All You Need To Know About Term Insurance
Term insurance isn’t just a policy; it’s a powerful promise you make to the ones who matter most. Think of it as an invisible shield, silently standing guard, ready to absorb the financial blow if the unthinkable happens.
What is Term Insurance?
Term insurance is a kind of life insurance that offers protection against monetary losses for a predetermined time frame. The beneficiaries listed in the policy get a death benefit if the insured individual passes away within the duration of the policy. Therefore, term insurance doesn’t increase in value over time like whole life insurance does, it is usually less expensive than other forms of life insurance.
Term insurance offers several benefits, making it a valuable financial tool. In the event of the policyholder’s death during the policy term, the death benefit is paid to the beneficiaries, helping them maintain their financial stability.Term insurance typically has lower premiums compared to other life insurance plans, making it accessible to a wider range of individuals. It offers various coverage options and riders to customise the policy according to your needs and budget.
Major Advantages of term Insurance
Term insurance is a popular option for people looking to safeguard their loved ones financially since it has a number of benefits. Here are a few of the main advantages:
- Affordability
Compared to other life insurance options like whole life, term insurance offers significantly lower premiums while providing high coverage amounts. This makes it an accessible option for individuals and families on a budget.
- High Coverage
Term insurance allows you to secure a large sum at a relatively low cost. This financial cushion can protect your loved ones from facing financial hardship in your absence, helping them meet essential expenses, pay off debts, or maintain their lifestyle.
- Flexibility
Term insurance provides various options to customise your coverage based on your needs and budget. For increased protection, you may select the extra riders, frequency of premium payments, insurance duration, and sum insured.
- Death Benefit Payout Options
You can choose how your beneficiaries receive the death benefit. Options include a lump sum payment, regular income instalments, or a combination of both. This flexibility ensures your loved ones receive the financial support they need in a way that aligns with their circumstances.
- Tax Benefits
One kind of pure protection plan that provides coverage for a certain sum of money over the policy period is term life insurance. The designated beneficiary will get a death benefit if the policyholder accidentally passes away while the policy is in effect. The following are key features of a term insurance policy:
Key features of a term insurance policy
One kind of pure protection plan that provides coverage for a certain sum of money over the policy period is term life insurance. The designated beneficiary will get a death benefit if the policyholder accidentally passes away while the policy is in effect. The following are key features of a term insurance policy:
- Death benefit: A lump sum payment is sent to the beneficiary if the policyholder dies within the policy’s term. The recipient may use this money to cover living expenses, educational costs, or unpaid debts.
- Affordable premiums: Term insurance plans are generally known for their relatively lower premiums compared to other types of life insurance plans, making them an attractive option for individuals seeking financial protection without breaking the bank.
- No cash value: Unlike whole life insurance policies, term insurance plans typically do not accumulate cash value. This means that if the policyholder outlives the policy term, no payout is received.
- Flexibility: Term insurance plans offer a variety of features and riders that can be customised to meet individual needs and budgets. These may include riders for accidental death, critical illness, or disability income.
How do you claim your term insurance?
- Intimate the insurance company:
This is the first and most crucial step. After the policyholder passes away, contact the insurance company as soon as you can. Usually, you may do this by going to their website or getting in touch with their customer service number.
Prepare the name, policy number, death date, and contact information of the policyholder. - Fill out the claim form:
The insurance company will provide you with a claim form, which you need to fill out completely and accurately.
This form will typically ask for details about the policyholder, the beneficiary, the cause of death, and any other relevant information. - Submit required documents
In addition to the claim form, you must supply other
Death certificate
Original policy documents
Proof of identity of the beneficiary a medical certificate providing evidence of the cause of death, if applicable
Police report (if death was accidental or criminal)
Deed of assignment (if applicable) - Claim processing
The insurance company will review the supporting files and your claim. You may need to contact hospitals, doctors, or other relevant parties to verify the information. This may involve contacting hospitals, doctors, or other relevant parties to verify the information. You may be contacted for additional information or clarification during this process. - Claim settlement
Once the insurance company is satisfied with all the information, they will settle your claim by paying the death benefit to the beneficiary.The timeframe for claim settlement can vary depending on the complexity of the case. However, in India, the Insurance Regulatory and Development Authority (IRDAI) mandates insurance companies to settle death claims within 30 days of receiving all required documents.
Documents Needed To Obtain A Term Insurance Policy
The documents required to obtain term insurance can vary depending on several factors, including:
- Your location: Requirements may differ between countries and even states/provinces within a country.
- The specific insurance company you choose: Each company may have slightly different requirements.
- Your circumstances: Depending on your age, health status, and occupation, additional documentation might be needed.
However, some general categories of documents are commonly required for term insurance applications:-
- Identity and Address Proof:
- Passport
- Aadhaar card (India)
- Voter ID card
- Driver’s licence
- Utility bills (electricity, water, phone)
- Bank statements
- Income Proof:
- Salary slips (last three months)
- Income tax returns (previous three years)
- Bank statements showing salary credited (last six months)
- Form 16 (for salaried individuals)
- Audited financial statements (for self-employed individuals)
- Age Proof:
- Passport
- Aadhaar card
- Birth certificate
- PAN card
- School leaving certificate
- Medical Proof (in some cases):
- Medical reports from past consultations
- Results of medical examinations conducted by the insurance company
Types of group personal accident insurance policies in India
- Level term insurance: This is the most popular and fundamental kind of term insurance. The amount of the death benefit is fixed for the duration of the policy.
- Decreasing term insurance: The death benefit amount reduces gradually over the policy term, often mirroring a declining mortgage balance. This type of insurance is suitable for covering debts that decrease over time, such as a home loan.
