Term Insurance

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  • What is a Term Insurance?

    Term insurance is the basic form of insurance providing for your family’s finances in your absence. It is a pre-protective plan offering a pre-agreed sum assured based on the premium and tenure you opt for.

    How Term Insurance works

    Vivek, 30, non-smoker and non-drinker, opted for a term insurance plan with an insurance company. He had chosen a tenure of 30 years. He has to pay a monthly premium of Rs.1000, which translates into an annual premium of Rs.12,000.

    The sum assured offered by the company for an annual premium payment of Rs.12,000 is Rs. 1crore. This means, in case of an unfortunate event happening to him like death, critical illness, or partial / full disability at any time during these 30 years, his family (that is, his beneficiary) will get Rs.1 crore. The company will pay the agreed sum assured even if the unfortunate event occurs after 1 year of the policy inception.

    No amount is refundable if he survives until the end of the term or something happens to him after the term. The policy will be live as long as the premium is paid, and the company is not liable to provide death benefits if the policy tenure is expired or if the buyer discontinues the policy.

    A term plan works with the basic and age old concept of insurance, that the insurance company uses the money collected to create a pool with which they pay claims.

    Why should we have term insurance?

    A term insurance policy provides highest coverage at the lowest premium rates. The premium here is many times lower than the other types of life insurance policies. So, a term insurance doesn’t create any unnecessary financial pressure on the insured person, and through it, the insurance company promises a lump sum to be paid to the nominee.

    Tenure in a term insurance plan

    Tenure in a term insurance refers to the length of time you need to pay the premium to keep the policy in force. Normally, a term insurance plan can be purchased for 5, 10, 15, 20, 25, or 30 years, although some companies may not offer 5 years’ term insurance policy. You need to select the tenure depending on your current financial status and what your family targets in the near future like higher education of your child or marriage of your daughter, etc.

    Objective of a term insurance plan

    There are two primary objectives of term insurance that you desire for the family in your absence:

    • Meet day-to-day expenses and maintain the existing socio-economic status as much as possible
    • Meet basic future goals that are most necessary or inevitable

    Term insurance policies are available with several attractive riders that you can opt to make the policy more attractive and comprehensive. Such riders like accidental death benefit, disablement benefit, and monthly income benefit help to achieve the above mentioned objectives more efficiently. Term insurance is the most basic type of life insurance and very affordable too.

    Why do you need to buy term insurance?

    If you are the sole breadwinner for your family, you would be worried about your family’s welfare in case of any unfortunate incidents. Your family will be deprived of the monthly income that you earned.

    Hence, in those situations, a term insurance plan can come to your rescue, as the insurer will provide the beneficiary or the nominee a sum assured in the event of the insured’s premature death during the tenure of the policy.

    However, if no claim is made and the insured survives the term of the policy, then no survival or maturity benefit is given. But still term insurance plan comes with a lot of benefits.

    Here are some of the reasons why you should buy a term insurance plan.

    Insurance gives you financial security:

    If you have any dependent or loved ones and you wish them to lead the same lifestyle post your untimely death, a term insurance provides that financial security to overcome the hardships. There are different versions on the amount of sum assured you should take the term insurance cover for. It should be 10 times your annual income, taking the rising inflation into account. The term of the policy should be chosen the number of years you are left with after subtracting your current age from the retirement age. For example, if you are 35, you should take a term plan for 25 years, considering the retirement age is 60.

    Term insurance comes with low premium and tax benefit:

    Compared to other insurance plans, the premium on term insurance plans is quite low. Some insurance companies also provide a term plan that gives back a certain percentage of the total premium paid in case the insured survives the tenure of the policy. The premium paid on this plan is also eligible for tax benefit under Section 80 C, up to Rs 1 lakh.

    Low claim rejection as compared to others:

    Generally, you should make complete disclosures about your health, habits and financials before taking a term plan to ensure it is not rejected. However, once the policy has been active for 10 years or more, claim rejections are lower. Besides, recently IRDA has mandated that a claim cannot be rejected two years after the policy came into force for non-disclosures of facts.

    Riders provide additional benefit:

    There is no one way that you can pass away or die untimely. Hence, in situations such as accidental death, permanent or partial disability, critical illnesses, a rider can be taken with the term insurance plan that can cover these risks at additional costs. It will help the insured as he will covered against other risks that can lead to untimely death.

