensive coverage.

In an unfortunate event of your death, how can your nominee claim your Term plan?

  • If you have invested in a Term Plan, it is advisable to keep your nominee aware of the situation so that if and when the time comes, he/she can claim the policy for which you have been shelling premium every year. To make the claim, the following steps need to be taken:
  • Every insurance company has a pre-set procedure defined for making a claim. Hence, following your death (and yeah, even though it sounds scary!), your nominee has to intimate the insurance company of the same.
  • All necessary documents including Claim Form, Death Certificate, original policy documents, hospital and medical records and bank account details of the nominee, etc. are to be submitted to the insurance company for further processing.
  • Always prefer to communicate with the insurance company through written medium like an email to maintain a track of your conversation. You never know when it might come in handy (though we hope it doesn't).
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