- Increasing term insurance: The death benefit amount increases over the policy term, which can help counter inflation and ensure adequate coverage for your beneficiaries in the future.
- Convertible term insurance: With this kind of coverage, you may switch from a term insurance policy to a permanent life insurance policy—like whole life or universal life—without needing to undergo another medical examination. If you subsequently determine that you require permanent coverage, this may be advantageous.
- Return of premium term insurance: This type of policy returns all the premiums you pay if you outlive the policy term. This can be a good option if you want to get your money back if you don’t pass away during the coverage period.
Inclusions under the term Insurance
Term insurance plans provide coverage to an insured person for a certain period (the term) and, in the event that the insured person passes away within the policy’s term, provide a death benefit to the beneficiaries. Generally, a term insurance plan’s terms cover natural causes of death. Plans may also offer additional coverage in the event of a serious illness, disability, or unintentional death. Here are some of the common inclusions under term insurance:
- Death due to natural causes
This is the most fundamental protection that term insurance offers. In the event that the insured person dies within the term of the policy due to natural causes, the beneficiaries will receive the death benefit.
- Accidental death
Some term insurance plans offer additional coverage for accidental death. This means that if the insured person dies as a result of an accident, the beneficiaries will receive a higher death benefit.
- Critical illness
Some term insurance plans offer riders that provide coverage for acute diseases such as cancer, heart attack, or stroke. The insured individual will get a lump sum payment that they can use to cover additional costs or medical care if they are found to have a covered critical illness.
- Disability
Some term insurance plans offer riders that provide coverage for disability. The monthly payment that the insured individual receives can assist them in meeting their financial needs in the event that they become incapacitated and are unable to work.
Exclusions Under a term insurance policy
Group personal accident insurance policies typically exclude coverage for a variety of events, including:
- Intentional self-injury or suicide: This includes injuries sustained during an attempt to take one’s own life.
- War, invasion, or acts of terrorism: Injuries or death resulting from these events are usually not covered.
- Dangerous activities: Participation in high-risk activities, such as extreme sports or professional sports, may be excluded.
- Substance abuse: Injuries or death caused by being under the influence of drugs or alcohol are typically not covered.
- Pre-existing conditions: The policy may not cover injuries or death arising from pre-existing medical conditions.
- Pregnancy and childbirth: Injuries or death related to pregnancy or childbirth are usually excluded.
- Mental illness: Injuries or death caused by mental illness are typically not covered.
Who Needs A Term Insurance Policy?
If you wish to protect your loved one’s finances in the event of their untimely death, term life insurance is a useful financial instrument. The following are typical circumstances in which having a term insurance coverage might be advantageous:
- People who are dependent on others: Term insurance might give your dependents—spouses, kids, or ageing parents, for example—a safety net to pay living expenses, unpaid bills, and other financial commitments if they depend on your income.
- People with significant debt: If you have a large mortgage, student loans, or other debts, a term policy can ensure that these financial obligations won’t burden your loved ones in your absence.
- Business owners: If you own a business, a term policy can help protect your business partners or employees by providing funds to continue operations or buy out ownership interests in the event of your death.
- Those with pre-existing conditions: Even if you have pre-existing health conditions, you may still be able to qualify for term life insurance at an affordable rate. This can provide valuable peace of mind, knowing your loved ones
How Do You Find a Good Term Insurance Policy?
- Assess your needs:
- Financial dependents: Consider who relies on your income, like spouses, children, or ageing parents.
- Financial obligations: Factor in mortgage payments, outstanding debts, and future education expenses.
- Lifestyle goals: Think about maintaining your family’s current standard of living.
- Term length: Choose a policy term that covers your financial responsibilities and aligns with your retirement age.
- Calculate your coverage amount:
- Experts often recommend coverage of 7-10 times your annual income. Online calculators can also help estimate your needs.
- Compare different policies:
- Use online comparison tools or consult insurance agents to compare premiums, coverage amounts, riders, and claim settlement ratios.
- Consider factors like claim settlement ratio, customer reviews, and the financial stability of the insurer.
- Understand key features:
- Riders: Optional add-ons like critical illness coverage or accidental death benefits can enhance your coverage.
- Exclusions: Be aware of situations where the policy won’t pay out.
- Renewability: Choose a plan with guaranteed renewability at the end of the term.
FAQ
- What is term insurance?
Term insurance offers pure life protection for a specific period, typically 10 to 30 years. If the policyholder dies within the chosen term, the beneficiaries receive a pre-determined sum assured. Unlike whole life insurance, there is no maturity benefit if the policyholder outlives the term. - Who needs term insurance?
Term insurance is ideal for individuals with financial dependents like spouses, children, or ageing parents. It helps financially secure their needs like education, mortgage payments, or living expenses in case of the policyholder’s untimely demise. - How much term insurance do I need?
The required coverage depends on various factors like income, debts, dependents, and lifestyle. Consider factors like future expenses, outstanding loans, and desired financial assistance for your beneficiaries. Aim for a coverage amount that will replace your income and maintain their standard of living. - What are the different types of term insurance?
- Level term: Fixed sum assured throughout the policy term.
- Increasing term: Coverage amount increases over time to account for inflation.
- Decreasing term: Coverage amount decreases over time, often aligned with decreasing debts like mortgages.
- Convertible term: Option to convert to a permanent life insurance plan with cash value during the term.
- Is term insurance expensive?
Generally, term insurance is one of the most affordable life insurance options due to its pure protection nature and lack of investment component. Premiums are based on factors like age, health, smoking status, and desired coverage amount.
