Term insurance is a type of life insurance plan that provides pure protection and covers the risk of untimely death of the policyholder during the policy tenure. A term plan is one of the most affordable ways to insure your family’s financial future. With this form of life insurance, you get the highest life insurance coverage by paying the lowest premium amount. Not only it will make your family financially independent in your absence, but it will also help them fulfill their future financial liabilities such as your child’s higher education, etc.
Why are Term Insurance plans known as the most affordable form of Life Insurance?
- They are pure protection plans with no investment factor.
- The insurance provider pays the benefit to the nominee only in case of the policyholder’s death during the policy term.
- By purchasing term insurance online, you get to save a good amount of money on administration & other related charges.
- You only have to pay a sum of 2-3% of your annual income to get a cover 20 times your annual income
How a Term Plan Will Secure the Future of Your Family?
Like every other doting father/mother/guardian of a family, you will definitely want your loved ones to get all the good things in life. You will want your children to study in the best institutions and your spouse to get all the pleasures and privileges s/he deserves. Have you ever wondered what will happen to your family when you won’t be around?
God forbid if anything happens to you, the last thing you would want is your family to face a financial crunch. Therefore, buying the best term insurance plan is considered as the preferred and the most affordable ways to secure the future of your family.
A term insurance plan allows the nominee or the beneficiary to receive a fixed sum assured in case of covered eventualities. For example, if you opt for a term plan with a cover of Rs. 1 Crore for the tenure of 30 years and you pass away during the policy tenure, the insurer will provide your nominee/family/dependents the pre-decided sum assured as the death benefit.
Your family can use the payout to meet the day-to-day expenses and fulfill other financial liabilities (if any). It can also be used to pay off your loans (if any) or to pay for the education of your children.
Features of a Term Insurance Policy
The basic concept behind buying the best term insurance plan is to provide coverage to your family in times of stress, especially when you (the income generator) are absent. Its primary purpose is to keep your family stable & happy and ensure that they meet their regular and unexpected expenses without much trouble.
Enlisted are few key features of the best term insurance plans that make them stand out:
Generally, a term insurance plan offers a policy term from 5 to 25 years. Further, whole life plans are also available. This flexibility lets you choose a tenure which would be best-suited for you. Along with that, also keep in mind the financial needs of your family while finalizing the term of your plan.
It is considered to be one of the most important features of a term plan. This is because, as an individual, you would like to be covered for most of your life, typically until the age of 75 years and term insurance provides you with just that. However, it isn’t technically a maturity age as you do not get anything back unless it is a TROP plan.
Renewability is one of the most unique features of term insurance plans. With this feature, whether you opt for a 20-year or 50-year policy at inception, you get to renew your plan at any point of time. Due to this, you get to enjoy the benefits of your plan at the same price and premium. Hence, it as a good deal in the long run.
This is a benefit provided to your nominee in case of your unfortunate death. Since there are various types of term insurance plans available, this benefit can be availed in several ways. It may be a lump sum amount, a partial lump sum amount combined with a fixed amount payment at a monthly, quarterly, half-yearly or annually basis. Or else, you can also extend the annuities over several years.
Technically, term insurance plans don’t offer survival or maturity benefits. However, you can opt for their advance version, Term Return of Premium (TROP), if you’re looking for maturity/survival benefits.
Types of Term Insurance
Before you write a cheque and sign the dotted line to finalize your deal with a term insurance provider, it’s important to understand the different types of term insurance plans available in the market. It will help you buy the one that will meet your set of requirements and will give you the best deal in return of your money.
Enlisted below are the various types of term insurance plans available:
Standard Term Insurance
It is undoubtedly the simplest and most uncomplicated form of term insurance. The premium amount, as well as the sum assured, are decided at the time of purchasing the policy and can’t be changed later on. In case the policyholder dies during the policy period, the life cover amount will be given to the nominee by the insurer. This form of term insurance only has death benefit to offer and doesn’t have maturity or survival benefit. It means that if the policyholder outlives her/his policy period, there will be no pay-outs.
