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Term insurance is a fundamental life insurance product designed to provide significant financial protection to your family through a high sum assured at remarkably affordable premiums. As a pure protection plan, it pays out the agreed-upon sum to your beneficiaries in the event of your unfortunate demise during the policy period. Thoroughly understanding term policy meaning ensures your financial stability and helps you manage ongoing expenses and future goals without distress.
Term insurance is a type of life insurance product designed to provide coverage for a pre-defined duration, called the ‘term.’ Its core purpose is to pay out a substantial lump sum death benefit to your nominated beneficiaries should you pass away within this policy period.
The term insurance plan meaning is a pure protection plan; it focuses exclusively on providing life coverage. Because it does not include any savings or investment components, its premiums are significantly lower, making it an exceptionally cost-effective way to secure a large amount of financial protection.
The sole objective of term insurance is to offer financial security to your family, safeguarding their future without the complexities of investment returns or wealth accumulation. Furthermore, While getting a term insurance policy, ensure you have researched about term insurance in order to choose a plan that suits your requirements well.
After understanding what is term insurance, let us know about its importance. Term insurance is relatively inexpensive and offers higher coverage amounts, making it an ideal choice for individuals who want to ensure that their family’s financial needs are met in case of an untimely demise. Here are some essential reasons why you should consider buying term insurance.
The most important reason to get term insurance is to ensure that your loved ones are financially secure in the event of your unexpected death. The death benefit paid out by a term insurance policy, in the event of the insured person’s demise, can help the family cover some of the expenses of losing a loved one, such as funeral costs, outstanding debts, and living expenses.
Dealing with a critical illness can lead to substantial medical expenses and potential loss of income, impacting your family’s financial stability. The term insurance plans offer the option to add a critical illness rider. This valuable add-on provides a lump-sum payout upon diagnosis of a covered severe condition like cancer or a heart attack, helping manage treatment costs and replace lost income.
Term insurance provides a financial safety net in unforeseen circumstances, such as accidents, medical emergencies, or untimely demise. The lump-sum payout ensures your beneficiaries have immediate access to the necessary funds. This financial cushion allows them to cover these unforeseen costs, meet ongoing living expenses, and manage other financial obligations without the added stress of managing finances.
Term insurance is the most affordable type of life insurance. You can choose the policy’s length, the coverage amount, and the premium that fits your budget. You can also opt for a level-term policy where the premiums remain the same throughout the policy term.
Long Term Coverage Term insurance offers coverage for an extended period, ensuring that your family is protected for a long term, typically up to 40 years. This protection can be especially valuable during key life stages, such as raising children or paying off a mortgage. By selecting the right term, you can align your policy with your financial obligations, providing peace of mind throughout these crucial years.
One of the key advantages of term insurance is the income tax benefits it offers under Section 80C of the Income Tax Act. Premiums paid towards your term plan are eligible for tax deductions, lowering your taxable income. Additionally, the death benefit is also tax-free under Section 10(10D), making it a financially sound choice for both protection and tax savings.
Term insurance is one of the most popular and cost-effective types of life insurance. It provides financial protection to the policyholder’s family during their untimely death. Here are some of the features of term plans that can help you understand the term plan meaning:
A hallmark of term insurance is its exceptional affordability. The premiums of term insurance are significantly lower compared to other types of life insurance. This allows individuals to secure a substantial sum assured for their family’s financial security without placing an undue burden on their current budget.
Starting your term insurance journey early allows you to secure significantly lower premium rates for the entire policy duration. This not only makes comprehensive protection more affordable but also encourages responsible financial planning from a younger age.
The policy term refers to the specific duration for which the life insurance coverage remains active. Policyholders can choose a period that aligns with their financial responsibilities, such as until children become independent, major loans are repaid, or until retirement age. Common terms range from 10 years up to 40 years, or even up to a specific age like 75 or older.
As your life progresses and responsibilities grow, your insurance needs will likely change. Many term plans allow you to increase your coverage amount at significant life milestones, such as marriage, the birth of a child, or even taking a large home loan. This feature ensures your policy remains relevant and adequately protects your family’s evolving financial requirements without needing a new policy.
Insurers understand that financial situations vary, so they offer flexible premium payment frequencies to suit your convenience and budgeting style. You can often choose to pay your premiums annually, semi-annually, quarterly, or even on a monthly basis, aligning the payments with your income flow.
One of the core purposes of term insurance is to ensure your family is not burdened by outstanding financial liabilities such as home loans, car loans, or personal loans in your absence. The death benefit payout can be used to settle these debts, preventing creditors from claiming assets or causing financial distress to your dependents.
For those who desire a return on their investment if they outlive the policy, Term Return of Premium (TROP) plans are available. With these plans, if you survive the entire policy term, the insurer will return all the premiums you paid, excluding taxes and rider premiums.
Modern term insurance plans offer extended coverage, allowing you to stay protected for much longer periods. This high maturity age ensures that your financial protection can last well into your retirement years.
