What is Term Insurance Plan?

For example, say Mr Sharma buys a term plan for his life. He chooses a sum assured of Rs. 50 lakhs and a policy term of 30 years. After 10 years, he died due to an accident. In this case, the family will receive Rs. 50 lakhs as the death benefit on Mr Sharma’s death, subject to terms & conditions specified in the policy.

It guarantees* the sum assured on the insured’s demise during the term of the policy, provided all due premiums are paid. As such, if the insured dies prematurely, the family is compensated for any financial loss that they may have suffered, to the limit of the sum assured under the plan. They might meet their lifestyle needs and also might fulfil their financial obligations/goals even when the breadwinner is not around. This brings out the term insurance meaning and makes it an important component of your portfolio for emergency planning.

Term Insurance Plans Importance

Now that you know the term insurance definition, find out why the plan proves essential in financial planning:

1. Financial protection for your family.

   When you are the only earning member, your family relies on your income for everyday expenses and future goals. Term insurance helps them stay financially stable if life takes an unexpected turn.

2. Protect Your Assets

   If you have financial commitments, such as a home or car loan, term insurance can help your family pay them off. This ensures the assets you built remain secure.

How Does Term Insurance Plan Works?

Now that you know what term insurance is and its importance. Let's now focus on how term insurance works step by step, with a simple example

1. Step 1: Choosing the Coverage

   Ajay, a 32-year-old working professional, wants to secure his family’s financial future. He decides to buy a term plan with a ₹1 crore sum assured so his family can manage expenses, loans, and future goals if something happens to him.

2. Step 2: Selecting the Policy Term

   Ajay chooses a 25-year policy term depending on his coverage needs.

3. Step 3: Premium Calculation

   The insurance company calculates Ajay’s premium based on his age, health, lifestyle, and life expectancy. In some cases, insurers may ask for a medical test to review his health and family medical history. Ajay can also use a term insurance premium calculator to estimate his premium before buying the policy.

4. Step 4: Paying the Premium

   Ajay pays his premium regularly throughout the premium-paying term to keep the policy active.

5. Step 5: Protection During the Policy Term

   For the next 25 years, Ajay’s life remains covered. He can also choose to add on riders like accidental death benefit rider, critical illness benefit rider , etc., at an additional nominal cost to get additional coverage

6. Step 6: Claim and Payout

   If Ajay passes away during the policy period, his nominee will receive the coverage amount. A high claim settlement ratio indicates a higher probability of claims being honoured.

7. Step 7: If the Policy Term Ends

   If Ajay survives the full policy term, the coverage ends, there is no payout unless he has chosen a return-of-premium option. Ajay may also renew the policy, though the premium may be higher because it will be based on his age at the time of renewal.

Key Features of Term Insurance Plan

1. Riders and Add-Ons

   Term insurance plans allow you to customise your coverage through additional riders. Popular options include accidental death benefit, critical illness cover, waiver of premium, accidental death benefit, family income benefit etc.

2. Tax Advantages

   When you pay premiums for a term insurance plan, you can claim tax deductions of up to ₹1.5 lakh under Section 80C, in case of old tax regime. The payout your family receives is usually tax-free under Section 10(10D), subject to certain conditions.

3. Eligibility and Entry Criteria

   Eligibility varies slightly across insurers, but most plans allow entry between 18 and 65 years. If you buy early, you can lock in lower premiums and choose a longer policy term.

4. Payout Choices

   You can also decide how your family should receive the payout. The sum assured can be given as a lump sum, as a regular monthly income.

5. Flexibility and Extended Coverage

   Term insurance gives you the flexibility to pick a policy term that matches your financial needs. If you are just starting your career, you may opt for longer coverage, while if you are closer to retirement, you may choose a shorter term. You can also choose to renew your policy once the term ends, though premiums may increase with age.

Types of Term Insurance Plan

Now that you know what is term insurance, here’s a look at the different types of term insurance plans that are available in the market.

How to Choose right Term Insurance Plan?

When you look to buy the plan, there will be multiple options for you to choose from. In order to get the best term insurance plan based on your coverage needs, here are some factors that you may consider:

Type of policy

First, determine the type of policy that suits your needs. As mentioned earlier, there are different types of term plans. Assess these plans and choose one that matches your coverage needs.

For instance,

• If you want uniform coverage throughout the policy duration, choose a level term plan
• If you want the sum assured to increase with your increasing financial responsibilities, you can opt for an increasing term plan
• If you have a loan, for example, and you want a plan to cover the reducing balance of the loan, you can choose a decreasing term plan
• If you are looking for maturity benefit too, a term plan with a return of premium term plan will be the most suitable one.