Illustration of a Standard Term Insurance Plan:
Given below are 2 sample premium rates for both the genders (male & female) who have bought standard term insurance policies. Let’s assume, both of them are of 30-years and are non-smokers. They have chosen a sum assured of Rs.50 lakhs and the maturity age chosen by them is 65 years.
The premium amount and sum assured remain the same throughout the tenure of the policy. The death payout is given to the nominee as chosen by the policyholder at the time of policy inception.
|Age||Gender||Term (Tenure)||Sum Assured||Annual Premium|
|30-year||Female||35 years||Rs 50 lakh||Rs 3900 – Rs 6000|
|30-year||Male||35 years||Rs. 50 lakh||Rs 4500 – Rs 6700|
Term Return of Premium (TROP)
In this type of term insurance, if the policyholder outlives her/his policy tenure, the insurer will pay back the entire premium amount paid by you. If you buy a plan where you have to pay Rs. 7,000 annually for 25 years for a term life cover of Rs. 50,00,000, and if you survive the plan term, the insurer will return approximately Rs.1,75,000 (exclusive of applicable taxes).This is why TROP plans are more expensive than standard term life insurance plans.
Increasing Term Insurance Plan
This policy is very much like the standard term policy if we consider premium payment & policy period. The only difference is, under this plan, the life cover also increases with the age of the policyholder. Increasing term plan has been structured to match the inflation rate; it increases the original life cover by 1.5 to 2 times over its term period. The life cover increases at a pre-decided rate. Mostly, the sum assured increases annually and the increment can be anywhere between 5% and 10% of the base coverage.
The coverage amount keeps on increasing in the subsequent on every annual anniversary of the policy. Depending upon insurer to insurer, there could be an increase of 5% – 10% on the basic sum assured amount.
Illustration of Increasing Term Insurance Plan:
Given below are 2 sample premium rates for a male subscriber who has bought increasing term insurance policy. Let’s assume, his age is of 30-years and he is a non-smoker and the sum assured chosen by him is of Rs.1 crore.
On every policy anniversary, the coverage amount will increase by 5%, subject to the maximum increment offered by the insurance provider.
|Age||Gender||Term (Tenure)||Sum Assured||Payouts|
|30 year||Male||35 years||Rs 1 crore||After the death of the policyholder, the nominee will be paid the Effective Sum Assured by the insurer|
Life Stage Event Term Insurance Plan
It will also have a significant effect on your premium amount.
|Event||Increasing sum assured as %age of original sum assured|
|1st Child Birth||25%|
|2nd Child Birth||25%|
Similar to other term insurance plans, in case of death of the life insured in mid of the policy tenure, the insurance provider will pay the effective sum assured to his beneficiary based on the payout opted by the insurance holder at the time of buying the term policy.
Convertible Term Plan
With this term plan, you get the option to convert your existing term insurance into an endowment plan or a whole life insurance. You can switch the plan at a later stage in your life. Please remember that the charges may be applicable at the time of the switch.
Joint Life Term Plan
A joint life term plan is designed to cover both husband and wife in a single policy. In this plan, both will pay a combined premium. If any of the husband or wife dies unexpectedly, the insurer will give the sum assured to the surviving partner as s/he will be the rightful nominee.
How does a Joint Term Policy work?
In Joint term plans, the policyholder has to pay a combined premium both of the married partners as they both are covered under the same joint term policy. The term period is fixed at the time of buying a policy. And, if any of the partners in the married couple dies in mid of the policy tenure unexpectedly during the policy period, being the nominee, the surviving partner gets the life cover amount.
Illustration of a Joint Term Insurance Plan
A married couple buys a joint term policy with a cover amount of Rs.1 crore for each where the chosen policy term is of 30 years.
Let’s suppose the age of the wife is 28 years and the husband’s age is of 30 years. If in an unexpected turn of events, the husband dies in the 6th year from the policy’s subscription date (while the policy is active), his wife will receive the cover amount of Rs.1 crore as a lump sum. Eventually, the term policy will be terminated by the insurance provider, once it has paid the sum assured to the surviving partner.
