How Does A Term Life Insurance Work in India?

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How Does A Term Life Insurance Work in India?

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  • 16th Jun 2022
  • 309

How Does A Term Life Insurance Work in India?

It is a known fact that India is one of the most underinsured countries in the world. According to the IRDAI – Insurance Regulatory and Development Authority of India report in 2019, life insurance has a meagre 2.74% penetration in India. One of the primary reasons why most Indians are apprehensive about buying an insurance cover is that they have limited awareness and understanding of the importance of insurance and how these plans work.

But as a responsible citizen and a family member, you must understand that if your family depends on you financially, you must safeguard their financial security in your absence. Imagine a situation where your family struggles to make ends meet because of your sudden demise and loss of income. So, to avoid such an unpleasant situation befalling your family, it is advisable to purchase a robust term life insurance policy. It ensures that your family never faces any financial hassles.

If you wish to understand whole term insurance, how to use term insurance and how term plan works, we are here to help.

What is term insurance?

As a name suggests, a term insurance policy is a type of life insurance policy that provides coverage for a specific duration. It provides death benefits to your family in the form of sum assured in the event of your untimely and unfortunate demise during the policy period. However, if you outlive the policy period, you don’t get any survival benefits or returns on the premium paid.

One of the most significant reasons insurance experts and investment advisors recommend buying a term plan as the first step to protecting your family is its affordable premium. You can purchase an insurance cover up to Rs. 1 crore or more without burning a deep hole in your pocket. There are several plans in the market, and the premium starts as low as Rs. 500 per month.

How does term insurance work?

When you purchase a term insurance policy, you sign a contract with the insurance company. When the insurer issues you the policy paper, it is essentially the legal agreement where you agree to pay a fixed premium for a specified period in lieu of the benefit payable to the nominee if something happens to you during this period.

While buying the policy, you have the flexibility to choose the tenure based on your age at the time of purchasing the policy and specific insurance needs. Unlike the other life insurance policies, which offer survival benefits or investment and savings opportunities, a term plan is a pure protection plan. Its primary purpose is to give your family the financial cushion they need in your absence.

It financially indemnifies them to carry on with their usual lifestyle like before, even in case of the breadwinner’s demise. Considering life is unpredictable, you must always have a sufficient financial contingency plan for your family. Also, in the purview of the ever-increasing inflation, education expenses, EMIs and other lifestyle expenses, survival can become challenging in the absence of a regular income.

So, to help family members deal with such a financial crisis, you need to set up a substantial corpus. And it is not easy to build a large corpus with only a handful of savings or investment schemes. But taking a term insurance policy can take care of their needs and provide them with much-needed financial stability.

Final Word

Buying a term insurance plan is the best way to secure your family’s financial future against future contingencies. It also gives you peace of mind knowing that your family’s well-being will be taken care of even when you are not around. But to ensure that you make the most out of the term policy, choose the right policy and get clarity of the plan.

- A Consumer Education Initiative series by Kotak Life

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