What is Term Insurance?
Term insurance is a kind of insurance which is available for a specific period of time. It is designed for providing security to the family in case of the death of the life insured during the policy term. In case the insured person dies while during the term set for the policy to be active, then the death benefit is paid to the nominee. However, if the insurer dies after the maturity of the insurance, there is no benefit provided. These term insurance plans are considered to be pure protection plans.
Term insurances are offered via both offline and online mode.
Types of term insurance plans
There are different kinds of term insurances available in India. Some of the prominent ones are discussed below:
1. Pure Term Plan or Level Term Plan
Pure term plan is considered to be one of the most common and popular plans in which the premium and sum assured remains the same throughout the whole tenure. It is also called level term plan. The benefits of the plan are paid on the demise of life insured. The cheaper options for premiums are available for younger people in this plan.
2. Group Term Insurance Plan
Group term insurance plans are specifically designed for corporates, companies, institutes, associations, businesses, societies or even larger families. The policies are similar to specific term insurance plans. Such plans are usually offline in order to customize according to the needs of the interested party.
3. Single Life Term Insurance Plan
Single life term insurance plans have similar features and benefits as pure term plans. These plans are specifically designed for single individuals who are willing to insure life through such plans.
4. Joint Life Term Insurance Plans
Joint Life Term Insurance plans are those plans which are designed for more than one family member. These plans are suited for insuring the lives of the earning members of a family and are considered best for couples. Features and benefits of these plans are quite similar to those of single term plans.
5. Term Insurance with Return of Premium (TROP)
Term Insurance with Return of Premium (TROP) provides maturity benefits along with returning back the total premium paid to the insurer on the maturity of the policy. This type of term insurance plan is different from a pure term plan in the sense that in case of survival of the insured individual at the time of maturity of the policy, the premiums paid are returned to the policyholder.
6. Increasing Term Plans
Increasing term plans are those plans in which the insurer is given a choice to increase the sum assured on a yearly basis during the tenure of the policy while keeping the amount set for premium of similar value. This makes the premium higher as compared to other plans. Such plans sometimes set a limit for the maximum level that the sum assured can reach. These plans are created in a way to combat the effects of inflation.
7. Decreasing Term Plans
Decreasing term plans are those plans in which the insurer has the choice to decrease the sum assured to meet the requirements of insurers. The decrease can take place annually. These plans are better for those individuals who have other financial requirements to meet in life such as EMI, loans, etc. Premiums of these plans stay the same and are usually available at lower rates as compared to other plans.
8. Convertible Term Plans
Convertible term plans are those plans that give the insured the power to later convert such plans into any other kind of plan. Some convertible term plans also provide in-built convertibility as an extra feature to add. Premiums usually stay constant and unaffected if the plan is converted.
9. Term Plans with Riders
Term plans with riders are those plans that provide an option to add riders like sudden demise, disability, etc. that can be bought at affordable prices.
Features of Term Insurance
Term insurances have attractive features which are mentioned below:
1. Term of Insurance Policy
Minimum term considered for this kind of insurance is 5 years and there is no maximum term considered for this kind of insurance. However, as the policy term increases, the premium amount also keeps increasing.
Most of the term insurance plans qualify for anyone over the age of 18 years and below the age of 65 years to be eligible for the schemes.
3. No Cash Value
Term insurances are known to be one of the most reasonable insurances due to the non-existence of a cash value feature which sets it apart.
Usually term insurance plans offer insured the flexibility of getting the plan through different modes whether it be offline or online. These plans also offer flexibility in payment modes for convenience of their clients, whether it be single pay, limited or regular pay. An individual has the option to choose to pay the premiums either monthly, quarterly or yearly. There is flexibility in choosing the type of term insurance plans. They also have a choice between single or joint plans.
5. Lower levels of brokerage
Term insurances involve lower levels of brokerage especially for those who opt via offline mode to pay premiums. It is due to the fact that premium of term insurances is most often set low, hence the reduced broker charges. Via online mode, there is absolutely no broker fees as well.
Riders can be used to enhance term insurance as it can play a part as an extra shield for protecting the policy. These can be bought at minimal prices from insurance companies itself. For instance, a few riders available are sudden demise benefits, disability, etc.