    Who all can benefit from a term plan?

    This plan is not just applicable for the sole breadwinner who would like to cover his family financially in case of his untimely death. Someone who has taken huge loans can benefit from this plan. They can take term insurance plan to cover risk of death before they had paid all their loans. The sum assured can be used by the beneficiary or the nominee to clear all the dues. It also an inexpensive way to secure financially your domestic helps. Employers too can buy life cover for their employees and can claim the premium paid on such policies as business expenses.

    Hence, a term-insurance plan is a must for people who want to insure their loved ones financially when they will not be present with them due to untimely death. It is one of the best ways to keep your loved ones secure and happy.

    How does Term Insurance work?

    Abhishek, 30, is the sole breadwinner of his three-member family. He is worried about what will happen to his family and dependents if he meets with an untimely death. The family will be robbed of the monthly income that takes cares of all the house expenses. As he has taken a huge home loan, his family would be burdened to repay it in case of his untimely death as they will be deprived of the financial security of his monthly income after his death.

    In such a case, a term insurance plan will be of a great help to Abhishek’s family. Let’s see how.

    How a term insurance plan works

    Insurer promises a sum assured: In this plan, the insurer promises to pay the nominee a sum assured on the death of the insured during the tenure of the policy.

    Abhishek has to choose the sum assured wisely to cover his family’s financial requirements in his absence. A higher sum assured will attract higher premiums. And if he opts for lower sum assured, it may not cover his financial requirements adequately.

    Generally, the sum assured should be 10 times your income, taking into consideration the rising inflation.

    Premiums are low and remain the same throughout the duration of the policy: Term insurance plans generally cost less and attract low premiums. The premiums are calculated on the basis of the age and health of the insured, the sum assured, and the tenure of the policy. This is best suited for salaried-class people who want to secure their family financially in case of their untimely death. Employers also buy these plans for their employees and claim tax benefits as business expense.

    No maturity benefit on survival: If Abhishek survives the tenure of the policy, then no maturity benefit is given to him or his beneficiary. However, some insurance companies are now giving back a percentage of the premiums paid on survival of the policy.

    Beneficiary or nominee can use the sum assured as per their wish:The sum assured is given to the beneficiary or the nominee on the death of the insured. Abhishek’s beneficiary can choose to spend the money the way she wants. It can be used to repay the home loan or cover the education of the children. However, Abhishek can set up a will to allocate the funds of the sum assured among his various beneficiaries.

    Higher premium if you buy another policy if the first plan is not adequate or you outlive the policy term: Abhishek may survive the duration of the policy. In that case, the policy lapses and no maturity benefit is given. However, if Abhishek wishes to buy another term insurance plan, then he will have to pay higher premium as he turns older and his health conditions will also be taken into account. Hence, it makes sense to buy a term plan for a longer duration. Generally, the term of the plan is calculated as the difference between the retirement age and your current age. So, as Abhishek is 30 now, he can take a term plan for 30 years, considering retirement age is 60 years.

    No cash value: Term insurance does not build any cash value for you as the death benefit remains the same throughout the duration of the policy. It is not an investment or wealth-creation plan, but provides a security cover to your dependents in case of your untimely death.

    Hence, like in the case of Abhishek, term insurance is the best cover for those who have dependents surviving on their monthly income. The plan will cover them financially post the death of the breadwinner. This is a much preferred plan for its low cost premium and death benefit to the beneficiaries.

    Comparison of best online term plans in India

    When it comes to life insurance, term insurance plans are by far the most cost effective option. Offering financial protection against life, term insurance plans payout benefits to the nominee of the insurance policy. Some insurers also offer an additional sum insured for accidental deaths while offering protection against partial or permanent disability to make for an optimum protective instrument. Some of the popular term insurance plans available today are as listed below.

    1: Aegon Life iTerm Plus Insurance Plan: Aegon Life iTerm Plus Insurance Plan is a comprehensive protective term insurance plan offering coverage till the age of 80 years. Aegon Life iTerm Plus Insurance Plan offers a choice of 4 different plan options as per the policyholder’s protective needs.