The Sum Assured

Having optimal coverage is essential for financial security. So, opt for a suitable sum assured. To assess a suitable sum assured, you can use the term insurance coverage calculator. These calculators help you estimate the optimal sum assured so that you are optimally insured, and your family gets the required financial assistance in the case of emergencies.

Optional riders

Term insurance plans allow a range of optional riders to enhance coverage, on payment of an additional nominal premium. For instance -

• The Accidental Death Benefit rider pays an additional financial coverage in case of accidental death during the policy term
• A critical illness insurance rider offers financial coverage in case the insured person is diagnosed with any of the illnesses covered.
• The Waiver of Premium Benefit Rider ensures that all future premiums are waived off if the insured person is unable to pay them due to accidental permanent disability or a critical illness diagnosis.

So, based on your coverage needs, choose the suitable riders and enjoy a wider scope of coverage on payment of an additional nominal premium.

Claim Settlement Ratio

The Claim Settlement Ratio (CSR) defines the percentage of claims the insurance company has settled against the total claims received by it in a financial year. The higher the ratio, the better the probability that the insurance company will make the claim settlements. So, compare the CSRs of different insurers, and you may opt for the one that has a high ratio.

Premium v/s Coverage

The suitable term insurance policy will be the one that offers an inclusive scope of coverage as per your needs at an affordable premium.

Understand what is term insurance, how it works and its importance. Use the aforementioned parameters and buy a suitable policy that matches your coverage needs. Secure yourself and your family financially against unforeseen eventualities.

Things to Consider Before Buying a Term Insurance Plan

Here is what you should look at before finalising your decision to buy a term insurance policy

Financial Protection Against Uncertainties

Choose a coverage amount that can support your family’s future needs. The sum assured should ideally help them manage daily expenses, pay off any outstanding liabilities and achieve long-term goals.

You can use this formula to estimate the coverage required

Total Insurance Cover = Monthly Expenses × 150 ( considering future inflation) + Liabilities − Liquid Assets + Future Expenses + Spouse Retirement Corpus¹

Meet Amit, a 34-year-old professional with a spouse and one child. His monthly household expenses are Rs. 40,000. Here’s how he calculated the coverage he required,

Total Estimated Insurance Cover Needed: ₹1 Crore

Coverage for Critical Illnesses

Some term plans allow you to add a critical illness benefit rider. This provides financial support if you are diagnosed with any of the critical illnesses mentioned in the rider document

Accidental Death or Disability Rider

You can also include accidental death or disability riders in your plan. It provides additional financial support if an accident leads to death or permanent disability.

Steps to Buy Term Insurance Online

1. Step 1: Understand Your Financial Needs

   Start by thinking about your family’s financial needs. Look at your monthly expenses, loans, number of dependents, and future goals like children’s education so you can choose a coverage amount that truly supports them.

2. Step 2: Check the Term Insurance Premium

   Your premium depends on factors like your age, coverage amount, policy term, and lifestyle habits. You can use a term insurance premium calculator to get an estimate of how much the plan may cost.

3. Step 3: Choose Suitable Riders and Add-ons

   You can strengthen your policy by adding riders such as critical illness cover, accidental death benefit, or family income benefit. Pick the ones that match your financial needs so your family gets better financial protection.

4. Step 4: Buy the term insurance Plan Online

   Buying a term plan online is quick and convenient. You can get a ₹1 crore term insurance plan for premiums starting at just ₹14 per day.*

Key Takeaways:- 

1. Term insurance is a pure protection plan that provides financial support to your family if the life assured passes away during the policy term.
2. It offers comprehensive life cover at an affordable premium, helping your family manage daily expenses, loans, and future goals.
3. You pay a fixed premium for a chosen policy term, and the insurer pays the sum assured to the nominee in case of death of life assured during that period.
4. Term plans also allow additional financial protection through riders such as critical illness benefit rider , accidental death benefit rider, or waiver of premium rider.
5. Premiums and coverage depend on factors like age, health, lifestyle habits, and policy duration.
6. Choosing the right coverage amount and insurer with a good claim settlement ratio helps ensure strong financial protection for your family.

Conclusion:- 

Term insurance is a simple and affordable way to protect your family’s financial future. By choosing the right coverage amount and policy term, you can ensure your loved ones have the support they need to manage expenses, repay loans, and stay financially secure if life takes an unexpected turn.

Source –

1. https://www.etmoney.com/learn/insurance/5-things-to-know-before-buying-term-life-insurance-plan/