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What is a term insurance policy and how to choose the perfect one?

dateKnowledge Centre Team dateJanuary 21, 2021 views257 Views
What is a term insurance policy and how to choose the perfect one?

Life is uncertain, and it can subject to a severe accident or illness which can directly impact your financial stability. However, investing in life insurance safeguards your financial situation in the future, making your life, at the very least, tolerable. On another note, our needs change with our age. A PC may not be as crucial for a retiree as it is for a student. Exceptions exist, and one of them is Term Insurance. The value of Term Insurance stays essential for everyone, regardless of age group. Their purpose might vary from time to time. For example, a college-going student's needs are entirely different from a working individual. Life insurance is a savior for every age group against any possible unfortunate event, and term plans are the best among all the life insurances. It is not just limited to ensuring your financial security; it also gives you the power to help your family if they are diagnosed with any critical illness such as cancer.

You pass through various stages of life, and each of them calls for different plans and goals. They include jobs, marriage, kids, retirement, and others. Thus, it is essential to structure and plan out your goals before achieving them at the right time. Similarly, a person's financial liabilities change with their age. Therefore you must select your cover accordingly. Let us first understand what 'term insurance policy' means.

What is a term insurance policy?

Life insurance that gives you coverage for a said or specified period is term insurance. If the insured dies and the policy is still in force during the specified term, the financial institution will pay you a death benefit. If you compare term insurance to permanent life insurance, the former is initially less expensive. Contrary to permanent insurance, term insurance has no cash value. Meaning you can only avail of the value of guaranteed death benefits with these policies. Banks offer many types of term insurance policies with level premiums for the policy's period, such as 10, 20, or 30 years. Thus, the term insurance policies are also called the "level term" policies. Let us see what premiums are in a term insurance policy.

What is a premium?

A premium is a particular cost that the insurance company charges the policyholder to provide the benefits that come with the policy. The premium is typically paid every month. The insurance company calculates these monthly premiums based on age, health, and life expectancy. Thus, the policyholder sometimes undergoes a medical exam that reviews their health and family medical history. The medical test is a subject dependent on the type of policy being chosen.

The premiums of term insurances are fixed and paid for the whole length of the term. As already mentioned, if a person dies before the expiration of the policy, the insurance company will pay the death benefit. However, if the term expires and the individual expires after that, the company will not pay any coverage. The policyholders can, however, renew or extend their insurance. The newly renewed policy will be based on the person's age and health during the renewal time. Thus, the new premium can go higher than the person's initial policy when he/she was younger.

Why do you need the Best Term Insurance Policy?

  • Protection of your Assets

    If you have an ongoing loan on a vehicle or house and something happens to you, the onus to payback falls on your family. However, with a term plan, your family can repay it and retain your assets.

  • Lifestyle Risks

    Life is full of uncertain things; you never know when a critical illness will come uninvited. Thus, a term insurance policy will keep your family financially stable during this time.

  • Family Protection

    You need term insurance on an urgent basis if you are the sole bread earner of your family. Since the future is unpredictable, you should invest in term insurance to keep your family covered financially in your absence.

Features of the term insurance.

The various features of the term insurance are:

  • Duration: You are free to choose various insurance plans as per your comfort. There are plans for different periods available.
  • Payment Option: A customer can choose any payment option like monthly, quarterly, yearly, or half-yearly to pay the premium.
  • Medical Test: The conjoint insurance needs valid medical proof of your health and your member's health.
  • Terms and Conditions: The T&C works as a guideline for payout situations in various situations. For example, if the owner dies before the policy's expiration, the beneficiary is supposed to receive the face value.
  • Insurance Renewal: If no mishap happens with you until the insurance policy's termination, you can always renew it. The premium of the policy always depends on the current age and health of the customer.
  • Premium Calculation: Premium is calculated based on your health, age, and life expectancy. For, e.g., A 40-year-old non-smoker has to pay around Rs. 3500 per annum, whereas a 40-year-old smoker might have to pay Rs. 4500 per annum.

How much Term Insurance cover do you need to be on the safe side?

The company's insurance experts will always suggest you to opt for a term insurance plan covering 15-20 times of your total annual income. Considering that your salary is Rs. 7-9 lakh, then the term insurance must include a minimum of Rs. 1 crore life insurance. We are listing some of the other factors one should consider keeping in mind before calculating the perfect term insurance plan one needs:

  • Age: The younger age group of our society believes that a person can pay the premium for quite a long time with fewer chances of any disease or illness to keep the premium rate low. Those who fall under the older age group of our society permit various diseases but a lesser chance to pay, thus paying higher premiums.
  • Current Cost of Family: Diverse family has miscellaneous expenses and lifestyles. No one wants their family's lifestyle to affect them if something happens to them. One must consider the family's current cost to ensure that the sum is assured accordingly to prevent the family from suffering.
  • Wedding: If a person is concerned about the wedding of his/her young ones and wants it to happen at full efficiency, irrespective of your presence he/she must consider it while calculating the sum assured.
  • Premium: Last but not least, one should not forget to calculate the ability to pay the premium. The premium should be bearable and payable for a person so he/she won't even think of closing it down due to fund crunch.

How should you choose the perfect term insurance policy for you and your family?

It would be best to keep in mind certain factors before choosing the best term insurance policy for you or your closed ones. Here are some of those factors:

  • Claim Settlement Ratio: This ratio includes the claims which will be covered by the insurance company out of the total number of claims filed when the insured dies. If the insurance company provided you with a 70 percent claim ratio, then 70 out of every 100 claims filed will be paid by the company.
  • Solvency ratio: The solvency ratio tells us about the insurance company's capability or insurer to meet the debt obligations. It includes certain cases where the insurance company has to pay the insurance coverage to the beneficiary if the policyholder's death occurs. It should not be less than 1.5.
  • Inquire about the existing customers' experience: One thing you should always do is take suggestions from the company's existing customers. It is paramount to know about their experience with the insurance company. In the world of digitalization, you can always check for online reviews and ratings of the company. You must ensure an excellent customer experience to avoid the emergence of any issue while you are in the term policy.
  • You must carefully select the company's benefits: We want the best of our family's benefits in our absence. You should check the company's list of services or inquire about the benefits you want to cover while choosing the insurance company.

Given is a list of the most common benefits you might look for while choosing the best insurance policy:

  • Regular income payout option.
  • Several critical illnesses are covered.
  • Accidental death benefit.
  • Premium waiver in case of disability.

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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 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?
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