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What is Term Insurance?

What is Term Insurance - Term Insurance Meaning & Definition

Term life insurance is the simplest and purest form of life insurance that provides a financial protection to the policyholder’s family at an affordable premium rate for a specific time period. With a term insurance plan, you can get a comprehensive life cover at low coat premium rates. An assured sum or a death benefit is paid to the nominee if the person insured dies during the policy term.

Let’s understand in detail about what is term life insurance and how it works:

How to Buy the Right Term Insurance Plan | Buy the Best Term Insurance Plan

Meaning of Term Life Insurance

Term insurance is a legally binding contract between the insured and the insurer where death benefit is provided to the beneficiary if the life insured dies during policy tenure. The person investing in the term plan agrees to pay premium charges to the insurance service provider. In return, the insurer promises a protective financial cover over the life of the insured person. The insurance cover offered by a term insurance plan is valid only for specified policy term. This term can range from 10 years to 30 years or more, depending on the age at which you invest in the plan.

Key Features of Term Insurance

After you learn the meaning of term insurance, understanding the features of a term plan becomes easier. A term plan is synonymous with protection - a simple life insurance plan with adequate cover to ensure the long-term safety of your family’s financial status and future. For the policyholders, term insurance means an umbrella that covers their loved ones.

i. Wide Coverage of Term Insurance Plan

Coverage in term insurance means the scope of the plan. For example, the best term plan coverage will result in:

a) Large life cover amount
b) Cover for accidental death and disability
c) Cover for critical illnesses
d) Longer policy term, i.e., coverage for a long time
e) Affordable premium rates

ii. Large Life Cover Amount

Term plans are pure protection plans, meaning, these plans only work for the covered event. Thus, the sum assured amount can be large enough to take care of all the associated expenses for your family:

a) Living costs
b) Ongoing debt
c) Cost of important goals

iii. Cover for Accidental Death & Disability

Since protection is the sole objective of a term plan, including more contingencies to the term plan makes sense. Accidental death and disability is one such option available to you.

This is an important cover for the following reasons:

a) Accidental death may result in additional final and legal costs for the family
b) Disability can affect your earning capacity
c) You may need to modify your living space to accommodate your disability

iv. Cover for Critical Illness

Critical illnesses are life-threatening diseases, which can be fatal despite undergoing the best treatment. For example, cancer, heart failure, etc. Critical illness cover will provide your family with the following:

a) Protection for household expenses
b) Support for treatment costs

Benefits of Adding Terminal Illness Cover to your Term Insurance Plan

v. Longer Policy Term – Age of Entry

You can buy a term insurance plan as early as you reach the age of majority, i.e., 18 years. Not only that, with policies like the iSelect Smart360 Term Plan from Canara HSBC Life Insurance, you can have a policy that continues till you hit 99.

vi. Affordable Premium Rates

Since the term plan has no maturity benefit, it does not carry an investment premium. With only protection cost as a premium, the amount is low enough for you to include in your monthly budget.

vii. Convenient Pay Out Options

Term insurance pay-out may seem like a nominal thing, but after your demise, this will be the most important feature for your family. The way your term plan pays your nominees will either give them more challenges or make their life easier.

iSelect Smart360 Term Plan from Canara HSBC Life Insurance, gives you the following options:

a) Lump sum payment
b) Lump sum + Regular income
c) Lump sum + Growing regular income

viii. Premium Waiver Option

A premium waiver is another benefit available with term insurance policies that covers disability risks. This option helps you to continue your life cover without paying any additional premiums.

Premium waiver gets activated with the permanent disability claim and continues to run the policy cover until expiry or death claim.

ix. Tax Savings

The premium you pay for the term insurance cover is eligible for deduction under section 80C of the Income Tax Act. Thus, your term insurance plan also helps to reduce your tax liability.

x. Other Important Feature – Flexibility in Premium Payment

Apart from these important features, a good term plan will also make paying for the cover easier. With the iSelect Smart360 Term Plan you can choose to pay the premium for your life cover in any of the following manners:

a) Single Pay

Premium for the entire 20-to-30-year policy paid in a single instalment.

b) Limited Pay

Pay the premium for the entire policy term within a few years. For example, pay 20-year policy’s premiums within 5 years.

c) Regular Pay

This option offers the lowest amount for each payment. However, your payment term extends to the entire length of the policy.

How does a Term Insurance Plan Work?

Term insurance is a simple insurance instrument option that offers many benefits. Understanding how it works can help you see why it’s an essential investment for you and your family. Here are the key points about how a term plan functions:

  1. When you invest in a term insurance policy, you agree to pay premium charges to the insurer.
  2. This premium can be paid as a lump sum amount or as periodic payments.
  3. If you choose to pay your premium periodically, you can do so on a monthly, quarterly, semi-annual, or annual basis, depending on the plan you opt for.
  4. In return, the insurer offers you a protective life cover.
  5. In case the policyholder passes away during the term of the plan, the insurer shall pay a sum assured, also known as death benefits, to the beneficiaries of the insured person.
  6. If the policyholder survives the term of the plan, no benefits are paid out by the insurance provider

    Also Read - What is Insurance?