    2: Bajaj Allianz iSecure Term Plan: Bajaj Allianz iSecure Term Plan is a term insurance plan catering for the financial needs of a policyholder’s family in the event of any eventuality. The plan comes with two options of an annual renewable term and a level premium plan allowing term insurance protection for fixed number of years. The policyholders have the option of selecting the policy term of 10, 15, 20, 25 or 30 years depending on their requirement. Premiums paid are eligible for tax deductions under Section 80C while death benefits are eligible for deductions under Section 10 (10D) of the Income Tax Act.


    3: ICICI Pru iProtect Smart special term plan: ICICI Pru iProtect Smart special is a term insurance plan offering comprehensive protection against death, accidental death as well as any terminal illness, disability, critical illness. The plan offers life cover up to 75 years of age (under Life Option) with premiums starting as low as Rs. 2400.What's more the policyholders can pay premiums either yearly, half-yearly or monthly.


    4: LIC eTerm Plan: LIC eTerm Plan is an online term assurance policy offering financial protection in any eventuality of unfortunate demise of policyholder. The plan will is exclusively available through online application process only and no intermediaries are involved. LIC eTerm Plan offers differential premium rates for Smoker/Non-Smoker lives. Policyholder must have own earned income. One cannot propose for anyone other than self.


    5: Kotak Preferred e-Term Plan: Kotak Preferred e-Term Plan is an online term insurance plan offering life insurance protection at minimal costs. The plan comes with customized payout options like recurring payouts at fixed intervals or lump sum as per the nominee preference. Kotak Preferred e-Term Plan offers waiver of basic premium in the event of total and permanent disability of the policyholder.


    6: Max life Super Term Plan: Max life Super Term Plan is a popular term insurance plan offering flexibility to choose the benefit payouts while offeringcomprehensive insurance cover at affordable prices. The policyholder can choose policy terms from a minimum of 10 years to maximum of 35 years making it ideal for vast range of individuals with different needs. The minimum premium for the product is Rs. 5,000 p.a. excluding extra premium. The policyholders have the option to choose a term between 10 years to 35 years, with intervals of 1 year. The policy offers riders like Max Life Accidental Death & Dismemberment Rider, Max Life Waiver of Premium plus Rider.


    7: PNB MetLife Mera Term Plan: PNB MetLife Mera Term Plan is a term insurance plan safeguarding your family's financial needs in the event of any eventuality. The plan offers a Joint life benefit to cover the policyholder's spouse in the same policy. PNB MetLife Mera Term Plan is a fully customizable protection plan which gives you the flexibility to choose from four payout options.


    8: SBI Life eShield term plan: SBI Life eShield is a term insurance plan offering comprehensive and affordable life insurance to safeguard your family's future financial needs. The online pure term plan offers the option of choosing amongst four plan options with a discount on premiums for non-smokers and female lives.


    9: Canara HSBC OBC eSMart term plan: Canara HSBC OBC eSMart term plan is a non linked, non participating term insurance plan offering life insurance cover at a low cost. With an easy claims process, the policy offers a dedicated manager to assist your family in claim settlement in the event of a claim. The case manager will be a one-point contact for your family making it easy for claim related assistance.


    10: IDBI Federabl iSurance online term plan: IDBI Federal iSurance online term plan offers comprehensive life insurance for policyholders at lucrative premium rates. The plan is available for Indian residents, Non Resident Indians (NRI), Person of Indian Origin (PIO) or Overseas Citizenship of India (OCI) and Indian with dual citizenship. iSurance Online Term Insurance can be purchased online making it easy and affordable.


    Comparison of best online term plans in India at a glance:

    Term Insurance plan Min-Max entry Age Min-Max Maturity Age Minimum Sum Assured Policy Term Premium Paying Term (PPT) Premium payment frequency Plan options
    Aegon Life iTerm Plus Insurance Plan 18-65 years Up to 80 years Death benefit- Rs. 25, 00,000 Accidental death benefit Rs. 5 Lakhs Choice of 4 terms. 65 years less entry age 70 years less entry age 75 years less entry age 80 years less entry age. Equal to policy term Annual, semiannual, monthly.
    • Life
    • Life plus
    • Life and health
    • Life and health plus
    Bajaj Allianz iSecure Term Plan 18-60 years 28-70 yearsrimefighter Sorta Rs.250,000 for general category and Rs.20,00,000 for the categories split by Preferred Non-Smoker1 , Non-Smoker1 & Smoker - no upper limit Smoker1 , Non-Smoker1 & Smoker - no upper limit 10, 15, 20, 25 & 30 years Same as policy term Annual, semi-annually, quarterly and monthly.
    • Annual Renewable Term Insurance Plan
    • Level Premium Term Insurance Plan
    ICICI Pru iProtect Smart special term plan 18-60 years 23- 75 years The minimum Critical Illness Benefit is Rs. 1 Lakhs. The maximum benefit is up to the basic Life Cover subject to maximum limit of Rs. 1 crore. 5-40 years for regular pay You can choose to pay the premium once, for a limited period or throughout the policy term. yearly, half-yearly or monthly
    • Life
    • Life plus
    • Life and health
    • All in one
    LIC eTerm Plan 18-60 years 75 years Rs. 25, 00,000 for Aggregate category, Rs. 50, 00,000 for Non-smoker category 10-35 years Same as policy term Annual payment NA
    Kotak Preferred e-Term Plan 18-65 years 28-75 years Rs. 25,00,000-no upper limit 10 to 40 years (in multiples of 1 year)
    • Regular Pay: Equal to Policy Term
    • Limited Pay: 5 pay for policy term 10 to 40 years 10 pay for policy term 15 to 40 years
    • single pay: Single payment
    Regular, Limited & Single Pay NA
    Max life Super Term Plan 18-65 years 75 years Rs. 25 Lakhs subject to Minimum Premium limits 10-35 years Same as policy term Annual, Semi - Annual, Quarterly and Monthly
    • Level Sum Assured Option
    • Increasing Sum Assured Option
    PNB MetLife Mera Term Plan 18-65 years 75 years Rs. 10,00,000 –no upper limit 10-40 years Same as coverage period opted Annual, Semi - Annual, Quarterly and Monthly Full Lump Sum Payout, Payout as Lump Sum+ Regular Monthly Income, Payout as Lump Sum+ Increasing Monthly Income and Payout as Lump Sum+ Regular Monthly Income till child turns 21.
    SBI Life eShield term plan 18- 60 years (for increasing Cover and Increasing Cover with Accidental Death Benefit) and 18-65 years (for Level Cover, Level Cover with Accidental Death Benefit) 70 years Rs. 20, 00,000 -no upper limit 5 years (for Level Cover, Level Cover with Accidental Death Benefit), 10 years (for increasing Cover and Increasing Cover with Accidental Death Benefit)- max 30 years Same as policy term Annual, Semi - Annual, Quarterly and Monthly Level Cover, Level Cover with Accidental Death Benefit, Increasing Cover and Increasing Cover with Accidental Death Benefit
    Canara HSBC OBC eSMart term plan 18-70 years NA Rs. 25, 00,000- no upper limit 5- 40 years (Policy Term should be in multiple of 5 years (5/10/15/20/25/30/35/40) same as policy term Annual NA
    IDBI Federabl iSurance online term plan 18-50 years NA Rs. 50 Lakhs- Rs. 30 Crore. Accidental death benefit: Maximum: 2 Crore (The premium for ADB can be a maximum of 30% of the premium for life cover, and the maximum ADB cover is equal to the Life cover). 10-25 years Same as policy term Annual NA

    How much Term Insurance do I need?

    Buying a term insurance plan without sufficient cover is like going on a long drive without spare wheels. Things can go wrong anytime leaving the passengers—your family— in the lurch.

    Turns out, it is not as much about whether you have bought insurance as it is about whether you have bought enough insurance to give your family sufficient financial cushion in case of your early demise—a probability statistically greater than you would like to believe.

    But how much cover is enough?

    There is no cut and dried approach to estimate this—individual situations being unique to each buyer. Experts in the insurance domain differ in their opinion on the matter. Here are a few popular methods to reach at a realistic sum that can help you get an optimal cover.

    The Income Method

    Multiply your annual income by 10. The product is the minimum cover you should look for in your term insurance plan.

    For example, if Anil earns a monthly salary of 60,000 rupees, his optimal cover would be 60000 X 12 X 10 which is equal to 72 lakh.

