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How to Choose the Best Term Insurance Plan in India?

The foundation of choosing the right term insurance plan lies in comprehending your specific needs and considering factors such as dependents, income, liabilities, and future goals.

  • 3,161 Views | Updated on: May 13, 2024

In the current unpredictable environment, having a term insurance plan is crucial. It serves as a protective cushion, providing financial security in the unfortunate event of the policyholder’s unfortunate demise. A term insurance plan provides financial security for the dependents of policyholders in the event of their passing, ensuring that they receive the assured sum. This support enables them to maintain financial independence.

Key takeaways

  • A term insurance plan acts as a financial safety net for dependents, ensuring they receive the assured sum in the event of the policyholder’s demise.
  • To find the best plan, you should compare features and optional riders offered by different insurers.
  • Always determine the policy term based on your family’s financial needs and your budget.
  • While comparing premiums from different insurers, keep in mind that a lower premium does not always indicate a better plan.
  • Avail of the potential tax benefits associated with term insurance plans, such as premium deductions under ITA Section 80C and tax-free death benefits under Section 10(10D).

Choosing the right term insurance plan involves understanding your needs. You should consider your dependents, income, liabilities, and future goals. The next step should be to calculate the coverage amount needed. It is always beneficial to research reputable insurers with good claim settlement ratios. For the best plans, you should also compare features like riders and choose a plan that fits your budget.

Selecting a plan that corresponds to your financial objectives and fits within your budget is crucial as a policyholder. Although it may seem challenging initially, the benefits in the long term make it a worthwhile attempt. Read ahead to know how to choose term insurance plan for you and your family today.

What is a Term insurance plan?

Term insurance is a type of life insurance policy that provides coverage for a specified period, known as the term. Unlike traditional life insurance policies, which may offer both insurance and investment components, term insurance focuses solely on providing a death benefit to the beneficiaries if the insured passes away during the term of the policy.

How to Select Best Term Insurance Plan in India?

Now that you know how does term insurance, it is time to move ahead and know how to choose term insurance. If you want to know how to choose a term insurance plan, you must consider certain factors. These factors are vital as they can impact your policy in the long term. Take a look at some of the tips for selecting the right term plan:

Analyze Your Income

The foundation of selecting an appropriate term insurance plan lies in understanding your income and financial obligations. Assess your monthly income, expenses, and existing financial commitments such as loans, mortgages, or education expenses. This analysis will help you determine the amount of coverage needed to provide adequate financial protection to your family in your absence.

Assess Your Liabilities

When buying a term plan, it is necessary to take your time and assess your current financial situation and list down the liabilities you may have. It could include home loans, personal loans, business debts, credit card bills, etc., that you must pay over a period. Once you know the exact number, you can choose the term plan duration equal to or more than this time frame.

Analyze the Financial Status of Dependents

Another critical factor to consider while choosing the term plan tenure is the number of family members financially dependent on you. If your family members still have a few years before they can be financially independent, then it is advisable to choose a long-term plan so they do not face any financial hassles in your absence.

Determine The Policy Term

The policy term is the duration for which the insurance coverage remains in force. Think about how long your family will depend on your financial support. A term insurance plan should ideally cover the years until your dependents become financially self-sufficient.

Knowing how to decide on term insurance tenure gives you the advantage of becoming self-sufficient for any unwanted circumstance. For instance, if your dependents are very young, you can opt for a longer-term plan so that the amount will build up until their proper age. You can opt for a short-term plan if your family members are financially independent.

Evaluate Premium Affordability

If you want long-term term insurance, you must be ready to loosen the wallet strings and pay a higher premium. However, longer policy tenure also means that your family will be protected for a longer period.

Compare Premiums

Compare premiums from various insurance companies to find a plan that fits your budget. Remember that a lower premium does not necessarily mean a better plan, so understand the terms and conditions.

Analyze Claim Settlement Ratio

The Claim Settlement Ratio (CSR) is the number of claims that are settled by an insurance company. A higher ratio shows a better track record of paying claims promptly. Look for an insurance provider with a higher claim settlement ratio to ensure your family receives the necessary benefits.

