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What is Term Insurance?
Term insurance is a type of life insurance policy provided by the insurance companies. It offers a complete financial coverage to the beneficiary of the policy upon the death of the policyholder during policy period. Unlike other insurance policies, term insurance policy is cost-effective as it does not have any cash value. Almost all major insurance companies offer term insurance policies in terms like 10 years, 20 years and 30 years. The major benefit of term insurance policy is that it comes with a built-in facility to get converted to permanent life insurance policy regardless of the policyholder's health condition.
What is Term Life Insurance?
Term life insurance, also called as pure life insurance, is the purest and cheapest form of life insurance. This insurance type offers financial protection to the nominee if the policyholder dies during the policy period. It offers high life cover at lower premium. Policyholders can pay their fixed premiums at once or at regular intervals for the whole policy period or for a limited time period. The premium amount will be based on the payment type chosen by the policyholder.
What are the types of Term Insurance Plan?
There are six types of term insurance plans, classified according to their coverage and benefits.
1. Level Term Plans:
Level term plan is a basic type of insurance plan in which the assured sum of premium continues to remain the same during the entire term. The nominee will avail the benefit after the death of the policyholder.
2. Term Plans with Return of Premium:
In contrary to the level term plans, this plan offers maturity benefit in which the total premium paid by the policyholder will be returned if he/she survives until the policy period.
3. Increasing Term Plans:
In this plan, the policyholder can increase the assured sum annually during the policy term by still maintaining the premium amount at the same. Because of this reason, the premium is little higher than level term plans.
4. Decreasing Term Plans:
Unlike increasing term plans, the assured sum in this plan decreases every year to overcome the policyholder's decreasing insurance needs. This plan suits if the policyholder was already paying EMI or taken home loan/ personal loan.
5. Convertible Term Plans:
In this plan, the policyholder is provided with the option to change the existing plan to some other type of plan in future.
6. Term Plans with Riders:
This type of plan comes with add-on covers such as critical illness cover, accidental death cover, etc. Policyholders can buy these riders by just paying a small premium amount with the normal term plan.
What are the benefits of Term Insurance?
High insurance amount at low premiums:
Term insurance plans offer high amount of insurance cover at low premiums. This will compensate the earning which you have lost for several years.
Critical illness cover:
The new-age term plan offers protection against critical illness along with the provision of life cover. Critical illness cover offers huge sum of money for small additional premium when critical illness such as kidney failure, cancer, heart attack etc. diagnosed earlier.
Support for the disabled:
In the case of permanent or total disability, the insurance company will pay the future premiums in new-age term plans. Even if the policyholder is unable to pay their premiums, the life insurance cover will continue.
Additional protection:
In the case of accidental death or unfortunate event, the term policy offers an additional compensation of up to Rs. 2 crores which will secure the policyholder's family.
Which one is better - Term Insurance or Life Insurance?
For your better understanding, here we provide a comparison on the list of features of term insurance and life insurance with which you can compare and choose the better one according to your needs.
| Features | Term Insurance | Life Insurance |
|---|---|---|
| Coverage | Only premature death is covered. | Both premature death and survival till the end of the policy period are covered. |
| Premium | Premiums are very low and cheap. | Premiums are higher than term insurance. |
| Coverage duration | Long term | Short term |
| Maturity benefit | Not payable | Payable in almost all plans |
| Death benefit | Payable | Payable in all plans |
| Tenure | 10 to 35 years | 5 to 30 years |
| Bonus additions | No bonus addition | Bonus additions available |
| Flexibility | Not much flexible | Flexible |
| Paid up or surrender value | No paid-up value or surrender value | Paid-up value and surrender value are available |
Both term insurance and life insurance have their own features and benefits. As there is a possibility of premature death, term insurance plan is must for everyone to meet the financial needs. Hence, term insurance plan is mandatory for all. On the other hand, while choosing life insurance plans, estimate your financial goals and choose accordingly.
What is Term Insurance Premium Calculator?
- Insurance companies which offer term insurance are often flooded with questions from the customer side regarding the premium amount to be paid for a specific policy.
- As premium amount is important for customers to choose a policy, almost all insurance companies offer premium calculator in their respective websites.
- Term insurance premium calculator helps customers to calculate the premium amount which is to be paid for a specific policy.
- Premium calculator facility is available for all customers who want to calculate the premium to be paid.
- In order to calculate term insurance premium, you need to enter details such as date of birth and gender. Also, you have to mention whether you are a smoker or non-smoker. Enter the coverage amount you require as well.
- Once you have entered all details, the premium amount to be paid will appear on the screen. According to the maximum policy term provided by the insurer, the premium amount will be calculated. Other additional benefits inclusive in the policy will also be displayed under the premium amount.
- Depending on the type of insurance plan and coverage, the estimate will be provided. By using premium calculator, customers can check their premium contribution if they want to choose a specific term insurance policy.
What are the tax benefits in Term Insurance?
