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What is Term Insurance?

Term life insurance offers financial protection for your family in your absence. Read ahead to know more.

  • 2,679 Views | Updated on: Apr 12, 2024

Securing life and providing financial stability to the family is the main objective of any kind of insurance. Term life insurance is a type of life insurance that offers life coverage to the policyholder for a set period in lieu of regular premiums.

Key Takeaways

  • Term insurance gives coverage to the policyholder for a specific period of time.
  • If the policyholder passes away during the policy term, the beneficiaries receive a death benefit.
  • Some popular types of term insurance include level term plans, increasing term plans, decreasing term plans, return of premium plans, and convertible term plans.
  • Term insurance can also be used to pay off debts or invest in the future.
  • When buying term insurance, it is important to consider the coverage amount, policy term, premium rates, and insurer’s reputation.

Life insurance is a significant tool for safeguarding the well-being of your family members in your absence. Do not let them experience financial hardship in your absence; instead, protect their future by investing in a term plan. With the money you leave them via 9a term insurance plan, your family will be able to live comfortably after you.

Term Insurance Definition

Term insurance is a safety tool that offers a fixed amount to the beneficiaries of the policyholder 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, make sure that you have researched and chosen a plan that suits your requirements well.

How Does Term Insurance Work?

The way term insurance works is relatively straightforward. You purchase a policy and pay a regular premium for the policy term. Your beneficiaries will receive a death benefit payout if you pass away during the policy period.

The amount of the death benefit is determined by the policy you purchase and can range from a few thousand rupees to lakhs of rupees.

Term insurance policies are typically designed to be affordable. Because the policy is temporary and provides coverage only for a limited period, the premiums are often lower than those of for permanent life insurance policies.

This makes term plans attractive for people who want to provide financial protection for their loved ones but have limited financial resources.

Term Insurance Benefits

Types of Term Insurance Plans

Different types of term insurance plans are available in the market to suit the diverse needs of individuals. Each type has its features, benefits, and limitations. Let us have a look at the different types of term insurance plans.

Level Term Insurance Plan

In the level-term plan, the premiums for the entire policy term remain fixed. The premium and the sum assured agreed upon by you and the insurer will not change for the whole term.

Increasing Term Insurance Plan

In this type of term plan, the death benefit or sum assured keeps increasing as the years go by. But the premium remains the same and does not change. Specific policies also have a cap until the sum assured stops growing.

Decreasing Term Insurance Plan

In a decreasing term plan, the sum assured decreases every year until the policy term ends. These insurance policy’s premiums are comparatively lower than other plans.

Term Insurance Return of Premium (TROP)

WhenIf you buy a return premium policy, you will receiveget all of the premiums paid to the insurer by the end of the policy year. In the event of your demise, the sum assured would be given to your beneficiary, and if you were to survive, the premiums would be returned to you.

Convertible Term Plans

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, would be is your choice. It includes whole life insurance, endowment plans, etc.

Why Do You Need Term Insurance?

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 important reasons why you should consider buying term insurance.

Financial Security for Your Loved Ones

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 term insurance policy, in an event of the insured person’s demise, can help the family to cover some of the expenses of losing a loved one, such as funeral costs, outstanding debts, and living expenses.

Relief from Debts

If you have significant debts such as a mortgage, car loan, or student loan, term insurance can provide the necessary funds to pay off these debts if something happens to you. By doing so, you can ensure that your loved ones are not burdened with these debts.

Affordable Premiums

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.

Features of Term Insurance

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.

Flexible Coverage

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 you can also select the course of the policy as per your choice.

Renewable And Convertible

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.

Additionally, you can convert your term policy into a permanent life insurance policy, such as whole life insurance, without undergoing a medical examination. It is beneficial for those who may have developed health issues over time that would make it difficult to obtain a new policy.

Death Benefit

The death benefit is the money paid to the beneficiary in the event of 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.

Additional Riders

These are the additional benefits that can be availed of apart from the policy benefits. If you want a custom policy with precise event coverage, insurance riders are also very helpfulhelp you create one. The best insurance policy can be made by selecting the preferred riders. Insurance riders allow you to save money by avoiding the need to buy an additional policy to cover their specific needs. Additionally, it enables insurers to add additional coverage in the future.

Things to Know Before Buying Term Insurance

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:

Coverage Amount or Sum Assured

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.

Term Length

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.

Premium Amount

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.

Insurer’s Reputation

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).

Premium Payment Options

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 and Waiting Periods

Review the policy document carefully to understand any exclusions (conditions not covered) and waiting periods (time before certain benefits are payable).

Coverage Review

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.

Who Should Buy Term Insurance?

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:

Newly Employed

Young adults starting their careers and earning an income should buy term insurance. Term insurance will provide financial security to their 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 Couple

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.

Young Parents

Being parentsIf you havewith 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.

Single People With Debt

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 saddledloaded with unnecessary financial liabilities.

Wrapping Up

Now that you know all about term insurance and the plethora of benefits it offers, 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 with a financial advisor to choose the best term insurance plan that suits your requirements.

- 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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