Insurance is one of the top options for investment for the majority of investors in India. It is an easy and convenient investment option with tax benefits that secures the financial future of the investor and their families in times of crisis. There are various types of insurance products available in the markets with multiple insurers to choose from. Given below are the meaning and related details of term insurance that can help investors make sound investment decisions.
What is a term insurance plan?
Term insurance is the most common form of insurance available. For most investors term insurance or life insurance is the only form of insurance known to them. Term insurance is personal insurance taken for a fixed period to insure the life of a person. It is one of the cheapest forms of life insurance but does not provide any maturity benefits. Only death benefits are provided to the nominee or the legal heir of the insured person. There are different payout options under term insurance that can provide a lump sum pay-out or a staggered payment based on the needs of the nominee.
Who can buy a term insurance plan?
Life insurance is important for every individual, especially in these uncertain times. It is therefore prudent for every individual to have a good life insurance policy to safeguard their family’s future. Most insurers have their specific eligibility criteria for term insurance policies. Some of the common eligibility parameters are mentioned hereunder.
Any resident Indian. Some insurers also provide term insurance plans for NRIs provided they meet their specific eligibility parameters.
The minimum age to be eligible for a term insurance plan is 18 years of age. The maximum age as per most insurers to be eligible for a term insurance plan is 60 years (65 years in some cases). The maximum eligible age at the end of the term insurance is 99 years as per the majority of insurers.
The minimum sum assured by most insurers as per the term insurance plan is usually Rs. 1,00,000. The maximum sum assured under a term insurance plan varies based on many factors like the entry age of the applicant, income and premium paying capacity of the applicant, job profile, etc.
What are the different types of term insurance plans?
Earlier term insurance plans were quite basic and did not provide many benefits to the insured persons. However, there are various types of term insurance plans available for investment based on the needs of the insured person and their target goals. Some of the common term insurance plans available in the market are discussed below.
Level term insurance plans
These are the most basic forms of term insurance plans. The amount of sum assured is fixed at the time of buying the policy and is constant throughout the tenure of the policy. There are no maturity benefits under this plan and the death benefits are paid to the nominee or the legal heir of the insured person.
Increasing term insurance plans
Under these plans, the sum assured is gradually increased over the tenure of the policy based on a fixed percentage agreed at the time of taking the policy. The premium on such policies is usually higher. The increasing sum assured over the tenure of the policy ensures that the payout is inflation-adjusted and is sufficient to provide the necessary financial support to the family of the insured person after their death.
Decreasing term insurance plans
Decreasing term insurance plans are the opposite of increasing term insurance plans where the sum assured is decreased over the tenure of the policy. Such plans are a good option for individuals who have a sound financial plan to finish all long-term liabilities thereby reducing the dependence on the term insurance payout for providing financial security to the family in the event of the death of the insured person.
The biggest drawback of a term insurance plan is the lack of maturity benefits. This often drives the applicants away from term insurance plans although it is one of the cheapest forms of insurance available. TROP (Term insurance with return of premium) plans are an answer to this concern. Under this plan, the insured person receives the total premium paid at the end of the policy term if there is no claim made throughout the tenure of the policy.
Convertible term insurance plans
This is a dynamic form of term insurance plan as compared to a basic one. Under this plan, the insured person can convert the term insurance plan into a different type of plan to suit their changing needs. This will help them in meeting their financial targets in an efficient manner.
What are the features of a term insurance plan?
Term insurance plans although a basic form of life insurance provides many features and benefits. Some of the key features of term insurance plans are mentioned hereunder.
Flexible sum assured
The sum assured under term insurance plans is quite flexible and allows the insured person to take insurance cover as per their financial needs. It also provides the option to increase or decrease the sum assured as per the changing needs of the insured person and the family obligations.
Insurance coverage at a low premium cost
The premium amount to be paid for the term insurance plans is usually lower as compared to other life insurance plans. These plans do not have maturity benefits which further reduces the cost of insurance.
The benefit of additional riders
Most insurers provide additional benefits on the basic term insurance plans in the form of additional riders. These are the extra benefits that can be paid by paying a nominal extra amount over and above the agreed premium. Some of the common riders available on the term insurance policy are
- Critical illness cover
- Accidental death or disability cover
- Waiver of premium cover
- Terminal illness rider
Like any other investment option, term insurance also provides tax benefits to the insured person and their nominees. Under section 80C of the Income Tax Act, 1961, the insured person can claim a deduction of up to Rs. 1,50,000 on the premium paid against a term insurance policy. Additionally, under section 10(10D) the nominees or the legal heir of the insured persons also get an exemption from the tax liability on the sum assured received upon the death of the insured person.
Multiple payout options
Term insurance plans provide multiple payout options to the nominees or the legal heir of the insured person. The payout can be in the form of a lump sum amount or in part payments which are provided at regular intervals as agreed at the time of taking the policy.
A term insurance plan is a necessity for every person belonging to any social class. It provides a safety net to the family of the insured person after their demise and helps them carry out their financial obligations without any hurdles. It is therefore important to take a term insurance plan at the earliest so the amount of coverage that can be available is higher at a relatively lower premium cost.
The most common factors to be considered while buying a term insurance plan are,
-The amount of coverage provided by the insurer
-The premium to be paid for the coverage and the frequency of payment
-The additional riders provided by the insurer and the cost of such riders.
-The reputation of the insurer and their payout ratio
The documents needed for getting term insurance are,
-Any other document as per the guidelines of the insurer
Yes. There are no legal hurdles in buying more than one term insurance policy. However, the insurer has to ensure that the premium on all the term insurance policies is duly paid to keep them in effect.
Yes. Most banks issue a loan against the term insurance policy using it as collateral provided it is allowed as per their guidelines.
The tenure of term insurance policies is usually between 5 years to 40 years.