How Does a Term Life Insurance Plan Work?

Written by : Knowledge Centre Team

2025-10-20

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11 minutes read

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5 Reasons to buy a term plan early in life

We work hard to ensure our families consistently have a happy and secure life . A term life insurance plan is one of the main financial instruments for fyour family's financial safety during critical times.

Before you decide to look for the best term insurance plan online, understand what is a term insurance plan, and how does it work? Knowing everything in and out will help you make an informed decision and lead you to live a stress-free life.

Key Takeaways

Term insurance gives you high life cover at an affordable premium.
You can pay your premiums monthly, quarterly, yearly, or as a single payment.
Riders like critical illness or accident cover enhance your policy’s protection.
You enjoy tax benefits on premiums and payouts under Sections 80C and 10(10D).
You can easily customise the cover and benefits to your needs.

What is a Term Insurance Plan?

Term insurance plans are the simplest and purest form of life insurance. It offers financial compensation to your beneficiary in case of your unfortunate death during the policy term.

The sum assured chosen under the policy is payable as a death benefit to the beneficiary or nominee on claiming a death benefit with the insurance company. In case you outlive the policy term, no death benefit is paid out. However, some of the best term plans offer a return of premium option. If you opt for the return of premium option and survive the policy term, then all the premiums paid throughout the policy term will be paid back.

Learn how the return of premium option works.

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How Does a Term Insurance Plan Work?

A term insurance policy can be viewed as quite possibly the most traditional type of insurance. The majority of the term insurance plans have a premium that grows at a limited rate throughout the period. This is to account for a decrease in the worth of money as years pass by.

It additionally covers the increment in mortality risk and the additional levies imposed for an extended coverage term. To understand how it works, you can consider these three points:

Purchasing the Policy: To have the option to purchase a term insurance policy, you don't have to set aside a considerable amount of money consistently. A significant number of the insurance policies can offer you a sum assured of up to ₹1 crore for a premium that could be as little as about ₹10,000 for each year.
Maintaining the Policy: Like some other insurance policies, you pay the premium towards these policies as per your convenience.. These premiums can be paid each month, each quarter, at regular intervals or as a lump sum amount.
Recovering the Benefits: Term insurance plans don't ordinarily accompany any maturity benefits. Their fundamental goal is to give life insurance cover, and that is precisely what they do. During critical times, the individual named as the beneficiary of the policy will get the sum assured.
Likewise, the motivation behind why you will see that insurers allude to these plans as pure protection plans a majority of the time, is how it works. You pay the premium, and you get a fixed sum if something happens to you.

6 Benefits of Buying the Best Term Insurance Plans

The benefits of buying term insurance plans are as follows:

Payout options: You can receive your term insurance payout in different ways. Choose a one-time lump sum, a, or regular monthly payouts. These flexible options help you manage your family’s financial needs after the policy term.
High Coverage and Low Premium: Term insurance is the most reasonable approach to cover your life for a fixed duration. These plans are affordable, and the coverage sum can be sufficient to replace a while of your lost income.
Disability Support: Aside from the death benefit, some term insurance plans also offer disability support. If you meet with an accident during the policy term that causes total and permanent disability, the insurance provider may waive off your future premiums while keeping your policy active.
Riders: Riders in term insurance are optional add-ons that enhance your base policy coverage. They offer additional protection against specific risks like critical illness, accidental death, or disability. This helps you customise your plan to suit your lifestyle and financial goals more effectively.
Understand the importance of adding riders in a term plan.
Premium Payment Mode: Premium Payment Modes are accessible as monthly, quarterly, semi-yearly, or yearly, according to one's financial convenience for premium payment.
Tax Benefits: Last but not least, premiums paid towards a term insurance plan are qualified for tax benefits under Section 80C of the Income Tax Act. The death benefit received by the nominee under the plan is suitable for tax deductions under Section 10(10D).

Note: Tax benefits are subject to change in tax laws. Please consult your tax advisor.

What are the Eligibility Criteria for Buying a Term Life Insurance Plan?

Before purchasing a term insurance plan, it’s important to check the eligibility requirements. Although specific criteria may vary across insurers and plans, most policies follow a few common guidelines that help determine who can buy coverage.

The term insurance policyholder must be a citizen of India.
NRIs and PIOs are also eligible to invest in term insurance plans offered by life insurance providers in India.
Before purchasing term insurance, most insurers require that the insured undergo a medical examination. This allows the insurer to keep track of any medical conditions and the risk factors involved with them and assess the premium amounts that the policyholder will be responsible for.

The premiums of term plans are usually higher for smokers than for non-smokers. This is because smoking has been known to cause serious health problems.

Know all about the Term insurance plan for smokers in India.

To complete the term insurance application process, you must provide all the required documentation.

Why Do You Need a Term Plan?

A term insurance policy is necessary for anyone who wishes to protect their family from financial difficulties in the event of their death. The policy guarantees a high level of coverage at a reasonable premium.

This allows you to choose the level of coverage that best suits your needs. This comprehensive coverage ensures that your family is financially secure in your absence.

Term insurance is a must-have for everyone since no other investment plan offers the level of financial protection that term insurance does.

Understand these 5 reasons you should buy a term life insurance.

How to Choose the Best Term Insurance Plans?

Consider the following points to choose the ideal term insurance plan:

Is the insurance company credible?
How much coverage do you require?
Verify the claim settlement ratio(CRO)
Consider inflationary factors in premium payment and coverage benefits.
Try comparing the terms and conditions of multiple insurance companies.
You can also purchase two term insurance plans from two different insurance companies simultaneously. This is beneficial in case one of the companies rejects your claim.
Please don't choose the cheapest term insurance plan because it may be reasonable, but it can have unreasonable conditions for claiming the money at the end of the term.
You have the option of choosing an online or offline term plan.

Buy iSelect Smart360 Term Plan by Canara HSBC Life Insurance

iSelect Smart360 Term Plan by Canara HSBC Life Insurance is the fulfilling plan to safeguard you and your dear ones!

Some of its benefits are as follows:

Life insurance cover at an affordable cost.
Alternative to get coverage for a limited period or for the entire life.
A variety of other options of coverage, premium payment, and benefits payouts, aligning the arrangement to your needs.
Option to add your spouse to the same policy as yours.
Plenty of premium payment options
Provision for tax benefits.
Possibility of additional covers such as accidental death Benefit, child Support benefit, accidental total, and permanent disability benefit
Opportunity to pick returns in a lump-sum amount, monthly pay, part lump-sum amount, part monthly pay, and an alternative to pick both levels/high gain.

You get lower premiums when you opt for a higher sum assured or if you are a female policyholder. As an existing customer, you also enjoy a loyalty discount on your term insurance plan.

Final Thoughts

Before buying a policy, it is fundamental to comprehend what term insurance is, how it works, and its benefits. When you have wholly perceived the policy, you would then be able to make the choices to pick the one you accept that would have the option to meet your family's financial requirements.

And that's where Canara HSBC Life Insurance comes to your aid by providing you with the most suitable term plan, which is flexible enough to suit any of your prerequisites. Choose financial security by opting for the iSelect Smart360 Term Plan by Canara HSBC Life Insurance today!

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.