Single life or Joint Life Term Plan
|Points of Difference||Joint Term Plan||Individual Term Policy|
|Who is covered?||Both the partners||Only one partner|
|Life Coverage||Same cover amount for both of the partners; or, 50% for the secondary member (spouse)||Um assured varies for each of the partners depending upon their individual income and financial needs|
|What would happen if one of the partners dies?||Sum assured is paid to the surviving partner and depending upon the chosen scheme, either the plan continues or is discontinued, and the surviving member may need to buy a new term policy.||Sum assured is paid in case of death of the life assured and the policy terminates thereafter. The surviving spouse sill continues with her/his term policy.|
|What would happen if both of the partners die?||Full payout of cover amount to the nominee||Double payout from both of the partner’s term insurance to the nominee|
|Suitability||Suitable for couple leading same lifestyle and preferences as smoker or not, the final premium amount would be higher for both of the partners.||Suitability depends upon the individual’s preferences.|
|Who should buy?||If one of the partners don’t have any source of income||If both of the members are earning and making contribution to the family’s income.|
Group Term Insurance
Group term insurance plans are coverage plans provided by the employers for their employees who are working full-time in their companies, organisations, businesses, or any other large group of people associated together.
Group term insurance plans provide life cover to all the group members of a particular organisation. Group term policy works same as an individual term policy, except these plans are designed & priced for a group rather than an individual and the premium amount keeps on changing every year.
Under Group term insurance plans, the moment an individual leaves the company/organisation/group he is working with, he will not be a part of the group term policy anymore.
How Much Term Insurance Do I Need?
It’s always a traumatic experience for the family members if there is an unfortunate demise in the family. However, the situation is much worse if the breadwinner in a family dies as it leads to financial instability in the family, besides the emotional trauma. There might be other family members who are not equipped enough for getting a job easily.
Therefore, it becomes more important to purchase term insurance plans and especially for the breadwinner. There are a number of factors that determine how much coverage one needs against her/his term policy. Few of them are:
Sole earner in a family
If an individual is the only earning member in the family and her/his family is dependent upon his/her income; it becomes like a responsibility for him/her to get a term policy as it would help her/his family members to fight off financial trauma in case of any unfortunate eventuality.
Starting a family
If an individual is planning to start a family, they need to buy a term insurance plan whether it’s an online term plan or an offline one. It’s to ensure that if anything goes wrong, the future of the insured’s family is not jeopardized in any way.
In such scenarios too, where both of the partners are working they should secure their life as in case if anything happens to one of them, the other member would not have to face any financial problem due to loss of other member’s income.
Starting a new business
If an individual is taking a chance of starting a new business, there is a possibility that most of her/his savings will be gone into it which gradually means that might be her/his family members won’t have any other source of income left with them.
Furthermore, if something unfortunate happens, there must be a channel in place that can help her/his family to overcome the situation. Getting an online term insurance or an offline one will help the particular individual’s family to at least overcome the financial loss in such cases.
Secure the future of children
With the growth of children, the cost and fees associated with their education and lifestyle needs also increase. Getting a term policy will help the guardian of the family to ensure her/his kids’ future, even if something happens to her/him. Getting a term policy will help the children to focus on their career rather than making them bear responsibilities at a young age and that too, at the stake of their career.
The Pendency of Loan
A responsible individual must have an idea of how much loan amount s/he has to take including her/his credit card payments, housing loan, car loan and others.
Most of the assets that people purchase these days are mostly on credit or EMIs.
In case of any unfortunate eventualities, besides dealing with the emotional pain the family would also have to deal with this additional responsibility. However, if the particular individual has already planned ahead and has bought a term insurance plan, the burden of loan will not go to family member and all will be paid off.
