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Term insurance

Term insurance is a type of life insurance that provides coverage for a specific period, or term, usually ranging from 10 to 30 years. It is designed to offer financial protection to the insured's beneficiaries in the event of their untimely death during the term of the policy. One of the key advantages of term insurance is its affordability compared to other types of life insurance, such as whole life or universal life insurance. This is because term insurance focuses solely on providing a death benefit without any investment or cash value component.

Term insurance offers flexibility, as policyholders can choose the coverage amount and the length of the term based on their specific needs and circumstances. The death benefit paid out to beneficiaries can help them cover various expenses, such as mortgage payments, educational costs, or day-to-day living expenses. This can provide peace of mind, knowing that loved ones will be financially protected even in the insured's absence.

Since term insurance does not accumulate cash value over time, it is often regarded as pure protection. This makes it an ideal choice for individuals seeking temporary coverage during a specific phase of their lives, such as when they have dependents or outstanding debts. Additionally, term insurance can be useful for business owners who want to protect their business interests or cover key employees for a certain period.

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It is important to note that once the term of the policy ends, the coverage ceases unless the policyholder chooses to renew it or convert it into a permanent life insurance policy. However, the premiums for renewed policies may increase due to factors such as age and health conditions. Therefore, it is essential to carefully evaluate and review one's insurance needs periodically to ensure adequate coverage.

TYPES OF TERM INSURANCE PLANS

Term insurance plans generally fall into the following types:

  • Level Term Insurance: This is the most common type of term insurance. It provides coverage for a specific period, such as 10, 20, or 30 years, with a fixed premium and a death benefit that remains constant throughout the term. If the insured person passes away during the policy term, the beneficiary receives the death benefit.
  • Increasing Term Insurance: In this type of term insurance, the death benefit increases over time while the premium remains the same. It is designed to account for inflation and the increasing financial needs of the insured person's beneficiaries.
  • Decreasing Term Insurance: Unlike the increasing term insurance, the death benefit in decreasing term insurance decreases over time while the premium remains constant. It is often used to cover specific liabilities that reduce over time, such as a mortgage or a loan.
  • Renewable Term Insurance: Renewable term insurance allows the insured person to renew their coverage at the end of the policy term without undergoing a medical examination. However, the premium for the renewed term may increase based on the person's age at the time of renewal.
  • Convertible Term Insurance: Convertible term insurance provides the option to convert the policy into a permanent life insurance policy, such as whole life or universal life insurance, without the need for a medical exam or evidence of insurability. This allows the insured person to extend their coverage and enjoy the benefits of permanent insurance in the future.
  • Return of Premium (ROP) Term Insurance: ROP term insurance refunds the total amount of premiums paid over the policy term if the insured person survives until the end of the policy term. It combines the benefits of term insurance and a savings component, making it more expensive than traditional term insurance.

These are some of the common types of term insurance plans. It's important to note that specific insurance providers may offer additional variations or combinations of these types, so it's advisable to consult with an insurance professional or company to understand the available options and select the most suitable plan for your needs.

Term Insurance FAQ's
1. What is the minimum age and income to buy term insurance?
To invest in a term insurance plan, the minimum age should be 18 years and the minimum income should be 2 Lakhs.
2. If a person dies due to natural calamity/disaster, will his family/nominee receive the sum assured?
No. Deaths under 'Act Of God' are not covered by term insurance policies.
3. How much tax will I save by buying term insurance?
Under Section 80C of the Income Tax Act, 1961, you can avail deductions up to Rs. 1.5 lakhs.
4. I occasionally smoke with my friends. Do I need to disclose this information while buying term insurance?
If you have smoked in the past 12 months, you have to disclose it to your insurance provider. If you don't disclose it right away and reveal it later, you may be charged with a high premium or your provider may cancel your policy (denying any benefits).
5. I have diabetes. Can I get myself insured under term insurance?
If your diabetes is in control (with regular treatment and a healthy lifestyle), you will be eligible to buy term insurance. However, if you have additional risks like hypertension, heart illness etc, your application can be rejected.
6. Do I need to declare myself as a tobacco user if I smoke occasionally?
You must declare yourself as a tobacco user if you have smoked in the last 12 months. The premium of your policy will be decided accordingly.
7. Why are premium rates higher for smokers than non-smokers?
Smokers are at a higher risk of getting ill as compared to non-smokers. That's why insurance companies charge higher premiums from them.
8. Can an NRI buy term insurance?
Yes, insurance companies offer term insurance plans, which are specially designed to fulfil the needs of NRIs.
9. If a person dies outside the Indian territory, will his nominee still receive the death benefit?
Yes. Once the policy is in effect, death of the policyholder (irrespective of the place) will be taken into consideration and the coverage amount will be given.
10. Can I change the duration of life cover after the policy is issued to me?
No, the duration of life cover cannot be changed once the policy is issued. It is set at the inception of the policy.
11. Can I increase my sum assured during the policy tenure?
Yes, some term plans allow you to increase the sum assured during different life stages. However, this depends on the plan's TnCs.
12. I want to port my term insurance policy from one insurer to another. Can I do that?
No, under the current guidelines issued by IRDAI, one can't port his/her term policy.
13. Is it possible to add a rider to an existing policy?
Some insurance companies allow riders to be added only at the inception of the policy. However, few insurance companies may allow them to be added only at the policy anniversary.
14. What if my policy has lapsed?

If you aren't able to pay the due premiums within the grace period, the policy will lapse and all benefits will be ceased. If you want to revive your policy, you need to pay all the arrears to the insurance company.

Note: Some insurance companies may even ask for medical reports for the revival of the policy.

15. What is the free look period and will I get a complete premium back if I cancel my policy?
Under the free-look period, you get 15 days to cancel the policy if you aren't satisfied with it. And you will get a refund of the premium paid (after deducting the necessary charges).
16. What happens if I discontinue paying the premiums?
In case you discontinue paying premiums of your policy, then the policy will lapse automatically. However, as per the IRDAI, every insurance company offers a grace period of 15/30 days. A policyholder has the option to pay his/her due premiums within that period.
17. How much time will it take to settle any claim?
The procedure of settling claims varies from insurer to insurer. Once all the documentation is completed as per the company's norms, the company may settle the claim within 30 days (may vary as per your chosen insurer).
18. What if the claim is rejected?
In case the term insurance claim is rejected, the nominee can re-apply for it. A written application needs to be submitted for the same. The nominee can even go to the consumer court if the company doesn't respond to the application.
19. Who will receive the claim if the nominee also dies with the assured?
In such cases, the legal heir of the claimant becomes the beneficiary. The legal heir can get the benefits only after attaining the age of 18. But his/her guardian must immediately inform the insurance company. The age criteria may depend completely on the provisions of the insurance companies or IRDA.
20. Who will receive the claim if the nominee dies before the policyholder?
When a nominee dies before the policyholder, it's the responsibility of the policyholder to nominate other beneficiaries. This can be done either online or by informing the customer care.
21. What is term insurance?
Term insurance or term policy is a life insurance policy, offering financial support to the beneficiary in the unfortunate event of the demise of the insured. This financial support is termed as a death benefit that is provided to the family of a policyholder if he/she dies during the active years of the policy.
22. What is the difference between term and life insurance?
The most common difference between term insurance and traditional life insurance plan is that a term insurance plan only provides a death benefit in case of demise of the insured within the term period, whereas a life insurance policy offers both death and maturity benefit to the insured.
23. Can we get money back/ return in Term insurance?
Term life insurance has no cash value, so if you outlive or cancel your policy, there's no refund or surrender value.
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