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Term insurance is a simple and affordable way to secure your family’s financial future. It provides a lump sum payout to your beneficiaries in case of your untimely demise, ensuring they can meet expenses like loans, education, or daily living costs. With increasing awareness, more individuals are realizing the importance of term insurance and how it offers peace of mind at a minimal cost.
Term insurance is a safety tool that offers a fixed amount to the policyholder’s beneficiaries in case of the policyholder’s demise. It is like financial aid to your family in your absence in exchange for the premiums you have paid.
Although you do not get any benefit from surviving the term, you will surely live a stress-free life without worrying about your family’s well-being in your absence. While getting a term insurance policy, ensure you have researched and chosen a plan that suits your requirements well.
To understand what is term insurance, think of it as a financial safety net for your loved ones. You pay regular premiums to the insurer, and in return, your family receives a lump sum payout (sum assured) if you pass away during the policy term. To break it down further, here are some key aspects:
Human Life Value (HLV) represents the financial worth of an individual based on their income, liabilities, and future financial responsibilities. To understand its importance in financial planning, you can use a human life value calculator to ensure adequate protection for your family.
Example:
If your annual income is ₹10 lakh and you expect to work for another 20 years, your HLV could be estimated at ₹2 crore. This means you should ideally have a term insurance cover of around ₹2 crore to replace your lost income for your family.
The Claim Settlement Ratio (CSR) indicates the percentage of claims settled by an insurer compared to the total claims received in a year. A higher CSR means a better likelihood of claim approval.
Example:
If an insurance company has received 1,000 claims in a year and has successfully settled 980 claims, its CSR is 98%. Choosing an insurer with a CSR above 95% is recommended for better reliability.
Premiums in term insurance are the payments you make to keep your policy active. The amount depends on factors like age, health, policy term, and coverage amount.
Example:
A 30-year-old non-smoker opting for a ₹1 crore term plan for 30 years may pay a premium of ₹10,000 per year, whereas a 40-year-old with the same coverage might pay around ₹20,000 per year due to higher risk.
By understanding these key aspects, you can make an informed decision while choosing the right term insurance plan.
Term insurance is a legal agreement between you and the insurer. In return for premiums, the insurer promises to pay a death benefit to your beneficiaries if you pass away during the policy term.
To buy term insurance, you must fill out an application form, undergo a medical check-up (in most cases), and honestly disclose your health and lifestyle habits.
The policy term is the duration of the coverage. Typical terms range from 5 to 40 years, depending on your needs and life stage.
The death benefit is the sum assured your beneficiaries will receive in case of your demise. Choose an amount based on your financial responsibilities and goals.
Your beneficiaries will receive the payout. Ensure you list them clearly to avoid legal complications later.
After understanding what is term life 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.
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 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.
This feature often allows you to enhance your coverage with rider benefits, which can provide additional protection. Riders such as critical illness, accidental death, or disability cover can be added to your term plan, offering more comprehensive security for your family. These riders increase the overall term insurance benefits and ensure that unforeseen events are also covered under your life insurance policy.
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 understand the term plan meaning:
Term insurance policies offer great flexibility in terms of coverage amount and duration. You can choose the coverage amount that best meets your needs and budget and select the policy course of your choice.
Most term insurance policies are renewable and convertible. It means that you can renew your policy for an additional term at the end of the policy’s term without having to undergo a medical examination.
You can also convert your term policy into permanent life insurance, such as whole life insurance, without undergoing a medical examination. This is beneficial for those who may have developed health issues over time that would make obtaining a new policy difficult.
The death benefit is the money paid to the beneficiary after the policyholder’s demise. The death benefit for term insurance policies is typically tax-free and can be used for any purpose. The beneficiary can use the money to pay off debts, cover living expenses, or invest in the future.
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’s examine the different types of term insurance plans.
The premiums in the level-term plan remain fixed for the entire policy term. The premium and the sum assured agreed upon by you and the insurer will not change.
In this type of term plan, the death benefit or sum assured increases as the years go by, but the premium remains unchanged and does not change. Specific policies also have a cap until the sum assured stops growing.
In a decreasing-term plan, the sum assured decreases yearly until the policy term ends. These insurance policies have comparatively lower premiums than other plans.
When you buy a return premium policy, you will receive all of the premiums paid to the insurer by the end of the policy year. In the event of your demise, the sum assured will be given to your beneficiary, and if you survive, the premiums will be returned to you.
In convertible term plans, you can convert your term plan to a different life insurance policy in the future. The type of insurance policy you want to convert to is your choice. It includes whole life insurance, endowment plans, etc.
