What is Term Insurance?
Term Insurance is a life insurance plan that provides financial coverage to the beneficiary of the insured person for a defined period of time. In the event of death of term insurance policyholder during policy term, the beneficiary can claim death benefits from the insurance company. The death benefit is payable to the nominee or beneficiary who is usually a family member. You can choose to get a lump-sum amount or a combination of lump-sum and monthly amount as per your requirement. Some Insurance Companies also cover permanent or partial disability wherein the policyholder’s regular income is disrupted.
Note: In case of survival of the policyholder the coverage at the earlier rate of premiums is not guaranteed after the expiry of the policy. The buyer has to either obtain extended coverage with different payment condition or forgo the coverage entirely.
Why Do You Need to Buy Term Insurance?
Term insurance is generally overlooked in comparison to other insurance products. The main reason for this is the belief that term insurance plans do not offer significant returns or any additional benefits besides the Sum Assured on the policyholder’s demise.
However, there are several advantages of buying a term insurance policy. These include:
- Financial security – Term insurance plans are an excellent way to build a financial safety net. This is especially true in today’s world, as such a plan makes provision for the financial security of the policyholder’s dependents in the event of his/her demise.
- Basic insurance product – Instead of opting for a plan with a host of other add-ons and ending up paying a high premium, opt for a term insurance plan with a fixed, affordable premium for almost the same features.
- Greater returns – Term plans also fit everyone’s needs. A term insurance plan is one where the benefit received is much more than the sum invested, resulting in higher returns without the hassle of having to manage investment funds. Regular plans as well as TROP plans offer as much as 105% return on premiums paid as a benefit upon maturity.
- Sufficient coverage – You can choose the sum assured under term insurance policies so that it offers you sufficient coverage. Financial advisors are of the opinion that sufficient cover is equal to 10 times your annual income. It should be noted that inadequate coverage defeats the purpose of being insured. Along the same lines, it is important that you review your insurance cover and identify areas where you can cut down, so that you are not over-insured.
- Survival benefits – While a regular term insurance plan does not have any survival benefits, a number of insurers have designed plans, i.e., Term Return of Premium Plans (TROPs), that offer survival benefits in the form of premium refunds at maturity.
- Policy term – Term insurance plans offer you coverage for a fixed term. This indicates that you can take term insurance for a fixed duration wherein your family is financially protected. Following this, you can retire comfortably.
- Low claim rejection – Claim rejections are observed to be lower if a life insurance policy has been active for more than 10 years. Hence, it is ideal to buy term insurance to ensure that your claims are honoured.
- Flexibility – Most term plans offer you the flexibility of buying the policy online or offline. In addition to this, many insurers do not insist on health check-ups if the sum assured under the plan is Rs.50 lakh or less.
- Riders – Term plans can be enhanced through the use of riders that offer extra protection. These riders can be bought from the insurance company at nominal costs. Some of the riders available under term plans are accidental death benefit, critical illness, partial or permanent disability, waiver of premium, etc.
- Low brokerage – In case you opt for an offline term insurance policy, you will be paying the lowest amount as broker commission. Brokerage is usually calculated as a percentage of the premium paid. Since the premium for term insurance policies are usually low, the overhead of broker charges is also reduced. If you choose an online plan, there will be no broker fees as well.
- Flexible payment options – Term insurance policies offer flexible premium payment options, allowing policyholders to choose a payment plan based on their convenience. Premiums can be either limited pay, single pay or regular pay. Policyholders who choose limited or regular pay plans can pay their premiums either monthly, quarterly, half-yearly, or annually.
- Choice of plan – A number of insurers offer policyholders a choice when it comes to the type of plan they wish to opt for. Policyholders can choose between single or joint life plans, depending on their need. They can thus choose to extend coverage for dependent spouses or choose a plan exclusively for the breadwinner of the family.
- Tax benefits – Last, but not the least, premiums paid towards a term plan is eligible for tax benefits under Section 80C of the Income Tax Act. The death benefit received by the nominee under the plan is eligible for tax deductions under Section 10(10D) as well.