Term insurance plans often offer flexibility through optional riders or add-ons, which can be included for an additional premium to enhance the base policy’s coverage. Popular riders include critical illness benefit, accidental death benefit, waiver of premium on disability, and terminal illness benefit, allowing policyholders to customize their protection to meet specific needs more comprehensively.
Different types of term insurance plans are available in the market to suit individuals’ diverse needs. Each type has its features, benefits, and limitations. Let us examine the different types of term insurance plans.
In a level term plan, the sum assured (the death benefit amount) remains constant throughout the entire policy term. Your premiums also typically stay the same. This predictability makes it easy to budget for and ensures your family receives a fixed amount, regardless of when a claim might occur during the policy tenure. It is ideal for covering consistent financial needs such as income replacement or a fixed-value long-term liability.
With an increasing term insurance plan, the sum assured automatically increases by a pre-determined percentage or amount at regular intervals throughout the policy term, while the premium may or may not change or may increase modestly. This type of plan is designed to combat inflation and cater to growing financial responsibilities as you progress through life stages such as marriage, children’s education, or increased income. It ensures your coverage keeps pace with your evolving needs.
In a decreasing term insurance plan, the sum assured reduces gradually over the policy term, typically at a pre-defined rate. These plans are often designed to cover specific liabilities that also decrease over time, most commonly a mortgage or other large loan. As you pay down your loan, the insurance coverage reduces correspondingly. Premiums for these plans are generally lower than for level term plans because the insurer’s risk exposure decreases over time.
A Term Insurance Return of Premium (TROP) plan offers a unique benefit: if you, the policyholder, survive the entire policy term, the insurer returns all the premiums you have paid, usually excluding taxes, rider premiums, and any cess paid. This plan appeals to individuals who want the security of term insurance but also desire some monetary value back if no claim is made. While the premiums for TROP plans are higher than standard term plans, you get the benefit of survival.
Convertible term plans provide the policyholder with an option to convert their term insurance policy into a different type of life insurance policy, such as a whole life plan or an endowment plan, at a future date without needing to undergo fresh medical underwriting. This offers flexibility if your financial goals or protection needs change significantly later in life, and you desire permanent coverage or a savings component. The conversion usually needs to happen within a specified period and before a certain age.
Term insurance operates as a straightforward legal agreement between you (the policyholder) and an insurance company. The process begins with an application where you provide necessary details and undergo an assessment. During this stage, you need to carefully evaluate your financial liabilities and your family’s future needs to decide on an appropriate sum assured (the death benefit). You also select a specific ‘policy term,’ which is the duration for which you want the coverage to last.
Based on these choices, along with factors like your age and health, the insurer provides a premium quote. Once you agree and pay the regular premiums, the policy is active. Furthermore, you must also assign a nominee (or beneficiaries) who will receive the death benefit if you, the insured, unfortunately pass away during this active policy term. If the insured outlives the policy term, the contract usually expires without any payout, as its primary function is pure risk coverage for that defined period.
Determining the right amount of term insurance coverage is a critical step in securing your family’s financial future. While a detailed financial needs analysis is ideal, a common and straightforward approach involves considering a multiple of your current annual income. This method helps estimate the financial support your family would need to replace your income and maintain their lifestyle. Here is a generally recommended guideline:
| Age Group (Years) |
Recommended Coverage (Multiple of Annual Income) |
| 18-35 |
20 to 25 times |
| 36-45 |
15 to 20 times |
| 46-55 |
10 to 15 times |
| 56 and above |
5 to 10 times |
For Example:
If you are 30 years old with an annual income of ₹10 lakhs, a suitable term cover would ideally be in the range of ₹2 crores (20 x ₹10 lakhs) to ₹2.5 crores (25 x ₹10 lakhs).
While these multiples provide a useful starting point, it is important to remember that this is a general guideline. Your actual term insurance needs may vary based on specific factors such as outstanding loans (home loan, car loan), future financial goals (children’s education, marriage), existing savings and investments, and the number of dependents. A more personalized assessment considering all your liabilities and goals will provide the most accurate coverage amount.
Buying a term plan is beneficial for everyone. Depending upon the phase of life you are in, it can significantly impact your financial circumstances. Following are examples of people who can opt for a term plan:
Young adults starting their careers and earning an income should buy term insurance. Term insurance will provide financial security to the policyholder’s loved ones in case of any unfortunate events. Moreover, the premium for term insurance is relatively lower for younger individuals, making it an affordable option.
Married couples planning to start a family should consider purchasing term insurance. In case of the unfortunate demise of one of the spouses, the term policy will provide financial support to the surviving spouse and their children.
Being parents, if you have young children, term insurance should be on your list. Children depend on their parents for their education and upbringing, and a sudden loss of income can disrupt their lives. A term insurance policy can provide a safety net for your children’s future and ensure they are not deprived of opportunities due to a lack of funds.
Even if you are single and do not have any dependents, you can still need term insurance if you have outstanding debts like a home loan or a car loan. Your debts can burden your family in the event of your demise. A term insurance policy can ensure that your debts are paid off and your family is not loaded with unnecessary financial liabilities.
