Term Insurance (Meaning, Benefits, Types and More)
Have you ever wondered what is term insurance, and why is it one of the most popular financial investments in today’s times? Well, you are at the right place. We will briefly talk about the following important aspects of term insurance in the article.
- Meaning of term insurance
- Benefits of term insurance
- Types of term insurance
- Importance of term insurance
- Popular term insurance plans
- Term insurance riders and their types
- Tax benefits of term insurance
- How to file a term insurance claim?
1.) Meaning of Term Insurance
Term insurance is a financial product that provides financial security to your loved ones or family members in case of your unfortunate demise. A term insurance policy provides life coverage to the policyholder for a set specified term.
If the policyholder dies within this specified time frame, the nominees or legal heirs of the policy predetermined sum specified under the policy. The policyholder has to pay a timely premium to avail of the benefits of the term insurance plan.
The main objective of a term insurance policy is to provide financial assistance and stability to your family in your absence.
The sum assured can be utilized by your family for numerous reasons such as loan repayment, paying medical bills, covering your children’s education fees, and so much more.
2.) Benefits of Term Insurance Plans
A term insurance plan offers a plethora of benefits to the policyholders, let us have a look at a few benefits mentioned below.
- Death Benefit: In the unfortunate event of the policyholder’s death, the legal heirs or nominees will receive a pre-determined sum assured specified in the policy. This payout will act as a security blanket to protect your family financially against any liabilities or daily expenses. A term life insurance plan is one of the best ways to financially provide for your family in your absence.
- High life cover at a budget: One of the most attractive benefits of the term insurance plan is that it offers you high life coverage at an affordable premium. Presently multiple term insurance plans in the market offer a high life coverage of up to Rs 1 crore by paying a premium of Rs 500 per month.
- Multiple payout options: You can choose the death benefit payout as per the financial needs and requirements of your family. It could be a lump sum payout, payments at monthly or quarterly intervals.
- Optional Riders: There are multiple optional riders available in the market that you can opt for to boost your term insurance policy according to your requirements or preference. Add on riders that are available: Accidental death rider, Critical /terminal illness rider, Premium waiver cover, Daily hospital cash, Partial/Permanent disability cover
- Tax Benefit: The premiums paid towards the term insurance plans are eligible for tax deductions under Section 80D of the Income Tax Act. The policyholder will also be eligible for tax exemption under section 10(10D) of the sum assured if the premium paid does not exceed 20% of the sum insured.
3.) Types of Term Insurance Plans
There are a variety of term insurance policies available in India. let us discuss the most popular plans available in the market.
- Level Term Plan: A level term plan is the most standard term plan available, in which the sum assured remains constant throughout the policy period and does not change. The beneficiaries of the policy will receive the same in the event of the death of the policyholder.
- Term Return of Premium Plan(TROP): TROP plans assure a premium back guarantee. Under these plans, the premium paid by the policyholder will be paid back to them if he/she survives the policy tenure as maturity or survival benefits.
- Increasing Term Plans: Increasing term plans are unique as they come with an additional benefit that increases the sum assured yearly basis. The sum insured shall be increased between 5%- 10% annually while maintaining the same premium. These plans are considerably costlier as compared to other term plans and are ideal for beating inflation.
- Decreasing Term Plans: Just as an increasing term plan increases a sum insured, a decreasing term plan will decrease the sum assured on an annual basis at a specific percentage. This plan is suitable for individuals who want the benefit of a life cover but don’t wish to pay much for it, as the premium costs are comparatively cheaper than other plans.
- Convertible Term Plan: As the name suggests, convertible term plans come with an inbuilt conversion feature that lets you convert the plan into any other type of life insurance plan. For instance, you have the choice to convert your convertible plan into a pension or whole life insurance policy any time during the policy tenure.
- Joint Life Term Plan: This particular plan enables you to insure yourself and your legally wedded spouse under the same term plan. In the event of the death of any of the insured partners, the surviving policyholder will receive the death benefit. In case of the demise of both insured policyholders, their legal heirs will receive the payout.
- Group Term Insurance Plan: A group term plan is adopted to insure a group of individuals working together in an organization. The plan covers all the members working in the company. The insured member will lose this benefit once he resigns or retires from that particular company.
- Life Stage Event Term Plan: This is a newly introduced term plan, that gives you the choice to increase the life coverage at certain important life events like marriage, the birth of your children, children’s graduation, and so on. You get you select the milestones for the said purpose.
- Term plans with add-on riders: In simple words, a term plan bought along with additional riders is called term plans with riders. These optional covers can be purchased with any regular term plan by paying an extra premium. Some add-on riders available in the market are accidental death rider, critical illness rider, premium waiver rider, and so on.
4.) Importance of Term Insurance
mentioned below are a few important reasons why you must purchase term life insurance to financially protect your family.
