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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:
The term insurance policy is not just a document but a legally binding promise between the policyholder and the insurance company. You agree to pay a regular amount, known as the premium, for a chosen period. In return, the insurer contractually promises to pay a pre-decided sum, known as the sum assured or death benefit, to your designated loved ones if you pass away during that term.
Embarking on your term insurance journey starts with the application. This is where you will need to provide personal details, information about your lifestyle, such as smoking habits, and crucial health disclosures. Each step in the application process is designed to accurately assess the risk and offer you the best possible coverage.
Buying a term insurance plan is a bespoke financial shield designed as per your family’s needs and requirements. This step requires careful introspection, prompting you to consider several key questions. You will need to evaluate how much income your family would need to maintain their current lifestyle, identify any outstanding debts such as a home loan or car loan that would need to be cleared, and project future major expenses such as children’s education or marriage costs.
The amount you pay for your term insurance, known as the premium, is not just a random figure. Insurance companies carefully calculate this price based on the risk they take in covering you. Several things influence this premium.
For instance, younger individuals typically pay less, while your current health and lifestyle habits, such as smoking, also play a significant part. The more coverage you need and the longer you want the insurance to last, the higher your premium will generally be.
As your life evolves, your financial responsibilities often grow. Events such as getting married, having children, or buying a bigger home usually mean you need more insurance coverage to protect your loved ones. Term insurance plans offer options to increase your sum assured at certain points. This flexibility ensures that your insurance protection can keep pace with your growing needs.
A very important step in setting up your term insurance is naming a nominee. The nominee is the person you choose to receive the insurance money if you pass away during the policy term. This individual, often a spouse, child, or parent, will be responsible for receiving these funds to help support your dependents.
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. Here is how it addresses your loved ones’ financial needs:
It ensures your dependents can continue to meet essential day-to-day living costs without immediate financial distress or being forced into difficult choices.
Term insurance proceeds can be used to settle outstanding debts, preventing your loved ones from inheriting financial obligations or potentially losing assets such as your home.
Term insurance can provide the necessary funds to ensure your children’s education plans remain on track. The payout can be used to cover tuition fees, accommodation, and other educational expenses, securing their future opportunities even in your absence.
It allows your dependents to maintain their current lifestyle, or at least adjust more gradually, minimizing disruption and financial stress.
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.
Imagine being diagnosed with a major illness such as cancer, a heart attack, or kidney failure. Surviving is the first victory, but the financial aftermath can be equally challenging. Critical illness coverage provides a pre-defined, lump-sum payout upon the diagnosis of one of the specified severe illnesses covered in your policy document.
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:
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.
Term insurance offers the ability to secure your family’s financial future for substantial periods. This long-term protection ensures that your dependents are financially stable even if you are not around, covering years until children become independent or major financial goals such as loan repayments are met.
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.
The process of acquiring term insurance has become remarkably simple and quick. You can easily compare plans, fill out applications digitally, and complete the entire process with minimal physical paperwork.
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.
Term insurance premiums are eligible for tax deductions under Section 80C of the Income Tax Act, 1961, up to the specified limit, helping you reduce your overall tax liability.
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.
You can enhance your term insurance policy by adding riders that provide a lump-sum payout upon the diagnosis of specified life-threatening illnesses, such as cancer or heart disease. This payout, separate from your base sum assured, can be invaluable in managing high treatment costs, covering out-of-pocket expenses, or compensating for lost income during recovery, easing the financial strain.
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.
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.
Selecting the best term insurance plan is an important decision, and it is not just about finding the cheapest option. The ideal plan is one that offers adequate coverage for your family’s needs from a reliable insurer, all at a premium you can comfortably afford. Here are key factors to consider to make an informed choice:
The claim settlement ratio (CSR) is a vital indicator of an insurer’s reliability. It tells you the percentage of claims the company has paid out against the total claims received in a financial year. A consistently high CSR, ideally above 90%, suggests the insurer is more likely to honour claims efficiently, giving your nominees peace of mind during a difficult time. You can find this data on the IRDAI (Insurance Regulatory and Development Authority of India) website.
The Solvency Ratio reflects an insurance company’s financial health and its ability to meet its long-term debt obligations and claim payouts. IRDAI mandates a minimum solvency ratio of 150% (or 1.5). A higher ratio indicates a stronger financial backbone, meaning the insurer is well-equipped to manage its liabilities and pay out claims even in challenging economic conditions. This ensures the insurer will be around for a long-period.
Consider if the term plan offers a critical illness rider. This feature provides a lump-sum payout if you are diagnosed with a specified major illness, such as cancer, heart attack, or kidney failure. This money can be invaluable for covering treatment costs, compensating for lost income during recovery, and preventing your savings from being depleted. Evaluate the list of illnesses covered and if this additional protection aligns with your health profile and family history.
Beyond critical illness, many term plans offer other optional add-ons called riders that can enhance your coverage. Common riders include accidental death benefit, which provides an extra payout if death is due to an accident; waiver of premium, which waives future premiums if you become disabled or critically ill, or accidental disability benefit. Assess which riders are relevant to your specific circumstances to customize your plan for more comprehensive protection.
While premium cost is an important factor, it should not be the only one. Once you have shortlisted insurers based on CSR, solvency, and features, then compare the premiums for the required sum assured and term. The goal is to find a balance: an affordable premium for robust coverage from a dependable insurer. Remember, the cheapest plan is not always the best if it compromises on other crucial aspects.
Your lifestyle habits, such as smoking, drinking, or engaging in adventurous sports, can influence both your premium and the underwriting process. Be completely honest in your application about these aspects. While certain lifestyles might attract higher premiums, transparent disclosure ensures that your policy remains valid and your nominee’s claim is not rejected later due to non-disclosure.
Your current income, existing financial liabilities, such as home loans and car loans, and future financial goals for your family are paramount in determining the right sum assured. A common rule of thumb is a cover that is 10-15 times your annual income, but a more precise calculation based on your specific needs is always better. This ensures the payout will be sufficient to replace lost income and manage financial obligations effectively in your absence.
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.
Buying term insurance online is a convenient, quick, and often more cost-effective way to secure your family’s future. Here’s 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.
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.
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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