Why do you Need a Term Insurance Policy?

Term insurance is one of the primary investment needs in your financial life. Term insurance should ideally offer full protection to the financial future of your family. Meaning, a term plan should take care of the following in your absence:

a) Living expenses of your family
b) Pay-off the outstanding debt
c) Help invest for important future goals

Thus, you need the term insurance so that you can:

i. Provide Financial Security to Your Family

If you are the sole breadwinner of your family, you essentially need term insurance for securing the financial needs of your family. In case of your untimely death, it will support your family’s financial needs.

ii. Mitigate Risks Related to Lifestyle

Generally, with old age, your risk of death increases. This risk also increases with certain lifestyle habits such as smoking, drinking, or an odd job. The term life plan covers all such risks against an extra amount of premium.

iii. Pay Outstanding Debt in your Absence

If you have certain outstanding debts/loans, your family can be in big trouble if you meet an untimely death. However, the term life plan also provides you with a certain amount from your sum assured for paying your outstanding debts.

iv. Help your Family Meet Important Financial Goals in your Absence

Financial goals like your child’s higher education are important in life for continued financial well-being. A term insurance cover with a large enough sum assured will ensure that your family can meet such goals financially. Thus, ensuring long-term financial stability.

Types of Term Insurance Plans

Term life insurance is a large life cover that offers a long-term financial safety umbrella to your family and dependents. You have the option of choosing the following different types of term insurance plans:

a. Level Term Plan

The meaning of level term insurance is that the sum assured remains the same throughout the policy term. However, plans like the iSelect Smart360 Term Plan from Canara HSBC Life Insurance, allow you to increase your cover based on specific life events. For example, marriage, childbirth or home purchase.

b. Increasing Term Insurance Plan

Increasing term insurance is a term plan where the life cover amount continues to increase automatically. For example, at a 5% per annum simple rate. This growth has a ceiling and once the sum assured reaches this ceiling the growth will stop.

Increasing term insurance will mean that you don’t need to worry about increasing your life cover as your lifestyle grows. The term plan will automatically keep up with it.

c. Decreasing Term Insurance Plan

Decreasing term insurance means that the life cover continues to decline with time. This term cover is usually given to cover a loan in case of your untimely demise.

d. Term Plan With Return of Premium

Under the term plan with the return of premium option, you will receive all the paid premiums at the expiry of the policy if you survive. This plan is popular for offering cash at the time of retirement as most term plans will last that long.

Term Plan with Return of Premium | Buy the Best Term Life Insurance Plan

Who Should buy a Term Insurance Plan?

Read on to learn more about the goals you should be setting with your term insurance policy in line with your increasing age.

The Young and Unmarried

As a young and unmarried adult who is earning their living for the first time, it may be important to think of your responsibilities towards yourself and your parents. Especially if your parents are close to retirement and might not be too well disposed towards taking care of their own health, you might be keen on doing the best you can for them. Your term plan, at this stage of your life, is expected to ensure that your parents are taken care of in case anything happens to you.

Those who are Newly Married

Once you are married and on your way towards starting a new family, your priorities are likely to change. While you would still want to ensure your parents’ well being in case something happened to you, your responsibilities would now expand to include your new spouse. When you start a new family, additional responsibilities may also crop up as you take loans to buy a new home or car. Your term insurance policy may now extend to ensure that your spouse is not left with a huge burden of debt in case you are no longer around to help repay the loans. Additionally, you might want to help your spouse get term insurance as well at a reasonable rate. You could opt for the iSelect Smart360 Term Plan, available with Canara HSBC Life Insurance Company, through which you can add your spouse into the same policy with discounts on the premium rates for your spouse. Since you can augment your coverage at different stages of your life, this policy is perfect for any stage of your life and can be the ideal insurance tool for you.

Those who have Young Children

Children change the structure of any family from the minute they are born. The parents start focusing on their responsibilities towards the child, and begin to dream about the child’s future. At this point in your life, you will want your term insurance plan to be more inclusive and wide enough that it can help your child achieve their dreams in the long term.

Parents of children in High School

The cost of education is enormous and continues to be on the rise. Higher education is especially expensive and as a parent, it is natural that you want to be prepared to spend a large amount for ensuring your child can study whatever they wish to and follow their dreams comfortably. No parent wants to stifle their children’s dreams owing to a lack of funds and with the ideal term insurance plan, you can make sure that your children are never compromising on reaching their goals.

Those nearing Retirement

Retirement is a time of your life that you need to begin planning for early on in your life. Ideally from the time you begin working, you should start setting aside funds that will come in useful when you retire. However, even if you haven’t, there is no cause for worry. All hope is not lost if you have opted for a term plan which increases coverage with changing stages of your life.

How much Life Cover Do I need with a Term Insurance Plan?

Term insurance cover is synonymous with replicating your financial umbrella for your family in your absence. Thus, as your life changes the term insurance should keep up with the progress:

a) Life Cover Need in the 20s

The 20s is that decade of life where you finally leave the nest and learn to fly independently. While you are doing so, make sure to have a term life cover which is a minimum of 10 times your annual income.

