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Does term insurance have cash value?

dateKnowledge Centre Team dateApril 08, 2021 views212 Views
Does term insurance have cash value?

As we move forward in life in the pursuit of achieving milestones, our requirements to achieve those milestones also increases. You may find yourself in a stage where the lives of your family members are dependent on you. In such situations, you often catch yourself thinking of “how can you protect your family?”. We all have witnessed familiar situations wherein we try to find and do everything that is possible to protect our loved ones if something happens to us. Life insurance is a pivotal financial instrument that is generally opted by people as the first step in securing the life of your loved ones.

As per reports, insurance sector in India is growing rapidly, and new products are entering the market every day. Hence, it is vital to get acquainted with the nitty-gritty of the life insurance policies before buying a term plan in India. Concerning this, the ‘cash value’ is an important component of a life insurance policy to look for. This article explains all the aspects related to the cash value of term plans in India.

Understanding the cash value of a life insurance plan

Life insurance is a type of investment for protecting finances. Some insurance plans come with an extra feature called ‘cash value’. A part of the premium goes into the cash value, which is basically your savings. It earns interest and increases as the policy ages.

As per the economic survey, the insurance penetration in India is only 3.76% and lower than the world average. Therefore, insurance policies with such a savings plan would serve as an incentive for people.

If you are looking for term life insurance cash value, you should know that it doesn’t have a cash value.

Cash value is principally a feature of permanent life insurance policies. These insurance plans do not have any expiry, while term life insurance expires completing term or upon death. The premium of a term insurance plan is considerably higher than that of a term insurance plan. Term insurance plans are the most affordable form of life insurance policies. The cash value of life insurance can be accessed in several ways.

How can you access the cash value in life insurance?

It is possible to use the cash value while the insurance plan is in force. One can access the cash value as per the criteria of the individual policy in the following ways.

Making a withdrawal

Unlike term life insurance, a part of the insurance premium accumulates over time. One can withdraw cash value from the insurance plan subject to the amount which has amassed as the cash value. However, it is important to remember that this reduces the death benefit payable to the beneficiaries.

Take a loan against the policy

Another way to use the cash value is to take a loan against the cash value of the permanent life insurance policy. This depends on the policy type, but loan value can be 85 to 90 per cent of the total cash value. A loan against the policy is a good choice since a lower rate of interest is charged when the policy is collateral. Since term insurance cash value is negligible, this type of policy is not eligible for a loan.

Surrender the policy

This is done in the event of a financial emergency or when the insurer is unable to pay future premiums. You get a surrender value less than the cash value. It is because companies charge a penalty for premature closure of insurance plans. However, some products do not charge this penalty if the premium is paid regularly for specific years.

These are the ways in which you can meet any urgent expenses by using the cash value of a life insurance plan. That said, the amount received after surrendering the policy may be a taxable income as per the IT act.

Why does term insurance not have cash value?

Going ahead, you should know why term plan in India does not have a cash value. It is purely an insurance policy with no direct saving. However, it is the most effective and low-cost way to provide financial security to the family. The premium of term life insurance is only a fraction of the premium that one pays for permanent insurance plans.

To ensure adequate insurance coverage while making it affordable, term insurance doesn’t have a cash value. Despite this, the premium paid for term life insurance is deductible from income tax. It guarantees complete peace of mind in the worst-case scenario. Moreover, when it comes to it, one cannot put a price on peace of mind.

Final Thoughts

Although the idea of building cash value in a life insurance policy is tempting, they are much more expensive than a term life insurance plan. Buy a permanent life insurance policy only if your budget allows you. If not, you can always consider relying on a term plan for your financial needs. If you are planning to buy a term insurance plan, then you may consider Canara HSBC Oriental Bank of Commerce Life Insurance - iSelect start term plan. It is packed with a lot of features such as return of premium, increasing sum assured, option to cover spouse, limited premium pay and terminal illness cover. This unique policy addresses the protection and wealth creation needs of every individual. Make it a part of your financial planning to ensure the financial security of the family.

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Frequently Asked Questions (FAQs) for Term Insurance

This being a term plan doesn't offer any payout after maturity or expiration date.

Each insurance company has its own term insurance premium calculator. If you want to check out the premium quote, go for the iSelect Star term plan calculator. It gives a premium amount based on your age, gender, habits, education, and annual income.

You can purchase an iSelect Star term plan anytime between 18 to 70 years of age.

It depends on your needs. For example, if you want to cover a child's education or wedding expenses, you have to include them in your coverage. Your premium will be calculated accordingly.

If your key purpose is to give your Family financial protection, go for the term insurance plan. And if you want some savings, in the end, go for a traditional life insurance plan.

Go for at least 12 times cover than your annual income. Or you can go as far as 20 times coverage as per your needs.

The right time is when you don't have anything to keep your Family safe from financial storms, and they rely on you for financial needs.

If you are unable to make the payment or suffering from a terminal illness, a term plan pays a part of the sum insured to treat your disease.

Term insurance riders are attachment or endorsements made, while taking the term insurance policy, as a supplementary coverage to policyholders. Apart from the core death benefit, term insurance riders offer below-given additional benefits:

  • Accidental Death Rider When a person suffers from a terminal illness, his/her family ends up spending a significant amount in treatment and medical expenses. Accelerated death rider pays a part of the sum insured in advance to cover such costs and save the family from running out of cash.
  • Accidental Disability Rider If the policyholder can't pay the premium because of an accident or permanent disability, a sudden disability this pays the premium on behalf of the policyholder till completion of policy term or for a defined duration.
  • Critical Illness Rider If the insured person gets a heart attack, cancer, or any other critical illness, this rider pays a lump sum on valid diagnosis.
  • Premium Waiver Rider If the policyholder is unable to make payments due to income loss or disability, a premium waiver rider waives off all future premium payments. And the term policy remains active until the expiration date.
  • Income Rider: The rider ensures that your family receives regular income + sum insured in case of unfortunate demise of life insured.

Anyone can go for life insurance as it offers some savings after the maturity date, but it doesn't cover the protection of your family . The best term insurance plan is solely designed for taking care of loved ones if something happens to you. Term plans act as a shield between your family and sudden financial fall. They make sure that your family lives a healthy life even after you. With a little amount paid per year, you can be worry-free from the family's financial conditions.

Questions that you need to Ask while Buying a Term Insurance?

  1. 1. Amount of premium you have to pay based on your age, habits, education, and monthly income
  2. 2. The total number of benefits covered in the term plan. Do they include benefits that you care about the most?
  3. 3. How to save money on tax if you pay for the term plan?
  4. 4. Do they offer regular income options?
  5. 5. Can you change the coverage and premium in the future?
  6. 6. Does the claim consider valid if death occurs outside India?
  7. 7. Which kind of death is not covered by insurance?
  8. 8. Can NRIs take term insurance? If yes, what are the conditions?
  9. 9. Does the term insurance plan have a cash value if you decide to cancel the policy?
  10. 10. Under what circumstances can a term insurance plan be cancelled?
  11. 11. Can I pay the premiums online or make electronic payments?
  12. 12. What will happen to the term plan if the life assured starts smoking after purchasing the policy?
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