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What is a term insurance plan and which one is the best in India?

dateKnowledge Centre Team dateFebruary 15, 2021 views135 Views
What is a term insurance plan and which one is the best in India?

Life is unpredictable, and the peril of unfortunate demise is pretty relevant. If the bread-winner of the house departs suddenly, the family succumbs its source of livelihood. In that circumstance, the family suffers some significant economic crisis. The savings which the family holds might not prove to be adequate to satisfy all their monetary requirements of this is where financial security is explored. A term life insurance policy ensures this economic security and supports the family to deal with the monetary loss if the bread-winner departs untimely.

What is exactly a term insurance plan?

A term insurance policy is a life protection plan that a person can exercise on his or her own life. A definite term and amount ensured are determined under the policy. If the policy owner dies during the plan's term, the selected amount ensures the selected is funded by the insurance company to the departed's family. This cumulative benefit supports the family to deal with their monetary loss.

How does a Term Insurance work?

Once a patron determines the policy duration and the secured amount, the instalment for term insurance plan is computed based on various determinants like health, age, coverage sum, duration etc. This instalment remains fixed throughout the policy duration. The premium can be given at monthly periods or just once. The policyholder can also choose how they desire to obtain the coverage sum.

Once a term insurance plan is bought, and in case of the policyholder's death within the given term, the insurance firm gives the coverage amount to the recipient specified in the policy. If the policyholder is alive, the coverage terminates, usually without any company's monetary payment. However, if the policy incorporates remainder advantages, the policyholder will receive a lump sum amount once the policy matures.

Post the policy term is completed, if the policy provides for restoration and the policyholder needs to revive the policy, it can be renewed. Usually, restorations are granted till the policyholder attains the maximum age limit outlined by the insurer. However, in the matter of revisions, the premium amount is recalculated for the new term.

Important features of term insurance plans

Term insurance policies have the subsequent essential advantages which you should remember to follow the plan thoroughly –

  • Term plans require very moderate premiums as the policy comprises only the risk of mortality.
  • There is normally zero limits on the coverage that you can avail. Users can, consequently, opt for greater coverage levels, as per their specification, for stabler financial security.
  • The policy's coverage term can move up to 30 or 35 years, enabling you to relish coverage up to matured ages.
  • There is zero surrender value or paid-up value under term insurance plans. If you discontinue financing the premiums, the policy will terminate, and you would receive no compensation.
  • Gratuity is not disclosed under term insurance plans. In case any person demises the policyholder, only the sanctioned sum assured is paid.
  • A variety of riders are available under term insurance plans. These riders assist you in improving the extent of coverage of the policy.

Types of term insurance plans in India

Term insurance plans are available in several variants, and each alternative guarantees something distinct. Here are a few types of term insurance plans in India –

Level term insurance plans

Level term plans are those plans in which the amount ensured continues to remain consistent during the policy. In case any person demises the policyholder, the preferred sum secured is paid. Level term plans are the most simplistic term insurance plans obtainable in the market.

Increasing term insurance plans

Under increasing term insurance plans, the preferred sum secured progress each year by a set amount. In the event of demise, the amount guaranteed available in the year of passing is paid. For example, in a term insurance plan, the amount ensured rises by 5 per cent each year. If any user purchases a term insurance policy with a cap of INR 10 lakhs, the coverage will become INR 10.5 lakhs in the following year. The amount promised would be INR 11 lakhs in the third year, INR 11.5 lakhs in the fourth year and so on. If the person insured expires in the fourth policy year, INR 11.5 lakhs would be given in that case even though the picked amount assured was INR 10 lakhs.

Decreasing term insurance plans

The reverse of increasing term policies is decreasing term insurance policies. Under these policies, the amount guaranteed diminishes every year. Decreasing term insurance policies are normally granted as credit recovery plans wherein the reduction in the amount assured customarily meets the reducing balance of the outstanding credit. In case any person demises the policyholder, the lowered amount assured available in the year of expiration is paid. The aim of decreasing term insurance policies is to pay off the loan's remaining balance if the borrower departs before repayment.

Term insurance plans with return of premium

Also known as the return of premium plans or TROP, these term insurance plans are distinct from other kinds of term insurance plans as they hold a maturity advantage. If the person insured dies during the duration of the plan, the amount assured is paid. If the insured person survives the duration of the plan, the instalments paid are returned. As the premium amounts are returned on maturity, this plan is known as the premium term insurance plan's return. This policy is appropriate for people seeking financial safety as well as a perk on policy maturity.

Group term insurance plans

Another alternative of a term insurance policy is a group term insurance plan. Acknowledged groups purchase group plans for their members. These organisations can be banks and their account holders, employer-employee groups, trade unions and their members, clubs and their members, etc. are granted for one year. Every member is covered under a single master policy. If any member expires during this one year, the equal sum assured is granted to the family of the member. Coverage for other members, however, resumes. After each year, the policy has to be revived. Premiums can be paid by the organisation, its affiliates, or its members in a particularised proportion.

Term insurance plans riders

As stated above, riders are available with term insurance policies. Riders are extra coverage benefits which users can exercise by paying further premiums. Riders are voluntary, and every rider a user picks would require an additional premium. Riders have a self-governing amount assured, normally, equal to the amount affirmed of the base plan. However, there might be barriers to the coverage value of riders.

If the base policy's amount assured is more than the maximum rider sum assured, the rider amount assured would be confined to the maximum limit while the base plan's amount assured would be higher. For example, assume a rider's highest sum assured is INR 10 lakhs. If you pick a sum guaranteed of INR 25 lakhs in your term insurance policy, the rider amount assured would be restricted to INR 10 lakhs while the base policy's sum assured would be INR 25 lakhs.

Term insurance plans extend various riders, and you can pick as many riders that you require. However, the cumulative rider premium should not surpass the premium of the base policy. In some instances, the rider premium is not authorised to exceed 30% of the base policy's premium. In comparison, the total rider premium is entitled to be up to 100% of the premium of the base plan in other cases.

Why get a term insurance plan?

A term insurance policy is a must for every person who needs to present monetary security to his/her family. You should buy a term insurance plan if –

  • You are the only earning person of your family
  • Your family is financially reliant on you.
  • You possess financial objects for yourself and your family which require to be met.

The term insurance policy guarantees great coverage at very reasonable premiums allowing you to choose a maximum coverage level. This optimum coverage assures that your family's financial needs are taken care of in your absence. No additional investment plan ensures financial security which term insurance plan guarantees, and thus, the term insurance plan is a must-buy for everyone.

How to determine the best term insurance plan?

When you wish to buy the best term insurance policy for yourself, there are certain things which you should contemplate to determine the best plan. These things are as follows –

  • The term insurance plan should enable you to opt for the amount assured that you require. Normally, term insurance plans do not confine the amount assured; however, users must find out the maximum coverage granted under the plan.
  • The premiums of the term insurance policy should be moderate and affordable. The policy should not burn a hole in your pocket.
  • The policy should extend a wide extent of coverage, both inbuilt and with the help of riders so that you can secure an all-round assurance.
  • The term insurance policy should be adaptable so that you can customise it as per your coverage requirements.
  • There should be engaging premium reductions which reduce the premium of the policy.
  • The insurance company's claimed method should be easy, and the claim settlement ratio should be high so that the likelihood of the settlement of your claims advances.

To determine India's best term insurance plan, you must always evaluate all the available plans before purchasing. Comparing various plans allows you to pick the most suitable plan which extends comprehensive coverage benefits and levies low premiums.

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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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