What is Term Insurance? Things to know about Term Insurance Plans & Policies

What is Term Insurance

What is term insurance?

In this article, you will learn about Term Insurance Plans & Policies. Term insurance is a type of life insurance policy that offers financial protection to your family against life’s uncertainties and provides coverage for a specified term.

Compare to traditional policy, term life insurance is much less expensive. Unlike most types of policy, term insurance has the guaranteed death benefit and no cash value.

The number of people buying term insurance plans has increased since the corona pandemic. The decision to buy term insurance should be not in haste.

Maturity benefit is not available in this plan. However, it offers financial security to the family in form of guaranteed death benefit after the death of the policyholder. We should assess whether we need a term policy or not.

First, it is important to understand what a term plan is. Term insurance provides coverage at a fixed rate of premium for a limited period.

Term insurance is not an investment option. After the death of the policyholder, his family gets the benefit of this.

If the policyholder dies during the term of the policy, the guaranteed death benefit amount is paid to the nominee.

You should keep in mind dependent family members, current debts and liabilities, source of income, children’s higher education, their marriages, retirement etc. while assessing the sum assured. Normally, Term insurance cover should be at least 10 to 15 times your yearly income.

How Term Insurance Works?

A term life policy is an agreement between the person who owns the policy and an insurance company: It’s a contract.

The person agrees to pay a premium for a specific term; in return, the insurance company promises to pay a guaranteed death benefit in cash to the nominee upon the death of life to be insured. That benefit is usually tax-free.

List of life insurance companies in India

Following is the list of life insurance companies in India which have been approved by the IRDAI

  • Aditya Birla Sun Life Insurance Co. Ltd.
  • Aegon Life Insurance Co. Ltd.
  • Aviva Life Insurance Company India Ltd.
  • Bajaj Allianz Life Insurance Co. Ltd.
  • Bharti AXA Life Insurance Co. Ltd.
  • Canara HSBC Oriental Bank of Commerce Life Insurance Co. Ltd.
  • Edelweiss Tokio Life Insurance Co. Ltd.
  • Exide Life Insurance Co. Ltd.
  • Future Generali India Life Insurance Co. Ltd.
  • HDFC Standard Life Insurance Co. Ltd.
  • ICICI Prudential Life Insurance Co. Ltd.
  • IDBI Federal Life Insurance Co. Ltd.
  • IndiaFirst Life Insurance Co. Ltd.
  • Kotak Mahindra Life Insurance Co. Ltd.
  • Life Insurance Corporation of India
  • Max Life Insurance Co. Ltd.
  • PNB MetLife India Insurance Co. Ltd.
  • Pramerica Life Insurance Co. Ltd.
  • Reliance Nippon Life Insurance Company
  • Sahara India Life Insurance Co. Ltd.
  • SBI Life Insurance Co. Ltd.
  • Shriram Life Insurance Co. Ltd.
  • Star Union Dai-Ichi Life Insurance Co. Ltd.
  • TATA AIA Life Insurance Co. Ltd.

What is the Eligibility Criteria for Term Insurance?

What are the minimum and the maximum age to buy a term insurance policy? Most term plans are available for the age of 18 to 65 years person with the maximum maturity age being up to 85 years.

Term insurance plans have minimum eligibility requirements. The term of the policy can be from 5 years to 50 years and the sum assured can be from Rs. 5 lakhs to up to Rs. 5 crore and even higher.

What are term insurance plans? – Types of Term Insurance

You can choose from various types of term plans and policies based on your requirements:

  • Return of Premium Plans: This type of plans premiums are returned to the policyholder if policyholder survives till maturity of the policy.
  • Convertible Term Plans: In this policy, plan can be taken with an option to convert it into some other plan.
  • Increasing Term Plans: In this policy, person can opt to increase the sum assured during the plan period.
  • Decreasing Term Plans: Here, the sum assured decreases year after year. Mostly taken when person has taken a large business loan, personal loan or home loan and paying an EMI.
  • Level Term Plans: In this plan sum assured does not change during the tenure and death benefits are paid out to the nominee of the policyholder.

What is difference between life insurance and term insurance?

There are different types of insurance available in the market. But these two – life insurance and term insurance are the one that provides assistance for life loss.

It is important to understand the basics of insurance policies before purchasing them. So let us understand the difference.

Term Insurance policy: It is also known as a pure protection plan and it is for a fixed term. Under this policy, if policyholder dies within the policy term, the company paid the guaranteed death benefit to the nominee of the policyholder, If the person survives till the maturity of policy tenure, there can be no claim.

It is available at low and affordable premium and cheapest among all the insurances. It is only payable on the death of the policy holder.

Life Insurance policy: Under this, if the person is alive or dies, the payment is guaranteed as per the promise. Policyholder receives benefit on the maturity of the policy.

6 Things to keep in mind while buying Life Insurance Policy

The policy holder can choose policy tenure and if they are not alive by then the money is given to the nominee of the policy holder. Premium of this plans is comparative higher than term insurance plans.

It provides benefits for both the conditions, if the policy holder is alive or with his death on the maturity of the policy.

What are the benefits of a term plan?

  • This plan offers a large life insurance cover.
  • It provides protection against total and partial disabilities.
  • Substantial coverage is one of the important advantages of term plan.
  • They are cheap or available at low premium rate.
  • To increase the security, you can choose riders like accidental death and critical illness.
  • This plan provides high protection at low premiums.
  • This policy provides financial security.
  • Tax benefits under Section 80C. Premiums are eligible for tax deductions of up to Rs. 1.5 lakhs in a financial year.

What documents will I need to buy term insurance plans?

While buying a policy, it is imperative to know everything about the documents required for term plan for a hassle-free experience.

If you are planning of buying the term plan, you have prior knowledge of all the documents required for term plan to make the process quick. Following is a list of documents required for term insurance plan.

The document list includes DOB proof, photograph, income proof, and address proof listed below. Following is a list of documents for term insurance that you must keep handy to have a hassle-free process:

  • Passport
  • Aadhaar Card
  • Voter’s ID
  • PAN Card/Form 60
  • 3 years income tax returns

Read the plan and policy details carefully before buying to make sure that you pick a plan, premium, riders, and policy term that perfectly meets your requirements.

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