What is Term Insurance?

Term insurance can be defined as a type of insurance that is availed for a certain period of time or a fixed term (number of years). The basic differentiating feature of term insurance is that unlike other types of life insurance policies, a term insurance policy is less expensive since it does not have any cash value. The policy comes useful only if the policyholder dies within the timeframe during which the term insurance policy is in force.

Term insurance policies are offered by almost all major insurance providers and these come for various terms like 10 years, 20 years, 30 years etc. The most significant point about term insurance policies is that most of these policies have a built-in feature to get converted to permanent life insurance policies irrespective of the state of health of the term insurance policyholder.

How does Term Insurance Works?

 What is Term Insurance?

A term insurance policy can be considered one of the most traditional forms of insurance. To understand how it works, you can look at it in these three situations:

Buying the policy: To be able to buy a term insurance policy you don’t need to put aside tens of thousands of rupees every year. Many of the insurance policies can offer you a sum assured of up to Rs. 1 crore for a premium that could be as little as about Rs. 10,000 per annum (These are indicative figures. The actual premiums may differ depending on the sum assured and the insurance providers).

Keeping the policy: Just like any other insurance policy, you pay the premium towards these policies at a frequency chosen by you. These premiums can be paid every month, every quarter, every 6 months or once a year. They can also be paid as a lump sum instead of being paid at regular intervals.

Redeeming the benefits: Term insurance plans don’t typically come with any maturity benefits, except for term insurance with. Their main objective is to provide life insurance cover and that is exactly what they do. In case the policy holder passes away, the person who is named as the beneficiary of the policy will receive the sum assured.

The way it works is also one reason why you will notice that a lot of the time insurers refer to these plans as pure protection plans. There are no frills attached to the plan. You pay the premium and you get a fixed sum if case something happens to you.

How to choose the best term insurance plans?

When it comes to choosing the ideal term insurance these are the steps that you should follow.

Step 1: Calculate how much you want the sum assured to be.

Step 2: Decide if you wish to take a policy with return of premium or not.

Step 3: Choose an insurer that will offer you the sum assured you want.

Step 4: See the premium that each insurer will offer for the chosen amount.

Step 5: Check the claims settlement ratio of the insurer. This is a step that many people tend to ignore but is absolutely critical to getting the right insurance policy. This is information that tell you the percentage of the claims that the insurer has honoured vs the number of claims they received in a given year.

Step 6: Compare the information you have gathered and choose the plan that suits

Features & Benefits of Term Insurance:

The features and benefits that are offered by term insurance plans can differ from one insurer to another. They can also differ from one type of plan to another but there are some features of benefits that remain the same no matter who offers the policy. These are:

·         Regular term plans and TROPs offer very high sum assured for a very reasonable premium.

·         There is no limit on the maximum sum assured as it is something that will depend on the insurer’s willingness to underwrite really large sums.

·         The policies offer premium payment options of single pay, regular pay and limited payment.

·         The payment of premiums, in case of limited and regular pay plans, can be monthly, quarterly, semi-annual and annual. However, in the case of monthly payments, the insurers may require you to pay the premium for the first 3 months as a lump sum.

·         They come with a tenure than can be as high as 20 years or more, depending on the insurer.

·         With a return of premium policy, some insurers will offer 105% of the premiums paid as the maturity benefit.

·         A lot of these plans can be bought online too, which negates the tedious task of meeting an agent and fixing meetings.

·         All Online Term Insurance Plans In India are cover by Section 80C of the IT ACT which means that the premiums paid for them are eligible for income tax benefits.

·         The benefits received from term insurance plans can be covered under Section 10(10D) of the IT Act will also be eligible for tax benefits.

·         Some insurers also offer rebates if policyholders opt to go in for high sum assured.

·         Many of the insurance providers offer lower premium rates for those who maintain a healthy lifestyle.  

Source: https://www.bankbazaar.com/insurance/term-insurance.html