7. Less rejections of claim
Usually, these term insurances especially which have been active over 10 years have reported very few claim rejections taking place. Most of the insurance policy providers make sure to honor the claim of insurers.
8. Grace Term
Grace term for these insurance plans is around 15-30 days which depends upon different modes of policies.
9. Revival of term insurance policies
The term insurance policies allow revival within the period of two years from the time of premium which is left unpaid.
10. Financial Safety
Term insurance provides an absolutely helpful way in securing the insurer’s finances by building a strategic economic security net. Usually insurance policy hosting corporates and companies help in building an apt profile for their client for providing beneficial plans.
11. Tax benefits
Term insurance offers tax benefits to the insured on the amount paid as premiums and amount received on maturity. For the insured, premiums paid and the amount recovered after maturity is exempted from tax under Section 80C and 10 (10D), respectively, of the Income Tax Act, 1961.
Term insurance plans usually are offered at reasonable rates of premium.
13. Payment Frequency
Common frequency for paying premiums of term insurance plans is monthly, quarterly or annually.
How to Apply for Term Insurance
If an interested applicant wants to apply for a selected term insurance plan, there are a few documents required to be uploaded as mentioned below:
These documents are usually required in order to estimate the amount of coverage that has to be provided to the insured. These documents include salary slips of at least the last three months, employer certificate, bank statement of last six months, previous years income tax return, etc.
Certain documents are required to provide proof of address of the insured, such as a passbook with entries for the last six months, Aadhar card, passport, voter’s ID, driving license, electricity bill or ration card, etc.
There are offline and online modes of application. Offline mode may involve brokerage charges whereas online mode is free from such charges due to lack of intermediates in the procedure.
How to Choose Right Term Insurance Plan
Choosing the right term insurance plan could involve quite a hassle as it involves various factors as suitability, reliability, tenure, premium, etc. But don’t worry! We have provided easy steps that could lead to the best plan as per one’s requirements!
1. Evaluate the policy term required
Since term insurance plans come with different tenures, it is important to make the right use of the options and keep an estimate of tenure that one requires as per different requirements like at what age one is willing to retire, what is the best time to cover, etc.
2. Keep risks in mind
There are many circumstances that could cause harm to the cover and therefore it is necessary to keep the risks in mind while evaluating the right plan such as inflation, unforeseen events, etc.
3. Consider claim settlement ratio
It is important to take note of the claim settlement ratio of insurance companies while choosing the right term insurance plan so that one can evaluate how reliable the insurance company is to honor a claim from their client. Keep in mind to review claim rejection cases and reasons behind these rejections.
4. Use term premium calculator
While evaluating the right plan, it is apt to make use of a reliable term premium calculator and determine the suitable quote. Many of such term premium calculators are offered by various companies online as well as offline.
5. Be honest while disclosing information
It is very important to be completely honest while giving your information to insurance companies such as talking about the health history of family, unhealthy habits, etc. to negate the possibility of claim rejection later.
Q1. How much cover should one take in a term plan?
A. It depends on various factors such as investment requirements, lifestyle needs, dependents in the family, etc. It is suggested to analyze the expenses and income while deciding cover.
Q2. Will the plan still exist if one becomes NRI later on?
A. Most of the plans still continue even after an insured individual becomes an NRI. A few formalities may be required to be completed.
Q3. How much time does it generally take to settle a claim?
A. In case there are no issues with the claim, settlements usually do not take more than 15 to 30 days.
Q4. If a claim gets rejected, what next step should be taken?
A. If a claim gets rejected it is suggested to contact the insurance company and ask for help.
Q5. If life insured tragically dies in a foreign place, will the term insurance plan be still effective?
A. Term insurance plans stay effective irrespective of the geographical location.
Q6. Can loans be availed against term insurance plans?
A. No, loans cannot be availed against term insurance plans due to a lack of maturity benefits.
Q7. What is the policy number?
A. Policy number works as a unique way to identify the contract between the insurance company and the insured. This contract also known as the policy carries this number which helps in maintaining records and details.
Q8. What are the IRDA guidelines for processing a claim?
A. As per IRDA guidelines, an insurance company is required to process the claim within 30 days. If any case comes up where further verification is required, then it is required to be done within 6 months. If a company fails to complete the procedure in 6 months, the company has to pay interest on the claim amount.