Look For Riders and Additional Benefits

Many insurance companies offer riders and other additional benefits that can enhance your coverage. These include critical illness riders, accidental death riders, and more. Consider whether you need any of these add-ons to customize your plan.

Look for additional Cover Options

To ensure comprehensive protection against life’s uncertainties, it’s crucial to explore additional cover options that can enhance your term insurance plan. Here’s a closer look at some valuable add-ons to consider:

Waiver of Premium

In times of adversity, such as critical illness or total disability, the burden of paying premiums for your term insurance plan may become overwhelming. A waiver of premium rider provides a safety net by waiving off future premium payments if the policyholder becomes permanently disabled or critically ill, ensuring that the coverage remains intact without any financial strain on the insured or their family.

Accidental Death

Accidents can occur unexpectedly, leaving behind devastating consequences for your loved ones. An accidental death benefit rider provides an additional sum assured in case the insured’s death is a result of an accident. This ensures enhanced financial protection for your family members during unforeseen tragedies, offering peace of mind knowing that they are adequately covered in such scenarios.

Income Benefits

The loss of a primary breadwinner can create significant financial instability for dependents, especially when it comes to meeting daily expenses and maintaining their standard of living. Income benefit riders provide a regular stream of income to the nominee in addition to the lump sum death benefit, ensuring that they have a stable source of income to sustain their livelihoods and financial needs in the absence of the insured.

Look for Prepayment Options

Aside from additional cover options, it is essential to explore prepayment options offered by insurance providers. Prepayment options allow policyholders to pay their premiums in advance for a specified period, thereby securing coverage without the hassle of recurring payments. This not only ensures uninterrupted coverage but also offers potential cost savings by locking in premiums at current rates and avoiding future price increases.

How Does Term Insurance Plan Work?

With a plethora of options available in the market, finding the best term insurance plan in India can seem like a daunting task. However, armed with the right knowledge and understanding of key factors, navigating this maze becomes a manageable endeavor. Here’s a comprehensive guide on how does insurance plans work before you understand how to choose term insurance:

Assess Your Coverage Needs

The first step in selecting a term insurance plan is to evaluate your coverage requirements. Consider factors such as your age, income, financial obligations, lifestyle, and the number of dependents. Assessing these aspects will help you determine the appropriate coverage amount needed to provide financial security to your loved ones in your absence.

Determine the Policy Term

Next, decide on the duration of the policy term based on your specific goals and life stage. Ideally, the policy term should extend until your financial dependents become self-sufficient or until major financial liabilities, such as loans or mortgages, are repaid. Opting for a longer policy term ensures extended coverage and peace of mind for your family.

Compare Premiums and Benefits

When comparing term insurance plans, don’t just focus on the premiums but also consider the benefits offered by each plan. Look for features such as a high sum assured, additional riders (such as critical illness or accidental death benefit), flexibility in premium payment options, and a claim settlement ratio. Evaluate the cost-benefit ratio to ensure you’re getting the most value for your money.

Evaluate Insurer’s Reputation

Research the reputation and credibility of insurance companies offering term insurance plans. Check their claim settlement ratio, which indicates the percentage of claims settled by the insurer against the total number of claims received. Opt for insurers with a high claim settlement ratio and a track record of timely claim settlements to avoid hassles for your beneficiaries in the future.

Understand Policy Exclusions

Carefully read the policy documents to understand the exclusions and limitations of the term insurance plan. Exclusions typically include death due to pre-existing medical conditions, suicide within the first year of the policy, or death caused by engaging in hazardous activities. Ensure that you are aware of these exclusions to prevent any surprises during claim settlement.

Consider Riders and Add-Ons

Evaluate the availability of riders or add-on benefits offered by the insurance company. Riders such as critical illness cover, accidental death benefit, waiver of premium, or income replacement benefit can enhance the scope of coverage and provide comprehensive protection against unforeseen circumstances. Assess your needs and consider adding relevant riders to your term insurance plan.

