Close
Close

Buy a Life Insurance Plan in a few clicks

Now you can buy life insurance plan online.

Kotak e-Invest

Insurance and Investment in one plan.

Kotak e-Term

Protect your family's financial future.

Kotak Guaranteed Fortune Builder

A plan that offers guaranteed income for your future goals.

Kotak T.U.L.I.P

A plan that works like a term plan, and Earns like ULIP Plan.

Kotak Assured Savings Plan

A plan that offer guaranteed returns and financial protection for your family.

Kotak Assured Pension

A plan that offers immediate or deferred stream of income

Kotak Lifetime Income Plan

Retirement years are the golden years of life.

Kotak Guaranteed Savings Plan

A plan that offers long term savings and life cover.

Close

Get a Call

Enter your contact details below and we will get in touch with you at the earliest.

  • Select your Query

Thank you

Our representative will get in touch with you at the earliest.

How Does Term Life Insurance Work? Learn the Benefits

Term life insurance provides affordable and flexible coverage for a specified period, with the option to renew or convert to a permanent policy. Read ahead to know more about it.

  • 2,965 Views | Updated on: Dec 29, 2023

    Key takeaways

  • Term insurance is a type of life insurance policy that provides financial protection to the policyholder’s beneficiaries.
  • Determine how much coverage you require before buying a term life insurance policy.
  • A renewable term life insurance policy allows the policyholder to renew the policy at the end of the term without having to go through the underwriting process again.
  • The first step in determining the amount of term insurance you need is to calculate your current monthly expenses.

Term life insurance is a popular choice for those who want to ensure that their loved ones are financially secure in the event of their untimely death. It is generally more affordable than other types of life insurance, making it an attractive option for young families, individuals with debt or mortgages, and those who are looking for temporary coverage.

In this article, we will explore how term life insurance works, including the benefits and drawbacks of this type of coverage. We will also provide tips on how to choose the right term life insurance policy for your needs and answer some of the most common questions about this important form of financial protection.

What is Term Insurance?

Term insurance is a type of life insurance policy that provides financial protection to the policyholder’s beneficiaries in the event of their untimely death during the term of the policy.

Unlike permanent life insurance policies, term insurance policies are often more affordable, making them a popular choice for individuals who want to ensure their loved ones are protected but have limited financial resources. Understanding the basics of term insurance can help individuals make informed decisions about their life insurance needs and choose the right policy for their unique situation.
Also Read: What is term insurance?

How Does a Term Life Insurance Policy Work?

Life is unpredictable, and nobody knows what the future holds. That is why it’s essential to plan for the unexpected, particularly when it comes to your loved ones’ financial security in case of your untimely death.

Term life insurance can provide valuable protection to your loved ones during a critical time, and understanding how it works is crucial in choosing the right policy for your needs. Here are the basics of how term life insurance works and what you should consider when purchasing a policy.

Here’s how term life insurance works:

Step 1: Assess your coverage needs.

Determine how much coverage you require before buying a term life insurance policy. This will depend on a number of elements, such as your income, debts, and upcoming financial commitments. You may estimate how much coverage you require with an online life insurance calculator.

Step 2: Choose a term length

Once you know how much coverage you need, you’ll need to choose a term length. Your choice will depend on your age, your financial obligations, and your overall goals for the policy.

Step 3: Apply for coverage

To apply for term life insurance, you’ll need to fill out an application and undergo a medical exam. The insurance company will review your medical history and current health status to determine your risk level and calculate your premium. If you’re approved, you’ll be given a policy with a set premium amount and death benefit.

Step 4: Pay premiums

Once you have a policy, you’ll need to pay the premiums on time to keep the coverage in force. If you miss a payment, the policy may lapse, and you’ll lose your coverage.

Step 5: Receive a death benefit

Your beneficiaries will get the death benefit if you pass away while the insurance is still in effect. The amount of benefit will be tax-free and can be used to pay for funeral expenses, debts, or any other financial obligations your loved ones may have.

Step 6: Renew or convert the policy

At the end of the term, you may have the option to renew the policy for another term, but your premiums will likely be higher since you’ll be older. Alternatively, you may be able to convert the policy into a permanent life insurance policy, which will provide coverage for the rest of your life and may also accumulate cash value.

What Are the Eligibility Criteria for Term Insurance?

Term insurance is a popular life insurance policy that provides a sum assured to the nominee in case of the policyholder’s demise during the policy term. It is a straightforward and cost-effective life insurance option that offers financial security to the policyholder’s family. However, before purchasing term insurance, it is important to understand the term insurance eligibility criteria to avoid any future complications.

  • Age Limit
  • Health Condition
  • income
  • Occupation
  • Smoking and Drinking Habits<

What Are the Different Types of Term Policies You Can Buy?

A sort of life insurance policy that offers protection for a predetermined time frame is term life insurance. It is a simple, straightforward, and affordable option for those who want to protect their loved ones financially. There are different types of term policies available in the market. Let’s explore each of them.

Level Term Life Insurance

The most typical kind of term life insurance coverage is this one. It provides coverage for a specific period of time, and the premium remains the same throughout the policy term. If the insured passes away during the policy term, the beneficiary receives a death benefit.