Also, get that cover as soon as you start earning to benefit from both price and protection.

b) Life Cover Need in the 30s

The 30s is the decade when you acquire more responsibilities and family, while your career is also hitting a high note. Thus, your life insurance need must be upgraded with the new responsibilities you have. Upgrade the life cover to 15 times your annual income.

This is easily done if you buy child insurance plans for the child’s future goals. If not just add to your term cover.

c) Life Cover Need in the 40s

In your 40s you are reaching closer to the most important goals in your children’s lives. Keeping your term cover up to date with your income and lifestyle will ensure smooth sailing for your family if anything happens to you.

So, ensure that your term life cover is still 10-15 times your annual income.

d) Life Cover Need in the 50s

This is the decade when most of your children’s goals will be met, and you will see your career set into the golden period. Thus, in this decade your life cover is only focused on two things:

  • Financial safety of your spouse in case of your demise
  • Legacy for your children

Thus, ensure that your term cover continues until all your debts have been paid off. Read if you should buy a term insurance plan in your 50s.

e) Life Cover Need in the 60s

At this age, you have completed almost all your financial goals and paid off your debts. With retirement setting in, you have only one goal in mind – leaving a legacy for the next generation to remember.

Thus, a whole life cover or 99 years term plan would be the best solution you can rely on.

Six Things to Check Before Buying a Term Insurance Plan

Mention factors such as claim settlement ratio, solvency ratio, option to add critical illness cover, additional riders, life cover requirement, reliability of the insurer

Term insurance is an investment into your long-term financial safety. Thus, you must take care of the factors which may affect the performance of the plan in future:

i. Claim Settlement Ratio

This is the ratio of the claims settled by a company to the total claims received by it. This shows the record of Claim settlement by the insurance company. You can learn CSR from the IRDAI portal.

ii. Solvency Ratio

The solvency ratio shows whether the insurance company will have enough liquidity to settle your claim. You can know this from the IRDA portal. The minimum solvency ratio must be 1.5.

iii. Option to Add Critical Illness Cover

Critical illness is a very important rider that covers severe diseases. You must look for it while buying a plan. However, critical illness is the default component of all Canara HSBC Life insurance Company’s term plans.

iv. Availability of Additional Riders

Riders like accidental death and disability benefits can be useful for you in such events. These riders will help your family with additional money or help you continue the life cover without additional premium payments.

v. Life Cover Requirement

Your life cover requirement keeps evolving with your life. Thus, having term insurance that allows for an increase in the life cover amount is a better choice. Plans like iSelect Smart360 Term Plan from Canara HSBC Life Insurance allow increments to life cover.

vi. Reliability of Insurer

The insurance company’s reputation is the key factor that tells whether the insurance company will be able to provide you with life cover. You must check the company profile from the insurance company’s portal before buying a term plan.

Term Life Insurance Basics FAQs

Insurance Riders are add-on benefits that help expand your basic term insurance plan coverage. These can be added to your base policy at a nominal rate. Some of the popular riders include Waiver of Premium Benefit, Accidental Death Benefit, Permanent or Partial Disability Benefit and Child Support Benefit.

When you buy a policy, premium is calculated through a deep analytical process known as underwriting, which uses statistical and mathematical calculations around your details to calculate an amount. Factors that affect this decision include your age, medical history, smoking & drinking habits, profession, hobbies, lifestyle among others that reflect the risks involved.

When choosing a term insurance plan, consider and compare factors like the cover amount being offered, payout options, riders, and premium payment options available. Do not prioritize premium amount as a factor because a little extra premium sometimes goes a long way to protect your family financially.

Yes, you can buy a term plan online, from the convenience of your home. In fact, online term plans offer an opportunity to compare different plans, their premiums and save time. Also, buying online plans directly from an insurer’s website may help you save on premiums.

Depending on the type of term plan you choose, regular plans can cover you up to the age of 60, while whole life covers you until you turn 99 years old.

Term insurance premium refers to the charge you have to pay to the life insurance company for getting your life covered. It is also known as the cost of the life cover. There are various methods to pay the term plan premium. You can pay the term Insurance premium either monthly, quarterly, half-yearly or annually.

Terminal illness benefit means that your term plan will also help you financially in case you are diagnosed with one of the life-threatening diseases. For example, cancer, heart ailment or renal failure.

iSelect Start term plan has terminal illness benefit as an inbuilt feature. Thus, the term cover can be used even after the diagnosis of such illnesses.

The minimum age to buy a term insurance plan is 18 years. The maximum age to buy a term insurance plan is 65 years.

Term insurance policy has certain exclusions, which disallow claims under specific events. For example, death by suicide will not be covered if it happens within 12 months of policy purchase. Similarly, other incidents may not be covered. For details specific to your policy check the policy contract.

Yes. The term insurance plans cover the deaths that occur outside India. The only condition is that you inform the insurance company about the death along with all the required details.

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