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Features
Ref. No. KLI/22-23/E-BB/492
Term insurance in India offers affordable premiums and high coverage amounts, providing crucial financial protection to families.
You choose nothing but the best for your family; you must have complete knowledge. The same is true when opting for a term insurance plan. Therefore, before purchasing a term insurance plan, you must know term insurance advantages and disadvantages to make a well-informed decision for yourself and your loved ones.
In India, term insurance policies have gained prominence due to their affordability and straightforward nature. However, like any financial product, term insurance has advantages and disadvantages, which individuals must carefully consider before purchasing a policy.
Term insurance is a type of life insurance that provides coverage for a specific period, known as the policy term. It is designed to offer financial protection to the policyholder’s dependents in the event of their untimely death during the term of the policy. This insurance product has gained popularity due to its simplicity, affordability, and focus on providing a substantial death benefit to beneficiaries. Let’s discuss term insurance advantages and disadvantages in detail.
Term insurance is a straightforward and valuable life insurance offering several distinct advantages. It has gained popularity among individuals and families seeking financial protection at affordable premiums. Here are some key advantages of term insurance:
Term insurance is more affordable than other long-term insurance products. The premiums for this plan are considerably lower while the cover or sum assured is higher.
Among the other benefits of term plans, flexibility is important. You can buy plans which can be converted into long-term insurance products. While keeping the sum assured the same, you can increase the tenure of your insurance.
Term insurance benefits include riders that can be added to your base plan to increase the coverage. For example, you can insure yourself against critical illnesses or accidental deaths with the help of the critical illness rider or an accidental benefit rider, respectively.
The advantages of term insurance plans include tax benefits under the Income Tax Act 1961. Term insurance income tax benefits fall under section 80C, and one can get a tax rebate of up to ₹1.5 lakhs on the premium paid.
The benefits of a term plan include paying premiums in different modes as per your convenience: single pay, limited pay, or regular pay. Similarly, for the payouts, one can receive a lump sum or a fixed amount every month.
Term insurance allows policyholders to choose a high coverage amount (sum assured) at a relatively low premium cost. This ensures that beneficiaries receive a substantial financial cushion in case of the insured’s demise, providing financial security to cover expenses, maintain lifestyle, repay debts, or fund future financial goals.
Term insurance policies are easy to purchase often available online or through insurance agents. The application process is streamlined, with minimal paperwork and medical underwriting requirements, especially for younger and healthier applicants.
The flip side of the coin does exist. However, apart from the advantages of term insurance plans, there are a few drawbacks.
Unlike other long-term insurance products, term plans do not have an investment element. Instead, it is a pure protection policy with no returns for the purchaser when they are alive.
While the benefits of a term plan include that if one stops paying the premium, the policy simply ends, it is essential to remember that this may come with no surrender value.
While low premiums are considered term insurance benefits, they differ with age, which means the premiums would be much lower today than what you pay when you are older.
Term insurance does not provide financial assistance or benefits to the policyholder while they are alive, apart from the death benefit paid to the nominee or beneficiaries upon the insured’s death.
Here is a comprehensive guide to help you navigate through the process and select the most suitable term insurance policy for your needs:
Before purchasing term insurance, assess your financial obligations and future needs. Consider factors such as:
Once you have identified your financial needs, calculate the sum assured (coverage amount) required from the term insurance policy.
Select the policy term based on your financial responsibilities and future financial goals. Consider how long your dependents will rely on your income and how long you need coverage.
Research and compare term insurance plans offered by different insurers. Pay attention to:
Review the insurer’s claim settlement ratio, which indicates the percentage of claims settled by the insurer against the total claims received. A higher claim settlement ratio suggests better reliability and efficiency in claim processing.
1
Term insurance suits individuals with financial dependents, such as spouses, children, or aging parents, who rely on their income. It is ideal for breadwinners who want to provide financial security to their families in case of their untimely demise.
2
Common exclusions include death due to suicide within a specified period after policy inception, death resulting from participation in hazardous activities, or non-disclosure of material information during policy application.
3
It is advisable to review your term insurance coverage annually or whenever significant life events occur, such as marriage, childbirth, job change, or changes in financial status. Regular reviews ensure your coverage aligns with your current financial needs and responsibilities
4
The main advantages of term insurance include affordability, high coverage amount (sum assured), flexibility in policy duration, tax benefits on premiums, and ease of purchase.
5
Term insurance typically does not cover critical illnesses by default. However, some insurers offer critical illness riders that can be added to the base term policy for an additional premium.
6
Smoking increases the risk of various health conditions and mortality rates, resulting in higher term insurance premiums for smokers compared to non-smokers.
7
Yes, Non-Resident Indians (NRIs) can buy term insurance in India, subject to certain conditions specified by insurance companies.
8
The claim settlement process for term insurance involves the nominee or beneficiary submitting a claim form and required documents such as a death certificate, policy documents, and identity proof. Insurers assess the claim based on policy terms, medical history, and circumstances of death.
9
Term insurance benefits young adults by providing affordable coverage at lower premiums, allowing them to secure significant financial protection early in life.
10
Policy riders, such as accidental death benefits, critical illness cover, and premium waivers, increase term insurance premiums as they add additional coverage to the base policy.
11
Term insurance supports family financial planning by ensuring continuity of income and financial stability for dependents without the primary earner.
12
When comparing term insurance policies, consider factors such as premium rates, coverage amount (sum assured), policy duration, exclusions, riders available, insurer’s claim settlement ratio, customer service reputation, and flexibility regarding convertibility and renewability.
1. Why Should You Rethink Short-Term Insurance Plans
2. How to choose the right term insurance plan
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
Features
Ref. No. KLI/22-23/E-BB/2435
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