How to Choose a Term Insurance Plan:
The market is flooded with term insurance policy options, with varying policy terms, benefits and sum assured amounts. Navigating this maze of policies and making sure you choose the one that fits best and meets your requirements is a difficult task.
The following points should be kept in mind when looking for a term insurance plan:
When picking an insurance policy, it is always advisable to look at the insurance company’s reputation. This is important as a term insurance policy is a long term investment and as a policyholder, you should not be left in the lurch in the event the company shuts down or meets with any difficulties. Checking the company’s FICO score would be a good way to gauge its stability and reliability.
- Claim Settlement Ratio:
The insurance company’s claim settlement ratio is an indicator of the number of claims settled out of every 100 claims received by the company. Insurance companies with a healthy claim settlement ratio are seen as more reliable and a better choice, as a higher settlement ratio is considered favourable. The IRDA publishes the claims settlement ratio for all insurance companies for a particular year.
- Riders / Add-on covers:
The riders provided by the insurance company in addition to the regular policies are also to be considered. A policy that provides the basic coverage and also offers additional benefits and riders is seen as a secure one, and insurers who provide a wide range of riders are considered a good option.
The amount you would be paying in terms of premium for the protection offered is a key factor in selecting a term insurance policy. Given that these policies can have a tenure of up to 20 years, the amount being paid annually as premium is a significant amount. Thus companies that offer reasonable protection for low premiums are preferred by policyholders.
When selecting a term insurance policy, take into account factors like inflation. Term insurance policies are usually taken for 10-20 years, during which time inflation will erode the value of the rupee, resulting in lower returns at the time of maturity. To offset this, consider companies that offer plans where the cover increases by 5% – 10% annually to keep in line with inflation.
- Policy comparison:
It is advisable to compare insurance plans online so that you have a clear idea of the options available to you. The facility of policy comparison is offered by neutral third-party financial websites, free of cost. So, it is wise to make use of this facility as much as possible.
- Engage an insurance advisor:
In case you feel that you are unable to decide on a plan by yourself you can always seek the assistance of an insurance advisor for the same. This way you can be assured of expert insurance advice/suggestions that would enable you to pick the right policy.
- Policy terms and conditions:
It is vital that you read the terms and conditions within the policy document thoroughly before signing the dotted line. This enables you to understand the minute details pertaining to the inclusions and exclusions under the plan, so that there are no confusions in the future.
Documents Required for Term Insurance:
All insurance companies mandate that you submit a set of relevant documents while applying for term insurance. Following is the list of documents you will need to provide when taking a term insurance plan. Document requirements may also differ from insurer to insurer.
- PAN card
- Proof of identity using documents like passport, Voter ID card, Aadhaar card, driving licence, letter from a public servant or authority verifying identity.
- Proof of age with documents like passport, birth certificate, driving licence, PAN card, etc.
- Proof of address with documents like utility bills (electricity, telephone), ration card, bank account statement, Voter ID card, or passport.
- Proof of income with documents like Income tax returns, employer’s certificate, or Income Tax assessment order.
- Some recently clicked passport sized photos.
Exclusions for Term Insurance Plans:
Term insurance plans cover a list of specific events and circumstances. Depending on the type of plan selected, this could be an exhaustive list. However, there are some exclusions that term insurance policies do not provide coverage for. Given below is a list of exclusions:
- Suicide: Suicide is an exclusion in all term insurance policies. Insurers will not pay dependents in the event of the policyholder committing suicide within a year of purchasing the policy. In the case of group insurance, suicide will not be liable for compensation as well.
- Death due to war, terrorism drought: Death due to natural calamities and acts of war are not covered under a term insurance plan.
- Death due to actions by the insured: Accidental death brought on by the actions of the policyholder (such as extreme sports etc.) are not covered as these are viewed as self-imposed risks by the policyholder.
- Death due to intoxication or narcotics: If the policyholder’s death was brought about by or as a result of consumption of alcohol or narcotic substances, the insurance company is not liable to compensate dependents.