Every family has a particular standard of living to follow or maintain in the society. It would be certainly not easy for the family members to cope-up with the breadwinner’s loss as well as failing to maintain their lifestyle. Therefore, the amount chosen for the term policy should be sufficient to help the family to maintain their lifestyle which they were leading when the policyholder was alive.
More or less, the aforementioned factors will help an individual determine how much coverage s/he would need to ensure a financially stable life for her/his family.
Term Insurance Premium Calculator
Premium calculator for term insurance plans is designed to enable the policyholders to check and confirm how much premium they would need to pay for the sum assured which is desired. This will help in determining the exact amount of the premium so that the policyholder can decide by himself/herself whether he/she would be able to pay the regular premium or not.
One of the major benefits of online term insurance premium calculator is that if the policyholder finds the amount of premium to be higher for the requisite sum assured, he/she can reduce the coverage amount to get the desired premium. As a matter of fact, if the premium is not paid on regular basis and on time, it would not give the desired benefits and all the money invested till date could be wasted. But in a term policy, the premium amount comes secondary to the sum assured (which is the actual amount a family would get in case something happens to the insured).
Why Should You Buy a Term Insurance Plan?
Life is never predictable and eventualities can rip you off physically, emotionally, and financially too. No one has control over death neither can anyone predict it. For a family, the death of the bread-earner can cause emotional as well as financial setback.
Tem insurance plays a vital role in finding solutions for these setbacks. Due to their low premium, term plans are the most affordable way to build a financial safety net for your family. It will help your family take care of regular and unexpected expenses, such as children’s fees, unpaid loans, etc. when you aren’t around.
Your family members will receive a lump sum amount (death benefit) upon the death. Here, it’s important to understand that the death benefits will be zero if the policyholder dies after the policy expires.
11 Factors that Affect Premium Charges for Your Term Plan
Before you start looking for the best term insurance plan, it would do you good to get familiar with different factors that influence its premium rates. This will help you get a better idea of how insurance companies compute premium for term plans and what factors they look into before issuing a policy.
The below-enlisted factors may affect the premium rates of a term plan.
Age:It is one of the initial factors that is taken into consideration while deciding the premium rates for an applicant. A young individual is considered as a low-risk entity. It’s because his/her health is at its peak and the chances of him/her contracting or developing any life-threatening diseases are lower.
Additionally, a young individual will pay more premium installments as compared to the old aged people. Hence, the premium rates for them are low.
Gender: As per recent studies, it has been found that on an average, women live five years longer as compared to men. Due to this reason, women usually have to pay less premium amount as compared to men.
Current Health Condition: Before an insurance provider underwrites the policy, the applicant has to undergo a preliminary medical screening. It is done to check the eligibility of an applicant for the policy. The applicant’s cholesterol level, blood pressure, blood sugar level, etc are checked as a part of the preliminary medical screening.
It helps the insurer to compute insurance premium for the applicant on the basis of his/her current health status. Hence, the fitter you are, the less premium you need to pay.
Medical History of the Family: The medical history of your family plays a crucial role in determining the premium amount. In case anyone from your elder generation has suffered from serious illnesses such as stroke, heart attack, cancer, etc., it exposes you to the risk of developing/ contracting the same illness. As a result, the premium for your plan may go higher.
Health History: Insurance providers take your health status into consideration while determining your premium rates. Therefore, if you are healthy & fit and don’t have any medical history of chronic diseases or any other health issues, the premium rates for you will be low and vice-versa.
Smoking and Drinking Habits: Your smoking and drinking habits also contribute to the final premium amount you would have to pay for a particular term plan. This is because these factors expose an applicant to the risk of contracting/ developing life-threatening diseases. Every life Insurance provider checks with the applicant about such habits. An individual who is a chain smoker or a heavy drinker will have to pay a premium 2-3 times higher than a teetotaler does.
Participation in Adventure Sports: If you are an adventure junkie who loves the adrenaline rush triggered by participation in adventure sports such as skydiving, car racing, mountain climbing, sea diving, hot air ballooning, etc., the premium charges for you is going to be on higher side.
