INDIA: Term Insurance | What Is It | Types | Key Features & More

Term insurance is a basic financial security tool that allows an individual to park and preserve money in order to protect the nominee’s future in the event of an unforeseen event.

It is essentially a simple protection plan or pure insurance in which a customer receives life coverage, which is typically a big quantity of money for which the customer pays a premium over the term of the life cover.

A term insurance policy can assist the insured in preparing for any situation coming from the financial stability that may arise if the breadwinner of a family dies due to illness, accident, or untimely death.

Here’s how term insurance works and how you can get one.

How Does Term Insurance Work?

A term plan is a standard insurance plan that can be acquired by anyone; it is a fundamental financial instrument that should be included in everyone’s investment portfolio. Any individual contributing financially to the home, as well as those with dependent parents and other liabilities, should consider term insurance, which provides a safety net in the event of an individual’s death.

Reasons to Buy Term Insurance

• Quantifying Protection

Life insurance helps the immediate family with children’s schooling and other requirements in the absence of the breadwinner. Calculating an approximate corpus by calculating annual income by retirement age is simple.

Experts recommend term insurance coverage of 15-20 times annual income. The industry standard is that if you earn INR 10 lakh per year, your cover should be INR 1.5 crore to INR 2 crore.

To calculate life cover, one must consider human life value. Then, policy age and duration decide the premium. The premium may also depend on behaviors and health.

Smokers pay higher premiums due to higher mortality risk. Such individuals may pay higher premiums and have their insurance applications denied if they have serious health issues or lifestyle disorders.

• Ideal Age for Protection

Prior to the coronavirus pandemic, it was usual to find people with familial responsibilities agreeing on insurance plans for their families. This trend has shifted, and India’s younger population is now looking for life insurance to safeguard themselves in the long run.

Specifically, millennials have emerged as more financially smart and conscious of the benefits of starting a term plan at a young age. When a young person purchases a term plan, the premium amount is significantly lower and remains consistent for the duration of the plan.

Key Features of Term Insurance Plan

• Financial Freedom at Affordable Premiums: A term insurance guarantees maximum financial independence at a minimum cost. Its benefits provide cushion in case of death at premiums better than those offered for critical illness insurance plans, depending on your age.
• Easy to Buy: Buying term insurance is a relatively simple process because everything you need to know is available online. You can acquire all of the information you need online, from finding a form to using a term insurance calculator to calculating the rate you should pay based on your requirements.
• Essential Investment for the Future: Making monetary investments from a young age has huge significance in securing one’s future. And term insurance is one of the recommended types of investments that help in dealing with death.
• Flexible Payment Options: A term plan gives you the liberty to choose from a range of payment options such as monthly/quarterly/yearly payment, as per your convenience.
• Various Payout Options: If you are concerned about your family quickly spending all the payout, you can opt from various payment options. You can request the insurance company to dispense the money to the family on a monthly basis, much like a regular income.
• Wide Range of Customized Offers: Premiums for term insurance are frequently customized, and your age and habits play an important role in determining whether you are qualified for the offers. For example, a nonsmoker has a greater probability of receiving a premium rebate than a smoker. Being female also provides significant premium rate benefits.

When looking to buy a term insurance plan, you’ll often come across a slew of options that can lead to confusion. However, you should make an informed selection.

Make sure to conduct extensive research on the numerous plans on the market and opt for one that meets both your current and future financial needs. Many new-age term insurance policies now include features that adapt to consumers’ changing demands and subjective requirements, making it easier for buyers.

For instance: Some plans allow changing the “sum assured” based on protection needs beyond the lock-in period. Most premiums do not change once you change your “sum assured”. After the lock-in period, adding X to the plan may keep the premium the same but add a benefit with a smaller sum assured.

If an insured drops Y from their original plan after the lock-in period, their premium may remain the same but their total assured may increase. The product booklet normally details the terms and conditions for increasing or decreasing sum promised.
Some new plans reduce premiums for healthy life assureds.

Consumers usually expect their capital investment at the end of the term. An alternative term plan returns premiums if the consumer survives the period. Such plans cost more than term plans that pay the cash insured only upon death.

The greatest approach to benefit from life insurance is to invest throughout the term. Avoid prematurely leaving an insurance plan because life cover may end and your family’s financial security may be at risk. Use the purchased plan throughout its duration for long-term financial protection. Most essential, if the insured dies, their family will only receive death benefit if you continue the plan.

Types of Term Insurance Plans

• Max Life Insurance
• ICICI Prudential iProtect
• Bajaj Allianz Life Insurance
• Kotak Life Insurance
• PNB MetLife Mera Term Plan Plus
• SBI Life Insurance
• Aditya Birla term insurance
• Aegon Life Insurance
• LIC term insurance
• HDFC Life Insurance
• Canara HSBC Life Insurance
• Edelweiss Tokio Life Insurance
• Insurers
• Tata AIA Life Insurance
• HDFC Click 2 Protect Plus
• Aviva term insurance
• Bharti AXA term insurance

Important Considerations Before Buying Term Insurance

Some important things to keep in mind before finalizing your term plan include:

• Premium Evaluation:

The premium should be competitive, with comparable tenure, age, and habits. The premium should remain inexpensive during the policy’s duration so that you are not tempted to quit paying.

The length of the policy should be determined with regard to the family’s financial goals and time horizon. Protection should continue until the individual is free of all liabilities.

• Claims Settlement History:

The claim settlement history of the insurer should be a critical parameter of selection. This is found by learning about the claims settlement ratio. Claims assistance support of the insurer is another criteria. Nobody would wish their families to run around from pillar to post to receive the claim during times of distress.

• Disclosure of Material Facts:

The customer should declare all facts pertinent to the policy and should not conceal any vital information. Declaration of any adverse health condition or family history may rate up the premium but would ensure a hassle-free experience for the family during claim payments.

Importance of a Medical Test: 

It is usual for the average person to avoid the inconvenience of a medical examination for life insurance coverage. However, if necessary, a medical evaluation is a critical step. This is to confirm an individual’s health status, as we may be unaware of an underlying condition.

Furthermore, if you have taken a medical test as instructed by the insurance provider, your claim is less likely to be denied. Typically, medical tests are performed to determine greater life coverage, age, and the presence of any sickness or habit, like as smoking.

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