टर्म लाइफ इंश्योरेंस पॉलिसी वे हैं जिन्हें निश्चित अवधि के लिए खरीदा जा सकता है। इन नीतियों में नकद मूल्य नहीं है, और इस प्रकार अन्य प्रकार की जीवन बीमा पॉलिसियों की तुलना में अपेक्षाकृत सस्ते हैं। हालांकि, पॉलिसीधारक पॉलिसी अवधि के दौरान मरने पर पॉलिसी केवल फायदेमंद हो जाएगी। भारत में प्रमुख जीवन बीमा कंपनियों में से अधिकांश 10 या 20 या 30 साल के लिए टर्म लाइफ इंश्योरेंस पॉलिसी प्रदान करती हैं, और इन नीतियों के बारे में सबसे आकर्षक विशेषता यह है कि वे एक अंतर्निहित विकल्प के साथ आते हैं जो पॉलिसीधारक को उन्हें परिवर्तित करने की अनुमति देता है स्थायी जीवन बीमा पॉलिसियों में।
टर्म लाइफ इंश्योरेंस पॉलिसी सबसे पारंपरिक प्रकार की बीमा योजनाओं में से हैं। टर्म लाइफ इंश्योरेंस पॉलिसी खरीदने के लिए, व्यक्तियों को बड़ी मात्रा में धन को अलग करने की आवश्यकता नहीं होती है क्योंकि अधिकांश बीमा कंपनियां ऐसी पॉलिसी प्रदान करती हैं, जहां बीमा राशि 1 करोड़ रुपये से अधिक हो सकती है, लेकिन पॉलिसीधारक को लागू प्रीमियम भुगतान रुपये के रूप में कम हो सकता है। 10,000 प्रति वर्ष। यह वहां की सबसे सस्ती नीतियों में से एक है, जो इसे जीवन बीमा का लाभ उठाने और अपने परिवार की वित्तीय सुरक्षा सुनिश्चित करने के लिए सबसे अच्छा विकल्प बनाता है।
प्रीमियम राशि के साथ-साथ प्रीमियम भुगतान आवृत्ति पॉलिसीधारक द्वारा चुनी जा सकती है, और प्रीमियम भुगतान के विकल्प वार्षिक, अर्ध-वार्षिक, तिमाही से मासिक तक भिन्न हो सकते हैं। यदि वे समय के नियमित अंतराल पर भुगतान नहीं करना चाहते हैं तो व्यक्ति एकमुश्त प्रीमियम भुगतान भी चुन सकते हैं। टर्म लाइफ इंश्योरेंस पॉलिसी का एकमात्र नकारात्मक पक्ष यह है कि यह किसी भी परिपक्वता लाभ की पेशकश नहीं करता है क्योंकि उन्हें इस तरह से डिज़ाइन किया गया है कि वे केवल जीवन बीमा कवर प्रदान करते हैं। हालांकि, पॉलिसीधारक की मृत्यु के मामले में, लाभार्थी या नामांकित व्यक्ति बीमा राशि का दावा करने के लिए पात्र होंगे।
यदि आप टर्म लाइफ इंश्योरेंस प्लान खरीदना चाहते हैं, तो आपको सबसे पहले यह सुनिश्चित करना होगा कि आपका बीमाधारक यह तय करने से पहले होगा कि आप पॉलिसी चाहते हैं या नहीं, जो प्रीमियम की वापसी प्रदान करेगी। फिर, एक बीमा कंपनी का चयन करें जो आपको अपनी पसंद की बीमित राशि के साथ पॉलिसी प्रदान करने के इच्छुक होगा, जिसके बाद आपको यह जांचना होगा कि आपके द्वारा चुने गए बीमा राशि के लिए प्रीमियम का शुल्क लिया गया है या नहीं। जिस कंपनी से आप जीवन बीमा पॉलिसी खरीद रहे हैं, उसके दावों का निपटारा अनुपात भी जांचना चाहिए क्योंकि यह सुनिश्चित करेगा कि यदि आप दावा करना चाहते हैं तो कोई परेशानी नहीं है।