Section 10(10D): Term insurance comes with loads of tax benefits on the premiums paid. Along with critical illness cover, the new-age term insurance policy offers some extra tax benefits to the policyholders for the premiums paid. The policyholder also enjoys tax benefits under Section 10(10D) on the insurance amount which the policyholder's family gets in the event of sudden death/ mishap.
Section 80C: The term insurance premium paid by the policyholder qualifies for tax benefit under Section 80C of the IT Act, 1961. A policyholder can claim for tax deduction of up to Rs. 1.5 lakh per financial year for the premium paid by the policyholder, his/her spouse and children.
Section 80D: The new-age term plans with critical illness cover also offers additional tax benefits under Section 80D.
What are the key features of Term Insurance?
Tax benefits:
Term insurance comes with good tax benefits. Under Section 80C, the premiums paid by the policyholder is applicable for tax deduction. Under Section 80D, new-age term plans with critical illness cover also provides additional tax benefits. Under Section 10(10D), tax benefits are applicable for the amount received by the policyholder's family upon sudden demise.
Death benefits:
If the policyholder dies during the policy term, the nominee will receive the insurance amount. Depending on the term plan, the amount may increase, decrease or remain the same, regardless of the policy term in which the policyholder's death occur.
Survival benefits:
Though the regular term insurance plan does not come with survival benefits, many insurance companies provide survival benefits as premium refunds on maturity. Upon maturity, policyholders will receive the lump sum of premium amount paid under TROP upon survival.
Add-on benefits:
The regular term insurance policy comes with some add-on benefits which will increase the premium price to be paid. But it offers extra benefits for critical illness, accidental death, total and permanent disability, etc.
What are the eligibility criteria for Term Insurance?
In order to take term insurance, you need to fulfill the following eligibility requirements.
- While taking policy, the policyholder's minimum age should be 18 years of age.
- The policyholder's maximum entry age will depend on the minimum tenure of the policy.
- The minimum age for maturity will be decided on the basis of minimum entry age and minimum tenure provided.
- At the time of maturity, the maximum age for this policy is 75 years and it varies for each insurer.
- As the minimum sum assured is fixed for many policies, sum assured will also be considered.
- Some insurer may ask the policyholder to undergo medical check-up though it is not mandatory.
What are the documents required for Term Insurance?
In order to apply for term insurance, you need to submit the list of documents given below to the insurance company.
- Proof of Identity - Voter ID, Aadhaar card, Passport, Driving License.
- Proof of Address - Passport, Voter ID, Utility bills, Ration card, Bank Account Statement.
- Proof of Age - Birth Certificate, Driving License, PAN card, Passport.
- Proof of Income- Employer's Certificate, Income Tax Returns, Income Tax Assessment Order.
- Recent passport size photograph.
- PAN card.
How to buy Term Insurance in Online?
Like other types of insurance, you can buy term insurance in online itself. Earlier, you need to visit the insurance company to purchase term insurance. With the advent of technology, insurance companies have started to sell insurance policies in online in their official websites. The purchasing process may vary for each insurance company and the steps given below are common to all insurance portals.
Step 1: Visit the insurance company you wish to buy term insurance and click the term/life insurance option. Ensure whether the insurance company you chose offers term insurance plan.
Step 2: After clicking the term insurance option, enter details such as sum assured, term and period to make premium payment.
Step 3: Based on the details you entered, the policy premium amount will be displayed.
Step 4: If you agree with the premium policy, select the bank and proceed for the premium payment.
Step 5: Upon successful payment, you will receive an acknowledgement for your transaction.
Step 6: The insurance company will intimate the status of your application within three weeks.
Step 7: Upon approval of your application, the policy document will be sent to your registered email id and to your address via post.
How to claim Term Insurance?
If the policyholder passes away, the nominee has to file a claim to receive the insurance amount. The term insurance claim process involves the following steps.
Step 1: The first step in the term insurance claim process is to inform the insurance company via the available channel about the death of the policyholder. Only then the claim settlement process will be initiated.
Step 2: Once you have informed the insurer about the claim, submit necessary documents in support of claim such as original insurance policy document, death certificate and medical records of the policyholder, and other documents.
Step 3: After the submission of claim supporting documents, the claims department will verify the claim and documents to take final decision on claim settlement. The claim will be approved if everything is correct and rejected in the case of any errors.
How to renew Term Insurance?
Timely renewal of your term insurance policy is important and it can be renewed easily in online itself with just few clicks. If your term insurance policy is about to expire, just follow the simple steps given below.
Step 1: The first step in the term insurance renewal process is to review your existing insurance policy. In case you want to make any changes, you can make it during the renewal process.
Step 2: Visit your insurer's website and click on the policy renewal option. Then enter your policy details such as name, date of birth, policy number, etc. and confirm the details.
Step 3: The final step in the term insurance renewal process is to make payment. You can pay your policy renewal in online via credit card/ debit card/ internet banking/ ATM/ cheque/ mobile wallet/ branch office.
What are the exclusions for Term Insurance Plans?
Though term insurance plans cover a list of events, there are some exclusions which the term insurance does not cover. Some of the exclusions are,
- Suicide
- Death due to intoxication
- Death due to war, terrorism and drought
- Death due to policyholder's actions.