Decreasing Term Life Insurance

The death benefit in a decreasing term life insurance policy decreases over time, usually on an annual basis. This type of policy is often used to cover a specific debt, such as a mortgage, that will decrease over time.

Renewable Term Life Insurance

A renewable term life insurance policy allows the policyholder to renew the policy at the end of the term without having to go through the underwriting process again. This type of policy can be beneficial for those who are unsure of their future health and want to ensure they can maintain coverage.

Convertible Term Life Insurance

A convertible term life insurance policy allows the policyholder to convert the policy into a permanent life insurance policy, such as whole life insurance or universal life insurance, without having to go through the underwriting process again.

How to Determine the Amount You Need for Term Insurance?

One of the most important factors to consider when purchasing term insurance is determining the amount of coverage you need. The amount of coverage you require will depend on a variety of factors, such as your income, debts, and expenses.
This can be a complex process, but by understanding the key factors involved and taking the time to carefully evaluate your needs, you can ensure that you have the right amount of coverage to protect yourself and your loved ones in the event of an unforeseen tragedy. Here, we will discuss how to determine the amount of term insurance you need and where to get it.

Calculate Your Current Expenses

The first step in determining the amount of term insurance you need is to calculate your current monthly expenses. This includes your mortgage, utilities, food, transportation, and other necessary expenses. You should also factor in any outstanding debts, such as credit card debt, student loans, or car loans.

Estimate Future Expenses

Once you have calculated your current expenses, you need to estimate your future expenses. This includes expenses such as college tuition for your children, retirement savings, and other future financial goals. You should also factor in inflation when estimating future expenses.

Add Up Your Expenses and Income Replacement Needs

Once you have calculated your current expenses, estimated your future expenses, and determined your income replacement needs, you should add up these numbers. This will give you a rough estimate of the amount of term insurance you need.

Do Term Plans Have Riders?

Riders are essentially add-ons to a term plan that provide additional benefits to the policyholder. They can be added at the time of policy purchase or at a later stage, depending on the terms and conditions of the policy. Riders offer the flexibility to customize your term plan to suit your specific needs and requirements.

Some of the common riders that are available with term insurance plans:

  • Accidental Death Benefit Rider
  • Critical Illness Ride
  • Waiver of Premium Rider
  • Income Benefit Rider
  • Terminal Illness Rider

Are Term Insurance Premiums Eligible for Tax Deductions?

One question that often comes up regarding term insurance is whether or not the premiums are eligible for tax deductions. This answer is dependent on a number of variables.

Another factor to consider is the amount of the premium. Even if the policy is being used for a business purpose, there are limits to the amount of the premium that can be deducted. The IRS has specific rules regarding the deduction of life insurance premiums, and these rules can be complex. It is recommended that you consult with a tax professional to determine if you are eligible for a deduction.

Conclusion

Term life insurance offers several benefits, including the ability to customize coverage amounts and term lengths to suit individual needs, as well as the option to convert the policy to a permanent life insurance policy if desired. Term life insurance also provides peace of mind, knowing that loved ones will have financial support to cover expenses such as mortgages, debts, and education in the event of the policyholder’s death.

Overall, term life insurance can be a valuable tool for individuals and families looking to protect their financial future. By understanding how term life insurance works and the benefits it provides, individuals can make informed decisions when selecting an insurance policy that best meets their needs.

FAQs

1

How does term life insurance work? What is it?

Unlike permanent life insurance policies, such as whole life insurance or universal life insurance, term life insurance policies do not build cash value over time. Instead, they are pure insurance policies that provide coverage for a specific period of time. If the insured person outlives the policy term, the policy will expire, and no benefits will be paid out.



2

What are the benefits of term life insurance?

One of the main benefits of term life insurance is that it provides a large amount of coverage at an affordable price. It can help replace lost income, pay off debts, and cover final expenses in the event of the policyholder’s death. Additionally, term life insurance can be customized to fit the specific needs of the policyholder, such as adding riders for critical illness or disability.



3

How do I choose the right term length for my policy?

When choosing a term length for your policy, consider your current financial obligations and how long you expect them to last. For example, if you have young children, you may want a policy that lasts until they are adults and is no longer financially dependent on you. Additionally, consider your age and health when selecting a term length, as you may not need coverage for as long if you are older or in good health.



4

What occurs if I live past the term of my life insurance policy?

TIf you outlive your term life insurance policy, you will not receive a payout. However, some policies may offer the option to renew or convert to a permanent life insurance policy, which can provide coverage for the rest of your life. It is important to review your policy carefully and discuss your options with your insurance agent to ensure you have the coverage you need.


- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

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.

Amit Raje
Reviewed By :
Prasad Pimple

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

Kotak e-Term

Download Brochure

Features

  • Life Cover till 85 years for Life & Life Secure Option
  • 3 Payout Options
  • Special Rates for Women
  • Option to exit the policy with premium refund at the age of 60*
  • Special Rates for Non-Tobacco Users
  • Free Medical Check Up every 5th year**

Ref. No. KLI/22-23/E-BB/2435

T&C