Features of a Term Insurance Plan

A term life insurance policy offers straightforward and cost-effective coverage, making it an excellent choice for individuals looking to secure their family’s financial future. Here are some essential features of a term insurance plan:

Death Benefit

Term insurance plans offer a death benefit, which is paid to the nominee or beneficiary if the insured person passes away during the policy term. This benefit is generally tax-free.

Affordable Premiums

Term insurance is known for its affordability. Premiums are relatively low compared to other types of life insurance, making it accessible for many individuals.

Fixed Term

Term insurance plans have a predefined term, which the policyholder can choose. The common duration of these plans. The policy expires at the end of the selected period.

Renewable and Convertible

Some term insurance plans are renewable, allowing the policyholder to extend coverage after the initial term without a medical exam. Additionally, some policies are convertible, meaning they can be converted into permanent life insurance later if desired.


Many term insurance plans offer optional riders (add-on coverages) for an additional premium. Standard riders include critical illness, accidental death, and disability riders, which can provide extra protection.

Tax Benefits

Premiums paid for term insurance plans may be eligible for tax benefits under the Income Tax Act Section 80C. The death benefit is usually tax-free under Section 10(10D).

Claim Settlement

Reputable insurance companies aim for a high claim settlement ratio, ensuring that valid claims are settled promptly. It is important to choose an insurer with a good track record.

Way Forward

Selecting the best term insurance plan in India is a critical decision with long-term implications for the financial security of your dependents. As you navigate several options provided by various insurance companies, keep in mind the key features of term insurance. It includes the death benefit, affordable premiums, fixed term, renewability, convertibility, riders, and tax benefits.

By considering these features and adhering to a thoughtful selection process, you can secure a plan that not only aligns with your needs but also provides peace of mind for the future. Your careful planning today ensures a stable and protected tomorrow for your loved ones.

FAQs on How To Choose Term Insurance


What should be the duration of my term insurance plan?

The duration of your term insurance plan should align with your financial goals and obligations. Consider factors such as your age, income, dependents, and outstanding debts when determining the policy term.


What happens if I outlive the term insurance policy period?

If you outlive the term insurance policy period, the coverage will expire, and no death benefit will be payable. It’s advisable to reassess your insurance needs and consider purchasing a new policy if necessary.


Does the premium for my term insurance plan increase every year?

Not necessarily. While some term insurance plans offer level premiums throughout the policy term, others may have increasing premiums, especially for renewable policies. It’s essential to clarify the premium structure with your insurer before purchasing the policy.


When is the right time to purchase term insurance in my life?

The right time to purchase term insurance is typically when you have financial dependents or significant financial obligations, such as a mortgage or loans. It’s advisable to buy term insurance at a younger age to lock in lower premiums.


What is Free-Look Period?

A: The free-look period is a specified period (usually 15 to 30 days) after purchasing a term insurance policy during which the policyholder can review the terms and conditions. If dissatisfied, the policyholder can cancel the policy and receive a refund of premiums paid, minus certain charges.


What is Grace Period In Term Insurance?

The grace period is a specified period (usually 15 to 30 days) after the premium due date during which the policyholder can pay the premium without any penalty. The coverage remains active during the grace period, ensuring continuity of protection.


How should I determine the appropriate sum for my term insurance?

To determine a sum that adequately safeguards your dependents and assess your financial obligations. You should also include debts and future expenses.


What Constitutes The Optimal Coverage For Term Insurance?

Optimal coverage is achieved by considering your family’s financial needs, factoring in liabilities, and ensuring the policy duration aligns with their dependency period.


How Can I Compare Premium Affordability Among Different Term Insurance Plans?

Compare premium quotes from various insurers while ensuring you understand the terms and conditions associated with each plan to find the most affordable yet comprehensive option.


What Happens If I Miss A Premium Payment Or Need To Skip A Payment Temporarily?

Missing a premium payment could lead to a grace period, and it’s crucial to address it promptly to avoid policy lapse, impacting coverage. Some insurers offer options like a premium holiday for temporary relief.

- 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

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