    Experts differ in this method on the multiplier though. While some agree on 8 to 10 times others recommend multiplying the annual income by at least 15 to 20 times.

    The major drawback of this method is it does not take into account liabilities and one-time needs like children’s education, marriage etc.

    The Expenses Method

    Also popular is the expense method. Many advise multiplying your monthly expenditure by 50 to get a sufficient cover. Again this sounds like an arbitrary estimate but the proponents of this method swear by its effectiveness.

    The Premium Method

    A sum assured which is equal to 30-40 times the lump sum premium is also believed to suffice the insurance needs of a person.

    The Assets-Liabilities Method

    To explain this method let’s take the case of Anil in the earlier example.

    Let us say his is a family of four, the other three members being his wife, a son and a daughter. Further assume he has a car loan, a home loan and a personal loan to pay off with outstanding (at the time of buying insurance) of 5 lakhs, 25 lakhs and 2 lakhs respectively.

    Now let us work out the replacement income Anil’s family will need after him. To simplify things, assume Anita, Anil’s wife, is a homemaker i.e. Anil is the sole breadwinner of his family. As mentioned earlier Anil’s annual salary is 7, 20,000 (all figures in rupees henceforth unless specified) so his annual replace income should be three-fourth of this income in his absence (remember he is a family of four) i.e. 6, 00,000. Anil is 45 years of age now and he has chosen term of 15 years, the time up to his retirement. So the final replacement income for his family becomes 15 times 6, 00,000 which is equal to 90 lakh.

    Moving on to other liabilities, Anil will need funds for the remaining education of his children, say 20 lakhs. At some point of time he will also have to bear marriage expenses for her daughter, ignoring for simplification that his son’s marriage will also incur expenses. Let us assume this figure to be 25 lakhs. Adding this total of 45 lakhs to his loan liabilities which amount to 32 lakhs in all, we get a total liability of 77 lakhs. If he dies right away he will need 90 + 77 = 1.67 crore.

    Taking stock of Anil’s assets now, let us see what he possesses. He has a home, a car, liquid asset in form of savings and cash-in- hand, and an investment in mutual funds with corresponding figures of 30, 4, 3 and 40 in lakhs and at present market value. The total financial value of his assets is therefore 77 lakhs.

    As a final step, we now calculate his total insurance requirement as the difference between the financial equivalent of his liabilities and assets which is 1.67 crore – 77 lakhs = 90 lakhs.

    These methods can prove to be a handy tool for calculating your insurance need but each of these has some limitations. Like mentioned before, since insurance needs are unique to each buyer, a good amount of personal judgment and self-assessment is necessary in addition to applying one of these methods, to reach a realistic sum necessary to cover your family adequately.

    A Word of Caution

    Several other factors must be taken into consideration before calculating your insurance need. You should not forget that the premium goes out from your disposable income and can be quite a strain on your expenses. Furthermore, you should take into account your lifestyle, spending habits and status of living before making a decision. If you have considerable assets you may not need a big cover and can do well with a basic plan. On the other hand if liabilities exceed your assets considerably it may not be wise to settle for an inadequate cover to save on premiums as you do not want to be under-insured. Finally, you must also be mindful of the type of term insurance plan you choose.

  • Q: What is life insurance?

    Q: What are the different types of life insurance plans available in the market?

    Q: What is term insurance?

    Q: What are the major benefits of term insurance?

    Q: What is an endowment insurance policy?

    Q: What are the benefits of opting for an endowment plan?

    Q: What is a unit linked insurance plan?

    Q: What are the benefits of opting for unit linked insurance?

    Q: What is whole life insurance?

    Q: What are the benefits of opting for whole life insurance?

    Q: What is money back insurance plan?

    Q: What is child insurance policy?

    Q: What are the benefits of opting for child insurance plans?

    Q: What are pension plans?

    Q: What are the benefits of opting for a pension plan?

    Q: what is the right time to buy life insurance?

    Q: How much insurance do I need?

    Q: what is sum assured in an insurance plan?

    Q: What is the meaning of annuity in an insurance plan?

    Q: What are riders in insurance plans?

    Q: What is the difference between paid up value and surrender value?

    Q: Can I seek loan on insurance policy?

    Q: Is it safe to buy insurance online?

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