- Secures your families futures: The right term insurance plan will provide your family the necessary financial cushion in the unfortunate event of your death. The sum insured paid by the insurer can be utilized by family members in numerous ways like paying off certain liabilities like repayment of a loan, paying for your child’s education and future
- Protects your assets: Have you ever wondered who will pay off your loans in your absence? A term insurance payout can be utilized by the family to reimburse your financial loans or debts like home loans or medical bills.
- Keeps you prepared for uncertainties of life: Life is like a box of surprises, hence it is smart to hope for the best and prepare for the rainy day. A term insurance plan will assist you in just that. The sum assured payment will provide financial assistance to your loved ones in multiple ways you could not even think of.
5.) Key Features of Term Insurance
- Cost-efficient: One of the main features of a term insurance plan is that you can avail of its benefits at very affordable premiums. These plans are comparatively cheaper than other insurance products available in the market as they offer basic life coverage and do have any other investment component to them.
- Buy Online: Purchasing a term insurance plan is no more a tiresome or lengthy job. Once you select the right type of term insurance plan for yourself, the policy can be bought in a matter of minutes.
- Flexible Premium Payments: Multiple insurance companies give you the advantage to pay your premium on a monthly, quarterly, or yearly basis, as per your convenience.
6.) What are Term Insurance Riders and their types?
Riders are optional covers that can be purchased along with regular term insurance plans. These Riders provide extra protection covering a specified cause or event only, at an additional premium cost. For instance, You buy a regular term insurance plan that only offers you a life cover and will provide a death benefit to your family after you.
Being a vigilant consumer, you also wish to cover yourself against accidental death. Since your regular term plan does not cover accidental death you can purchase an accidental death rider and get yourself covered against accidents as well.
There are multiple optional add-on riders available to customize or boost your term plan according to your needs and specifications. Let us tell you about them briefly.
- Accidental death rider: This particular rider insures the policyholder against accidental death. If the policyholder dies due to an unfortunate accident, the family will receive the rider sum assured plus the sum assured of the regular base policy. This rider acts as an additional financial relief to your family in times of grief and distress.
- Accidental death and disablement rider: This rider not only insures against accidents but any disablement suffered by the policyholder due to an accident. Under this plan, if the policyholder dies in an accident or suffers from permanent disablement due to an accident, 100% sum insured of the rider will be paid to the family members of the insured. If the policyholder suffers from any permanent partial disablement, a specified percentage mentioned under the rider will be paid by the insurer. Also, in the event of any disability, future premium payments shall be waived off depending on the plans selected.
- Critical illness rider: This rider protects the insured against any critical or life-threatening illnesses. Under this cover, if the insured is diagnosed with any of the critical illnesses mentioned in the policy, the insurer will pay a 100% lump sum payout to the policyholder.
- Premium Waiver Rider: If you opt for a premium waiver add-on cover, the insurance company will waive off all the future premiums if you are diagnosed with any critical illness or suffer from any accidental disablement which disables you to make your premium payments.
7.) Tax Benefit of Term Insurance
Benefit under section 80C: The most basic tax benefit a policyholder falls under Section 80C of The Income Tax Act, 1961. Under this section, the policyholder can get a tax deduction of up to Rs. 1.5 lakhs for the premiums paid. Note that other deductions included in this section are on investments like fixed deposits (FDs), public provident funds (PPF), national savings certificate(NSC), and various tax-saving instruments.
Benefits under section 10(10)D: Under Section 10(10)D of the Income Tax Act, the policyholder can avail tax benefits on the returns provided by the term insurance policy. The death benefit or maturity amount received by the family members or nominees is fully tax exempted. It means the entire amount that your family members will receive under the term plan is exempt from taxes. However, term insurance tax benefits under section 10(10)D are subjected to certain conditions. It states that the death benefit or maturity sum under the term plan is non-taxable if the premium payable during the policy period does not exceed 20% of the specified sum assured.
8.) How to file a Term Insurance claim?
In case of the unfortunate demise of the policyholder, the nominee should inform the insurance company and submit the relevant documents to them. One can do so in the ways given below:
- Online method: Visit the official website of the insurance company and initiate the claim under the claims section.
- Claim support: Contact the claim support team on the toll-free number and the email address provided on their website.
- Visit branch: Physically visit the nearest branch of the insurer with the relevant documents.
- It is mandatory to submit a written request to file a claim settlement, It can be in a form of a physical letter or an email for the same
- Along with the written request application, it is also necessary to submit a duly signed and filled claim form along with other supporting documents. You can easily download the claim form from the insurer’s official website
- Once the nominee has submitted all the necessary documents, the insurance company will verify the claim request and approve the same
- Upon thorough investigation, the claim shall be approved.
Once the claim has been approved, the payment will be directly transferred to the nominee’s or beneficiary’s bank account.
Documents to be submitted in case of a natural death
- Original policy documents
- Duly filled and signed claim form
- Death certificate of the policyholder
- Claimant’s written request
- Any other documents requested by the company
Documents to be submitted in case of accidental death
- Original policy document
- Duly filled and signed claim form
- Claimant’s written request
- First information report (FIR)
- Post mortem report
- Medical reports
Any other documents requested by the company.