Entrepreneurs and self-employed individuals often have irregular incomes and financial liabilities. A term insurance plan provides financial protection to their families, covering outstanding business loans and ensuring business continuity in their absence.
Even if you are single, term insurance can help cover unpaid loans so your family is not burdened with financial liabilities.
Regardless of your profession or life stage, term insurance is a crucial step toward securing your family’s future.
Buying term insurance is an important financial decision that can provide financial security to your family. But before purchasing term insurance, you should thoroughly understand what is term insurance and keep the following key things in mind:
Calculate the coverage your family would need to retain their standard of living and meet financial responsibilities if you were no longer there. You should consider outstanding loans, education expenses, daily expenses, and future financial goals.
Select a term length that aligns with your financial responsibilities and goals. Consider factors such as the age of your dependents and when significant financial obligations (e.g., mortgage, children’s education) will end.
| Age Group |
Recommended Term Length |
Reasoning |
| Below 30 years |
30 to 35 years |
Longer coverage ensures protection during the early years of financial responsibility, including mortgage and family needs. |
| 30 to 40 years |
20 to 25 years |
Focus on covering financial obligations like children’s education and family needs. |
| 40 to 50 years |
15 to 20 years |
Adequate to protect dependents and cover retirement and loan needs. |
| 50+ years |
10 to 15 years |
Coverage should last until retirement or when most financial obligations end. |
Different insurance companies offer term insurance with varying premium rates. Compare quotes from various insurers to get the best deal. Online insurance calculators can be helpful for this purpose.
Research the reputation of the insurance company you plan to buy from. Look for customer reviews, claim settlement ratio, and financial stability ratings from government agencies like Credit Rating Information Services of India Limited (CRISIL).
Term insurance premiums can be paid annually, semi-annually, quarterly, or monthly. Select a payment frequency that aligns with your budget and cash flow.
Exclusions refer to conditions or situations not covered by the policy, such as death due to pre-existing conditions or high-risk activities. For example, if you pass away within the first 12 months from a pre-existing illness, the policy may not pay out the death benefit. A waiting period is the time you must wait before certain benefits, like death from natural causes, are payable.
For instance, some policies have a 90 to180 days waiting period before natural death benefits are covered. Always read the policy document carefully to avoid surprises and ensure it aligns with your needs.
As your life circumstances change, periodically review your term insurance coverage to ensure it meets your needs. You may need to increase coverage if you have more dependents or financial responsibilities.
Buying term insurance online is a convenient, quick, and often more cost-effective way to secure your family’s future. Here is a simple guide to navigate the process:
Begin your journey by going directly to the Kotak Life Term Insurance page at https://www.kotaklife.com/term-insurance.
Once on the official website, click on the ‘check premium’ button to begin the application process.
You will typically be asked to provide some fundamental personal information. This usually includes your full name, date of birth, gender, mobile number, and email address. This information helps the insurer generate an initial premium estimate.
Next, you will need to provide more specifics about yourself. This often includes details about your lifestyle (e.g., whether you are a smoker or non-smoker), your annual income, educational qualifications, and occupation. Honest and accurate information here is crucial for correct underwriting and premium calculation.
This is where you tailor the term insurance plan to your exact needs. You will choose:
The system will typically update the premium quote in real-time as you make these selections.
In this stage, you will likely need to provide details about your health history, family medical history, and nominee information. You might also be required to upload KYC documents such as your PAN card, Aadhaar card, address proof, and income proof.
Once you have reviewed all the details and are satisfied with your customized plan, you will proceed to the payment gateway.
Now that you know what is term plan and its many benefits, this is the ideal time to secure your family’s future. The most significant reason term insurance is essential is that it not only acts as a source of lost income but also helps your family pay debts and living expenses. So, do not wait; research, compare, and consult a financial advisor to choose the best term insurance plan that suits your requirements.
1
Term insurance provides coverage for a specified period. If the insured person passes away during this term, the beneficiaries receive the death benefit. If the insured survives the term, there is no payout.
2
Premiums are based on factors like the insured’s age, health, lifestyle, the sum assured, and the policy term. Insurers assess these factors to determine the risk and set the premium accordingly.
3
Yes, many term insurance policies offer a conversion option that allows you to convert your term policy into a permanent one without undergoing a medical exam, subject to certain conditions and timeframes.
4
If you stop paying premiums, the policy will lapse, and the coverage will cease. This means your beneficiaries will not receive death benefits if you pass away after the policy lapses.
5
Choose a term length that covers the period your dependents will rely on your income. Consider factors like the age of your children, the duration of your mortgage, and your retirement plans.
6
You can have multiple-term insurance policies to meet different financial goals and cover varying needs. Ensure the total coverage aligns with your financial responsibilities and the premiums are manageable.
7
A rider is an additional benefit that can be added to your term insurance policy for extra coverage. Common riders include critical illness cover, accidental death benefit, and waiver of premium, enhancing the base policy’s protection.
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
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.
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