When choosing term insurance online, it’s important to make well-informed decisions to ensure that the policy aligns with your financial goals and future needs. The process can seem overwhelming, but by considering a few key factors, you can confidently select the right plan. Here’s a breakdown of how to choose a suitable term life insurance policy:
Before diving into policies, evaluate your financial situation and the protection your family will need. Consider factors such as your human life value, outstanding debts, future expenses like children’s education, and retirement planning. This will help you determine the appropriate coverage amount to safeguard your loved ones. A ₹1 Crore Term Insurance plan may be suitable for larger financial responsibilities, while a smaller plan can still offer ample protection.
Your current annual income plays a crucial role in choosing the coverage amount. Ideally, you should opt for a policy where the death benefit is at least 10-15 times your annual income. This ensures that your family’s living expenses, loans, and other financial obligations can be met if you’re no longer around. Ensure the premium fits within your budget without straining your finances.
To make the most informed decision, use a term insurance calculator. This tool can help you estimate the premiums based on various factors like your age, health status, and desired coverage. It also helps you explore policies like a Term Plan With Return Of Premium, which refunds the premiums paid if you outlive the policy term, providing additional value beyond standard term insurance plans.
Selecting a trustworthy insurer is essential. Look for a company with a high claim settlement ratio, as this reflects their reliability in paying claims. Review the types of premiums in term insurance they offer, such as level or increasing premiums, and decide what suits your financial planning best. Ensure the insurer is financially stable and has a reputation for customer satisfaction.
Buying term insurance is an important financial decision that can provide financial security to your family. But before purchasing term insurance, here are some key things you should keep 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 ratios, 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.
Determining the right amount of term insurance coverage involves evaluating various factors influencing your insurance needs. Consider the following factors to help you decide how much term insurance will be sufficient for your family:
Experts generally recommend a term insurance cover approximately 15 to 20 times your annual income. For instance, if your yearly income is ₹10 lakhs, the term cover should range between ₹1.5 Cr to ₹2 Cr. Depending on other factors, you may require more or less coverage.
Age plays a significant role in determining your insurance needs, as it correlates with your level of responsibility. Early in your career, you might have fewer responsibilities. As you age, your responsibilities typically increase, necessitating higher coverage.
Your term insurance should be sufficient to cover outstanding debts and loans in the event of your untimely demise. Additionally, consider the market value of your financial assets, as they can help offset liabilities or achieve financial goals.
Evaluate your liabilities, such as a ₹50 lakh home loan or ₹10 lakh auto loan, to determine the minimum coverage needed. Consider your assets, like ₹30 lakhs in mutual funds or property, to offset liabilities. Your term cover should bridge gaps, ensuring debts are settled, and family goals are met.
The main objective of a term insurance plan is to ensure your family can meet their financial goals while maintaining their standard of living. Consider the following financial objectives when determining your coverage needs:
Affordability is crucial, as premiums should comfortably fit within your disposable income. While a higher term cover amount may be appealing, excessively high premiums could lead to payment defaults and policy lapses. Ensure the premium is manageable within your financial means.
Determine the right coverage amount by considering your annual income (15-20x), outstanding loans, and future expenses like education and liabilities. Subtract existing savings to finalize the sum assured. This ensures your family remains financially secure in your absence.
Compare term plans based on premium affordability, policy tenure, claim settlement ratio, and available riders like critical illness or accidental death cover. Choose a plan that provides comprehensive protection. Ensuring reliability is key to hassle-free claims.
Estimate your premium cost by entering details such as age, sum assured, policy term, and rider options in an online term insurance calculator. Adjust parameters to find an affordable plan with adequate coverage. This helps in selecting the best-suited policy.
Enter your personal, financial, and health details, ensuring all information is accurate to avoid claim rejection later. Disclose medical history and lifestyle habits honestly. Review the application before submitting.
Submit scanned copies of identity proof, address proof, income proof, and a recent photograph. Ensure clarity and validity to avoid approval delays. Some insurers may instantly verify documents, while others take a few days.
Choose a payment frequency (annual, semi-annual, quarterly, or monthly) based on your budget. Make the payment using net banking, debit/credit card, or UPI. A confirmation receipt will be sent via email.
For higher coverage, a medical test may be required, covering blood tests, BMI checks, and health assessments. Tests may be conducted at home or a medical center. Results help finalize policy approval.
Once verified, the insurer approves and issues the policy, sending a soft copy via email and a hard copy via courier (if applicable). Review the policy details carefully and store it safely for future reference.
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’re single, term insurance can help cover unpaid loans so your family isn’t burdened with financial liabilities.
Regardless of your profession or life stage, term insurance is a crucial step toward securing your family’s future.
Now that you know about term insurance 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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