Term insurance is a type of insurance that provides life coverage for a fixed term (number of years). If the insured dies during the policy tenure, a lump sum payout equivalent to the sum assured will be paid to the nominee/beneficiary.
Let us understand with the help of an example:
Suppose a 35-year-old male has purchased a term plan of Rs. 50 lakhs with a policy term of 30 years. If the policyholder meets with an unfortunate event of death before the end of the policy term, the entire Rs i.e. 50 lakhs will be paid to his/her nominee.
Features of term insurance plan-
Here are some of the top features of term insurance plans that you need to know:
Term plans are one of the cheapest life insurance plans. As these policies do not come with an investment component, their premium is much lower than that of other insurance policies.
Flexibility in paying premiums
Term plans offer flexibility to policyholders in paying premiums towards their policy. You can choose to pay your policy premium either annually, semi-annually, quarterly, or monthly as per your budget and convenience.
Choose riders to make your plan more comprehensive
This is another distinguishing feature that is available with term plans. You can add riders that help you to enhance your plan coverage by paying an extra premium to the insurer.
Below given are the riders which are available within the term insurance plans:
Premiums paid towards a term insurance plan qualify for tax benefits under section 80C of the Income-tax Act, 1961. So, policyholders can claim a deduction up to Rs 1.5 lakh towards the premium paid for yourself, spouse, or children.
Term insurance plans also offer the policyholders with the survival benefits. Under such plans, the surviving policyholders will receive the premium amount paid over the policy tenure as one lump sum when the policy matures.
Term plans also have death benefits wherein a nominee/beneficiary stands to receive a certain amount in the event of the death of the policyholder. The amount will depend on the term plan irrespective of at what juncture of the policy tenure the policyholder’s death occurs.
What are the types of term insurance plans?
Level term insurance plans
It is the commonest form of a term insurance plan where the sum assured does not change during the policy tenure and benefits are paid to the nominee on the death of the policyholder.
Return of premium plans
Unlike level term plans, these plans have certain maturity benefits, wherein the premiums are returned to the policyholder if he/she survives till the policy matures.
Increasing term plans
In this plan, policyholders can opt for an increase in the sum assured each year by a specific percentage. The rate of increase is predetermined at the time of buying the policy proposal and may be simple or compounded depending on what the insurer has opted for.
Decreasing term plans
It is a renewable term life insurance in which coverage decreases over the life of the policy at a predetermined rate. Premiums are usually constant throughout the policy tenure, and reductions in coverage typically occur monthly or annually.
Convertible term plans
This is a plan offered by some of the insurers wherein a term insurance plan can be taken with an option to convert it into some other plan of your choice at a future date. For example – Suppose you have taken a term plan for 20 years but after 5 years you can convert this into a whole life insurance plan, endowment plan, or any other plan of your choice if you are willing to do so.
Term plans with riders
This is a unique plan wherein policyholders can buy riders such as critical illness cover, accidental death cover or disability cover, etc by paying a small additional premium to their insurer.
Why should you buy a term insurance plan?
Provides financial security- In the event of the unfortunate death of the insured, a term plan can help your family members/dependents to meet their financial liabilities in a hassle-free way.
Let you pay outstanding debt easily- Policyholders can also take loans against their assets such as a car or house. In your absence, your family might get burdened with the repayment of any liabilities/loans. In such situations, they can utilize the term insurance pay-out in paying those outstanding debts.
Offers critical illness protection for a lifetime- Term insurance plans do not only safeguard your family or dependents after the demise of the policyholder, but it also offers critical illness protection for a lifetime. So, if in your family someone comes across a critical illness such as heart attack or cancer, a term plan can help you cover for its treatment.
Eligibility criteria for term insurance
The eligibility criterion for a term insurance plan varies according to the insurers and the type of term plan chosen by the insured. However, the minimum age of entry to qualify for a term plan is 18 years and the maximum age limit is 65 years.
Documents required for term insurance
Bank statement or passbook with latest entries for 6 months
ID Proof: Aadhaar Card
It is necessary to evaluate your financial needs and take an adequate sum insured before purchasing a term plan. Knowing its basic features listed above will surely help you to make an informed decision.