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How Term Insurance Plan differs from other types of Life Insurance Plans

How Term Insurance Plan differs from other types of Life Insurance Plans

Ashish is the sole breadwinner of his family of six that consist of his ageing parents, wife, a young daughter, and a son. While he is still young and healthy, he has planned well and created a safety net for his family to prepare for any unforeseen incidents.

He has made sure that his family will be financially secure in his absence by taking simple but highly effective measures.

Ashish has invested in a well-calculated pure term cover that will ensure housing safety with the repayment of his home loan, children's education and future, and will allow his family enjoy the same lifestyle that he is providing them currently. However, when he first set out to buy insurance, Ashish was left confused by the different types of plans available and couldn't decide what was best for him.

If you too face the same dilemma, you may want to take a page out of Ashish's book. Let us understand what a term plan is and how it could be an excellent insurance plan to buy.

A term plan is considered to be the purest form of insurance that aims to mitigate the financial risk/loss of income for a family in the event of the demise of a member by offering a lump sum or staggered pay-out.

Here are six factors that set term plans apart and why you too should opt for one:

Need for Fulfilment

There are many different types of insurance plans, each looking to serve a particular need of the insured person. An endowment policy focuses on the need to save of the insured party along with maturity benefits, while Unit Linked Plans (ULIP) aims at wealth creation and tax savings. In comparison, a pure term cover safeguards the probable loss of income that can throw a wrench in the financial plans or debt fulfilment of the family.

While an endowment plan can provide some post-retirement income, it will not be enough to help repay a home loan or fund higher education. Buying a term plan hence has served Ashish and his family well.

Tenure

Most endowment and payback plans kick in after retirement (from age 55 to 65) to supplement the income. The insurance benefit ceases with maturity. Whole life insurance plans and term plans can be availed of till the age of 100, but the premium for a whole life policy is higher than that of term plans.

A term plan continues to provide the same benefit even in your later years, securing the future of the generation to come.

Term Insurance Premium

A term cover is the most affordable insurance plan. Depending on the maturity benefits, bonus and payout options, the premium on most other life insurance plans can be many times more expensive than a simple term cover. A term plan, however, comes at an absolutely affordable price, making it the ideal choice, especially for the youth.

Coverage

The coverage provided by a pure term cover is unmatchable. For example, with iSelect Star term plan, a young individual can avail a cover of INR 1 crore for approximately INR 365 a month. Depending on the income potential and future obligations, you can decide the amount of coverage that would be suitable.

Flexibility

Term plans are very easy to acquire. A simple online form and a medical test in some cases are more than enough. If opted for at the commencement of the policy, you can increase the coverage in the future depending on your changing needs and goals. Surrendering a term policy is easy too. A policyholder can discontinue the payments, and the policy will lapse.

In case of insurance plans with maturity benefits, the policyholder may receive little to none of the benefits on discontinuation. In some cases, a part of the premium paid may be recovered after deductions.

Term Plan Tax Benefit

All life insurance plans grant tax benefit under Section 80C up to INR 1.5 lakh. However, there are multiple investment products too that offer a deduction under the same section. Your decision to pick an insurance plan should not depend on tax benefits though.

A term cover provides death benefit at a much lower cost and still leaves a balance deductible value of more than 90% under Section 80C. The same can be used across other products such as pension plans, principal of home loan repayment, etc.

The bottom line

In today's time and age, life insurance is a necessity. A sound financial plan must have a combination of various Life insurance products. A term plan works best if you want to create a cushion of a large sum of money for your family for an affordable premium. Make an informed choice that suits your needs the best.

There are a few things to keep in mind while buying term insurance. Pick a term plan that can provide add-ons such as accidental disability and death cover. One that allows you to add your spouse to the same policy, increase the cover up to 25% every five years based on your changing needs and provides monthly income to your family in the event of your demise should be a good choice. An insurance company like Canara HSBC Oriental Bank of Commerce will meet all your needs with its iSelect Star term plan - a plan that truly allows you to select the terms of your life. Just like Ashish did.

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Frequently Asked Questions (FAQs) Related to Life Insurance Policies

The premium is one of the most important factors to consider before buying a life insurance policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the premium calculator available in the 'Tools and Calculator' section of www.canarahsbclife.com.

Life insurance plans come with several riders which increase the efficiency of the policy for the buyer. For instance, if you have a history of terminal illness in your family it would be advisable to opt for terminal illness rider with your term insurance plan. Riders or add-ons help in customising the standard policy benefits for the requirement of different families. The iSelect term insurance plan comes with a built-in cover for terminal illness, and option for protection against accidental death or disability. You can also opt to cover your spouse's life under the same policy by paying an additional premium.

Life insurance companies calculate the premiums based on several factors such as age, gender and occupation.

Age: It is one of the biggest factors that influence life insurance premiums. Premiums tend to be low when the life insured is younger as the chance of contracting diseases is low. Young people also opt for the best life insurance policies with longer tenures and pay premiums for a longer duration, which makes the policy cheaper for young people.

Gender: The insurance premium for women is generally lower when it comes to life insurance plans. Women live longer and pose a lesser risk of a claim leading to lower premiums for them.

Lifestyle habits: The premiums for people who smoke or drink is always higher due to higher health risks.

Policy term: Policy terms are also taken into consideration by insurers while deciding the premium amount. Life insurance policies with longer tenure are cheaper as compared to short-duration policies.

Mode of purchase: The platform that you use to buy the best life insurance policy also determines how much you will have to pay for the plan. People who buy life insurance policies online have to pay lower premiums as compared to offline policies.