Profession: In case your profession exposes you to life-threatening risks, it affects your term insurance premium. Individuals working in industries such as mining, shipping, aviation, oil, and gas, etc., are highly exposed to the risk of accidental death. Due to this, the premium is bound to be much higher as compared to the individuals having desk jobs.
Premium Payment Mode: You can choose to pay your premium on the annual, half-yearly, quarterly or monthly basis. However, it’s important to note that the insurance providers charge a higher premium from the policyholder paying a premium on the monthly or quarterly basis.
This is because frequently made payments attract various costs such as administration cost, collection cost, and processing cost for the companies. Whereas, the premium paid on an annual basis helps the insurer to saves such costs.
Policy Tenure &Payment Mode: The policy tenure also plays a vital role in determining the premium amount. The policy with a longer duration is more expensive as compared to the policies with shorter duration. The longer tenure you opt for, the higher the death benefit your nominee would get. Therefore, long-term plans attract a higher the premium.
Policy-buying Mode: Buying a policy through online mode always costs less than the offline mode. It is because buying a term plan offline increases the company’s service & administration costs such as the agent’s commission, distribution channel cost, etc.
Buying a plan online saves the insurer from these extra costs and hence, the applicant has to pay low premiums.
Term Insurance Claim Process
The main purpose of buying a term policy is that in case of any mishappening the family members do not have to suffer on the financial part. For this, the buyer should have term insurance plans from a company which has the claim settlement ratio on a higher side. So that the family members do not have to face any difficulty for getting their claim settled when the life assured is not there.
It is always advised that the nominee should know what amount will be taken as sum assured and other details of the policy. If this information is there with the family members, they can go ahead with the easier claim process.
There is a certain procedure which the claimant needs to follow for claiming the sum assured. But to get the claim it is essential to find that whether the policy is in force or not. If the policy is in force, the claimant needs to follow these steps such as –
Intimation to the company –For starting the procedure the company needs to be informed about the death of the life insured. The details that are required for intimation are a name of the life insured, the number of policy, a reason of death with date, place where the death has occurred, the name of the nominee under the policy, etc.
The intimation form of the claim could be obtained from the website which needs to be filled by the claimant. Many of the best term insurance plans nowadays are also having an online claim form for the intimation purpose.
Requirement of documents – There are different documents that need to be given by the nominee for claiming the sum assured –
- Certificate of Death
- Policy document in original
- Other documents that are required by the company for the proof.
In certain policyholder companies, if the policy holder had not completed even three years of getting the policy then they need to investigate for knowing whether the claim is genuine or not. For this different documents could be asked by the company such as –
- Whether policyholder has been admitted to the hospital and the related papers
- Certificate of the doctor regarding the disease.
- In case of an accident, a copy of FIR report, post mortem report and other documents as required.
- If the policyholder dies from the suicide, murder or accident then the policyholder should have the documents such as post mortem report, FIR (First Information Report), Panchanama, etc.
Claim settlement – As per the rules, it is the duty of the IRDAI to settle the claim within a span of around 30 days from getting the full documents. If there is an investigation which needs to be done then it would take around 6 months. After the claim is settled the amount will be credited to the account as mentioned by the nominee in an application form.
Documents Required for Term Insurance
There are different documents that an insurance company can ask for when you are buying a term insurance plan. If you have bought an online term plan, then you have the option to submit the required documents through online mode.
However, if you have taken the term policy through an agent or company, then you need to submit the documents to the agent or deposit it in the nearest office or branch of the particular insurance provider.
Here, it’s important to understand that you need to self-attest your documents before submitting them to the agent or in the company’s branch.
Here’s a look into the list of documents that a company can ask for before issuing a term insurance plan:
Documents as Proof of Income – These documents are required to get an idea of your income. It helps the underwriting team to decide if you will be able to pay the premium for your term policy on time or not.
Note: Normally, insurance providers tend to provide approximately 20 times of the annual income earned by an insurance seeker.
