What is Term Insurance?
Term Life Insurance is a type of Life Insurance that provides financial coverage for a fixed term/tenure on payment of a premium. In the event of the death of the insured, the nominee is paid the sum assured called the death benefit. The sum assured can either be paid as a lump sum or combination of lump sum and periodic payments.
Unlike other types of Life Insurance policies, a Term Life Insurance policy is quite cheap. However, a Term Insurance claim is only honored, if the insured dies within the term of the plan.
Features Of A Term Life Insurance Plan:
Though Term Life Insurance Plans don’t give guarantee returns unlike Endowment Plans, they do have a lot of benefits:
In the event of the insured’s demise, a Term Insurance plan provides for the financial security of the nominees or dependents.
The premiums on Term Insurance are quite affordable as compared to other type of Life Insurance plans.
The benefits on Term Insurance plans are much more than the premiums paid.
A regular Term Insurance plan does not have survival benefits. But now, several insurers offer plans like Return of Premium Plans. These plans offers survival benefits and pay back premiums at maturity.
A Term Insurance Plan can be bought online or offline.
A Term Insurance plan’s coverage can be enhanced by using riders. Riders are extra benefits offered with the Term Life Insurance plan. Insured can buy riders like accidental death benefit, critical illness, income benefit rider and so on at nominal costs.
The premiums paid towards a Term Insurance plan are eligible for Tax benefits under Section 80C of the Income Tax Act, 1961. The death benefits received by the nominees are tax free under Section 10(10D).
Benefits of Term Insurance plans:
It purely covers risk of death of the insured by paying out the sum insured on the insured’s demise.
Term Insurance Plans are cheap and affordable.
Term Insurance plans are very good for breadwinners. They serve as a financial protection and make up for the loss of income on an unexpected demise.
The nominees or dependents are protected from the liabilities of the insured. If the insured had availed a Home Loan, the dependents get the death benefit and can easily repay the home loan.
The insured can claim tax exemptions under Section 80C of the Income Tax Act, on premium paid for these plans.
The Insured can enhance the coverage in a Term Life Insurance Plan by availing rider benefits.
The insured may also get to enjoy survival benefits, if they opt for return of premium plans.
Types of Term Insurance plans:
Insurers are offering innovative and better range of Term Insurance plans to face intense competition. Term insurance can be classified into the following types:
Regular Term Insurance Plans:
A Regular Term Insurance plan is a Term Insurance plan that provides basic coverage, that is, the sum assured is given to the nominees in case of demise of the insured. It doesn’t offer any benefits upon maturity. The insured may opt for regular or a single payment of premium. Usually, the sum assured can go up to 10 times of your annual income. When the policy matures, the insurance cover ceases, as does the need to pay premiums for such a cover.
On maturity, if the insured is still alive, no amount will be paid to the nominees or the insured. Regular Term Insurance has low premiums and high sum assured. This is the most cost-effective Term Insurance plan.
Group Term Insurance Plans:
Group Term Insurance Plans are availed by an employer, organization, association, trusts, companies or societies. Companies take these plans to insure their employees. A Group Term Insurance Plans covers each and every member insured under the plan. It is cheaper than an Individual Term Insurance plan. The only problem is that the Term Insurance cover ceases to exist, once the employment or membership ends.
Group Term Insurance Plans can be taken by a group that fulfills the minimum membership requirements. Usually, the members to be insured in a Group Term Insurance policy need not undergo medical tests. As the coverage of a Group Term Insurance plan is not very extensive and adequate, the insured can buy riders to enhance their coverage.
Convertible Term Insurance Plans:
A Convertible Term Insurance Plan allows an insured to convert a Term Insurance policy into an Endowment Plan. The in-built conversion option is available as an add-on feature. Convertible Term Insurance plans have higher premiums to accommodate the conversion facility.
Term Return of Premium Plans (TROP):
Term Return of Premium (TROP) Plan comes with survival benefits. TROP refunds the amount of premium paid by the insured upon the policy’s maturity, provided the insured survives till that date. TROP plans have a higher premium.
In such a plan, the insured may opt to discontinue paying the premium and return the plan. All the premiums paid till date will be reversed minus deductions like medical examination costs and stamp duty charges.
Decreasing Term Insurance Plans:
The sum assured and premiums on Decreasing Term Insurance plans decrease at a certain rate throughout the policy tenure. Such plans are designed to insure a property held as collateral against a loan like a home loan. Such plans ensure that the bank will be able to recover the dues in case of an unexpected demise.
The main idea behind a Decreasing Term Insurance Plan is that an insured’s requirement for high insurance coverage decreases with age; when certain liabilities like Home Loan repayment and so on decrease with time, on regular repayment of EMIs. A Decreasing Term Insurance plan should be taken in addition to other forms of Life Insurance.
Increasing Term Insurance Plans:
Increasing Term Insurance plans have a coverage increasing at specific durations. This is to accommodate and compensate rising costs in the future. These policies get more expensive with time.
Joint Term Insurance Plans:
Joint Term Insurance Plans allow the insured to cover their spouse under the same policy. It is basically designed for couples. Depending on the policy, the sum assured is paid out either on the demise of the main insured or at the death of each insured member.
Documents Required for Term Insurance:
Following are the list of documents required for availing a Term Insurance plan:
Bank account statement
Income Tax Returns
Passport sized photos
Eligibility Criteria of Term Insurance:
The minimum age to avail a Term Insurance Plan is 18 years.
The maximum maturity age of the policy is 75 years. It changes from insurer to insurer.
Insured will have to undergo a medical check-up before availing the plan.