Occupation: The nature of your work is an important factor that influences the premium amount. Certain occupations like shipping and mining are considered more dangerous as compared to jobs in services industries. The insurance premium rises with the risk profile.

Processing life insurance claim is a transparent and smooth process with Canara HSBC Oriental Bank of Commerce Life Insurance.

In case of the death of the life insured, the nominee will have to intimate the company by filling a Death Claim Form and sending it to the nearest branch office.

Once the form is received, the claim is registered by the insurer.

After the registration of the claim, the company will send the claims pack along with the related forms such as physician’s statement form and employer certificate that need to be filled.

Along with the duly filled forms a few documents such as original [policy document, death certificate, copy of bank passbook, hospital or treatment records, photo identification and address proof have to be provided.

The claim is processed on the submission of relevant documents. Once the documents are verified, the claim amount is released post all due diligence.

Household expenses rise with age. The cost of children's education increases along with other lifestyle expenses. The iSelect term plan offers an option to increase the cover according to the life stage. If opted, the insurance cover increases by 25% at every 5-year terminal till the 20th policy year.

Even though a life insurance policy is bought to protect your family in your absence, there are chances of the claim being rejected due to several factors.

False information: If the policyholder provides false information or conceals important information while buying the life insurance policy, the insurer has the right to reject the claim after his/her death.

Type of death: Deaths due to suicide in first policy year, intoxication or pre-existing disease is not covered under life insurance plan.

Premium payment: The payment of premiums on time is of utmost important to avail the benefits of life insurance. Life insurance policy may lapse on the failure to pay the premiums

Nominee details: A life insurance company can put the claim on hold if the nominee details have not been filled or not been updated by the policyholder.

Suicide: If the life insured commits suicide within 12 months of buying the life insurance policy, the insurance companies generally pay 80% of the total premiums paid.

Buying the best life insurance plan online is not only safe but a better option. Online life insurance policies have lower premiums and the individual is not required to visit the insurer's branch or a bank. The best life insurance policies online insurance offer higher benefits. Customers should, however, buy online life insurance policies only from credible insurers and should check for SSL certificate on the website to ensure that the website is legitimate.

The cost of life insurance policies varies depending on factors like age, gender and occupation. The average cost of life insurance plans, especially term plans, is very low compared to the amount of coverage offered.

An individual is allowed to have multiple life insurance policies. People opt for more than one life insurance policy to increase the cover or avoid claim rejection. In case of multiple life insurance policies, even if the claim is rejected by one insurer, the beneficiaries may receive the benefit from a different insurer.

Life insurance policies are of different types. In case of unit-linked or endowment policies the policyholder receives the maturity benefit at the end of the policy term. However, in the case of term insurance plans, there are no maturity benefits. The death benefit is only paid out after the death of the life insured.

When you buy a life insurance policy, the insurance company asks for the nominee details. Only the person named as the nominee in the life insurance plan can cash out in case of death of life insured.

A life insurance policy is generally taken for a specified period. After the policy duration of a term plan gets over, the policy simply terminates and ceases to exist. However, in case of unit-linked plans or endowment, you can use the policy as a tool for retirement planning and the accumulated corpus is used by the insurer to pay you monthly amounts for your entire life.

If a policyholder purchases a term plan for 25 years and dies during the policy term, the beneficiary receives the death benefit. In case of iSelect term plan, the policy provides four payment options to the beneficiaries. If the regular payment option is chosen, the policy works as a source of regular income.

It is a popular misconception that life insurance plans are only for accidental deaths. A term life insurance plan like iSelect Star Term Plan also covers terminal disease along with death. A terminal illness cover is important as health insurance pays only for the cost of treatment and hospitalization, but a terminal illness cover pays you a lump-sum amount which takes care of other expenses. On the other hand, unit-linked policies such as Invest 4G cover death and also provide decent returns for other financial goals such as buying a house of child's education.

It is ideal to buy a life insurance plan in your early 20s because it is the time when people have just started with their professional life and so there are lesser responsibilities and financial liabilities to take care of. Also, if you buy the best life insurance plan at this age, you will be paying relatively lower insurance premiums since it’s a due fact that mortality rate in case of young people is low. And that is why life insurance companies offer lesser premium rates to younger people as they think that they are most likely to be fit and healthier with less chances of filing a claim in future.

Once you have cancelled your life insurance policy, you will instantly lose your life insurance cover. Afterwards, your insurance company will get in touch with you and ask for valid reasons regarding the cancellation of your policy. In case you cancel your life insurance policy within the grace period, i.e. 15 to 30 days, depending on your insurer, then insurance company will reimburse the premium amount paid by you. But, no refunds will be paid to you if the policy is cancelled after the grace period.

Yes, you can take life insurance under Married Women’s Property (MWP) Act, 1984 only if you are a married man and a resident of India. Buying a life insurance plan under MWP Act would be helpful in saving your family’s financial well-being when you are not around. As per this policy, only wife and children would be eligible to receive the death benefits. You can also buy a policy if you are a widower or a divorcee. However, in that case, you can give your child’s name as your beneficiary. It is very simple to buy a life plan under MWP Act. All you need to do is to fill up an MWP addendum while purchasing an insurance policy.

Yes, there are different payment options for you to pay premiums. Here’re some of them

    1. Regular premium payment option – This premium payment option allows you to pay premiums equal to your policy term either monthly, quarterly, half yearly or annually.

    2. Single payment option – Through this premium payment option, you can pay the lump-sum amount in one single payment.

    3. Limited payment option -In this premium payment option, you can pay premiums for a specific period of time less than policy term either monthly, quarterly, half yearly or annually, but benefits of insurance can be enjoyed for a longer period of time.

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