Following is the list of various documents that a company can ask from you irrespective of the fact whether you have applied for an offline or online term plan:
- Salary slips of last 3 months
- Last 2 to 3 years of Income tax returns
- Bank statement of last six months with at least 3 months’ salary credit.
- If you are pursuing business, you need to represent a certificate from CA
- Form 16 (the latest one)
Proof of address – The address proof is required for the verification and communication purpose. It includes:
- Lease agreement
- Statement of bank for last 6 months with the latest entries
- Statement of credit card (less than 3 months old)
- Driving License with address mentioned
- Recent bill of Gas Connection
- Telephone bill of the latest month
- Recent water bills
- Electricity bill
- Passport which should be valid
- Ration Card
- Voter Identification card
- Aadhar Card
Proof of Identity – There are various documents that can be submitted as a proof of identity to purchase the best term insurance policy:
- Permanent Account Number (PAN) Card
- Passport which should be valid
- Aadhar Card
- Voter Identification Card
Proof of Age – The documents submitted by you should have your date of birth . Here’s a list of different documents that are acceptable by different insurance providers in order to issue term insurance plans:
- Permanent Account Number (PAN) Card
- Passport which should be valid
- Aadhar Card
- Voter identification Card
- Certificate of marriage
- Ration Card
- Certificate of Birth
- Driving license
- Any school/college leaving certificate
Term Insurance Renewal Process
When you buy a term policy, it is necessary for you to keep in mind that the renewal of the policy should be done on time. This is essential to have the maximum benefit of the policy. If you go for the new policy, depending upon your age the premium would be higher.
Therefore, it’s better for you to renew your term insurance plan. However, if you are looking forward to renew your policy, you should make sure that all the premium are paid on time and even the renewal premium in certain cases. There are the different benefits that will be there with the renewal of policy–
- No further checkup of health – As a person grows old, chances of him/her getting ill are more. Hence, to get a term policy it is essential for him to have medical checkup. But if the policy is renewed and all the premiums have been paid, there would be no need to have the medical checkup again.
- Premium will cost more – If you are renewing the policy, the premium would be taken which is calculated on that day and not on the present age. As the age grows the premium of the policy also increases. But in the case of renewal, the premium will remain same as it was at the time of taking the policy.
- Purpose of insurance – The main purpose of term insurance is to secure the family. And, if the time is spent on finding a new policy or initiation of policy and if anything unexpected happens in that search period, ultimately then there will be no use of having a term insurance. All the efforts will go into vein. So, it is always better to have the insurance and renew it every time.
Different Payouts Offered Under Term Plans
Lump Sum: The nominee will receive the sum assured as a one-time payment after the unfortunate demise of the policyholder.
Shikhar, a 30-year old healthy (non-smoker) individual has opted for a term plan with a sum assured of Rs 1 Crore for the tenure of 30 years. In case he dies (due to a natural cause or due to an accident) during the 21st year of the policy, his nominee will receive Rs 1 Crore as the sum assured, all at once as the death benefit.
Lump Sum + Monthly Income: The nominee of the policyholder will receive half of the sum assured as a lump sum and the remaining half will be paid as on a monthly basis.
Shikhar, a 30-year old healthy (non-smoker) individual has opted for a term plan with a sum assured of Rs 1 Crore for the tenure of 30 years. In case, he dies (due to a natural cause or due to an accident) during the 21st year of the policy, his nominee will receive the sum assured in two parts: the first 50 Lakhs as a lump sum and the second half in the form of regular monthly payouts.
Monthly Income or Income Replacement: The sum assured is paid at regular intervals as a percentage of the sum assured from the first month of processing the death claim.
Shikhar, a 30-year old healthy (non-smoker) individual has opted for a term plan with a sum assured of Rs 1 Crore for the tenure of 30 years. In case, he dies (due to a natural cause or due to an accident) during the 21st year of the policy, his nominee will receive Rs 1 Lakh every month for next 84 months (approximately) as the death benefit.