What is Term Insurance?
Term Insurance is an insurance policy which provides a fixed coverage to the insured for a fixed period of time or the term of the policy at a fixed rate of payments. In the case of demise of the person during the term of the policy, the insurer pays a pre-decided amount of money, either in full or in installments to the nominee. Some insurance companies in India also provide coverage in case of full-disability or partial disability if it disrupts the policy holder’s regular income. If the policyholder survives the term of the policy, they will receive the entire premium paid during the entire term in one lump-sum under the TROP policy.
What is the need for a Term Insurance?
Term Insurance is not a financial instrument to generate wealth during the lifetime of the policyholder. In the case of demise of the policyholder during the term of the policy, the beneficiary nominee receives the coverage amount which is much larger than the amounts paid as premium towards the policy. Since the start of the policy to its end the policyholder pays a certain sum of money annually as premium, and in the case of death, partial disability or full disability resulting in loss of regular income, the insurer pays a certain coverage amount to the nominee either as a one-time payment or in lump sums. Availing a Term Insurance cover insures that the policyholder’s family do not face shortage of money even after they are gone. As such everyone who has dependents in their family such as parents, partner and children should definitely avail a term insurance policy. Term Insurance is a must especially for those who are the only earning hands in their family and have dependents who will face shortage of money in the case of their demise or job loss. The amount the family will receive from the policy in such a case then can be used for daily expenses, the education of the children or their marriage.
Features of a Term Insurance Policy
Key Features of Term Insurance Plan: The key features of a term insurance plan which one should look for before going for it are
Sum assured in the plan is the amount that is payable to your nominees after the policyholder demise, the money is given by the insurance company.
A person in the age bracket of 18 to 65 is eligible to buy a term insurance plan.
Age limit of the insurance:
Depending on your policy provider, it’s quite likely that one should get life insurance up to the ripe age of 85, as the average age of a man/women seems to hover around 85. The maximum age for which your policy will cover also depends on the type of plan you are looking for
The age at which a policy expires is known as maturity age. Generally, most of the policies have a maturity age of 75 years; however, a few may even go up to the age of 80 to 85 years.
The duration for which a policyholder has a cover is known as the tenure of the policy plan. For example, if a person having age 50 years want to opt for a term plan with a maturity age of 80 years, then, in this case, he will have a tenure of 30 years. The tenure period of a term plan may range from 10 years to 40 years. In order to gain maximum benefit, one must seek for maximum possible tenure that the company allows.
Claim Settlement Ratio:
If one take a term insurance plan, they must ensure that they are buying it from an insurer who is offering a higher claim settlement ratio. This ratio implies the percentage of claims that the insurer offers. Let us understand this with the help of an example- if the insurer honors 80 out of 100 claims in a year, CSR, the Claim Settlement Ratio comes out to be 80%. CSR is very important to consider before you go for any term insurance One must choose a company on the basis of its claim settlement ratio.
The insurer may ask you to undergo through health tests if you apply at a certain age or when you need a high insurance cover.
Example- If an applicant who is in his 50s applies for a term insurance, then he may have to go through a comprehensive health test which includes- Urine sample test, blood sample test, and HIV test and so on.
Benefits of a Term Insurance Policy
Benefits of a Term Insurance Policy
- It Fits into Your Budget
The premiums of a term insurance plan are not so high and this makes it affordable to the common people.
In the case of term policies, if the policyholder stops paying the premium, the risk cover comes to an end and hence, the policy ends. This means there is nothing payable. In the case- if one stops paying premiums in the mid-term, there is a financial loss as the invested amount cannot be recovered without certain deductions.
The Term insurance policy provides you flexibility in terms of the premium payments. Monthly, quarterly and even yearly plans are available for which you can opt the best suited for you.
- Options in terms of payouts
Pay-out options are available with term insurance to suit your family’s needs
Regular income – Best suited if your family will be dependent on this for monthly expenses.
Lump sum – Select to cover a large expense
Lump sum + Regular income – Select to pay small loans & provide regular income
Increasing income – Select if your family’s expenses are expected to increases in the near future.
- Provides Long Cover
A term insurance plan gives you longer cover as it can cover you till the age of 80.
- Covers Terminal Illness
It pays life cover even on terminal illness
Terminal illnesses are life-threatening and can also ruin you financially. In such a case term insurance are the best which covers all your medical expenses paying your life insurance money before death.
- Covers Accidental Death
overs Accidental Death Term insurance plans cover even accidental death.
- Tax Benefits
Term life insurance plans can help you save taxes too. The premium that you pay for your term insurance policy can be claimed as a deduction under Section 80C up to INR. 1.5 Lakhs per year till you are paying the premiums.