What is Term Insurance?

Term insurance plans can usually be purchased for a policy tenure ranging anywhere between 5 years and 40 years. The catch to this kind of insurance is that usually it provides pure life insurance coverage without offering any maturity benefits at the end of the policy term.

Term insurance plans are much cheaper compared to whole life insurance plans because these plans carry no cash value with a sole aim to provide pure financial protection benefits. This means that if the life insured dies during the policy term, the beneficiary will receive the death benefit, provided all premiums are paid and the policy is in force. If the person survives until the end of the policy term, no benefits are payable to anyone.

In most cases, term insurance plans offer a level premium rate, wherein the policyholder is charged the same premium for the duration of the policy tenure. However, in such cases the premium payable will increase during renewal of the policy based on the concerned individual’s age at the time. While the coverage provided by a term plan is more or less fixed, most life insurance providers offer a number of riders that policy buyers can choose to purchase along with a term policy.

Types of Term Insurance Plans in India

The following types of term insurance policies are available in India:

Renewable:These plans can be renewed at the end of the policy term. The insured may have to provide a proof of good health before renewal.
Convertible:It allows customers to exchange their policy for a cash-value plan. However, switching to a traditional plan may increase the premiums.
Level:The premiums and sum assured are stable throughout the policy term under this plan.
Decreasing:The premiums in such plans remain stable whereas the sum assured decreases at a steady rate over a specific period of time.
Increasing:In such plans, the sum assured increases at a steady rate but the premium amount remains constant.
Return of Premium:These plans provide a return of the premium if the insured survives the policy period.

Eligibility Criteria for Term Insurance Plans

All insurance companies lay down certain requirements that individuals need to meet in order to be approved for a term plan. Some of the general requirements are listed below, however, this may vary between different insurers:

Term Insurance Plan Benefits

Term plans have a number of benefits. The main benefit is that the premiums are cheap while the financial protection offered is much larger than regular plans.

Financial Protection – Term insurance plans are a great way to ensure that one’s dependents are financially protected, in the event of an unfortunate eventuality. With a term plan, if the life assured dies while the policy is in full-force, the nominee will receive the benefit in order to live comfortably in the absence of the life insured’s income.
Affordable Premiums - Term plans offer higher coverage at lower prices when compared to traditional plans.
Flexible Payouts - Term plans usually have the option to get a lump sum or get monthly income, or even get both.
Grace period - Insurers usually grant a period of 30 days from the due date to pay the premium. Taking into consideration that people may have their own financial expenses that are of high priority than the life insurance, insurers grant this grace period.
Flexible Policy Tenure - Term plan policy tenures range between 5 years and 40 years. Customers can choose their desired policy term according to their requirements.
Availability of Online and Offline Purchase Channels - Several insurance firms offer term insurance plans that can be purchased through both online and offline channels. Thus, you can either choose to purchase a policy through the insurer’s official website, through third-party websites, or you can directly walk into the insurer’s branch and meet with an insurance advisor who will help you purchase the right policy.
Option to Purchase Riders/Add-Ons – Insurance providers also offer riders that a policy buyer can purchase with their base term insurance plan. The exact riders offered will vary from plan to plan and from insurer to insurer, but purchasing a rider is a smart way to enhance your plan’s coverage.
Choice of Plans– All leading life insurance firms in the country offer term plans to policy buyers. Thus, based on your requirements you can opt for a suitable term insurance policy.
Tax Benefits - Premiums paid towards these plans are eligible for tax deductions under Section 80C of the Income Tax Act, 1961. The benefits received from these plans are also eligible for tax benefits.

Income Tax Benefits That Can Be Claimed from Term Insurance Plans 2019

Life insurance plans offer a risk cover against death on the life of the policyholder, and thereby provide financial security to the policyholder’s dependents in case of an unfortunate eventuality. While there is a range of life insurance solutions with varied benefits and features, these policies also provide tax benefits to the policy buyer. Read on to know more about how you can save on tax with a life insurance plan:

Tax Deduction under Section 80C: As a policyholder, you can claim tax benefits up to a sum of Rs.1.5 lakh in a given financial year, under Section 80C of the Income Tax Act, for the premiums that you pay towards maintaining your policy.
Tax Deduction under Section 80U or Section 80DDB: Individuals who have purchased their policy before 1 April 2013 can claim tax benefits on premiums paid for the life insurance policy of an individual suffering from a disability.
Tax Deduction under Section 80CCC: Individuals who have purchased annuity plans can avail tax benefits under Section 80CCC of the Income Tax Act. However, one should ensure that the tax deduction claimed does not exceed a total of Rs.1.5 lakh under Section 80C, 80CCC, and 80CCD(1).
Tax Deduction under Section 10(10A): Policyholders can claim tax rebates under Section 10(10A) for any lump sum amount that they may receive through pension plans.
Tax Deduction under Section 10(10D): Your maturity/death benefit is also exempt from tax, as per Section 10(10D) of the Income Tax Act.

How Much Term Insurance Does One Need?

Ideally, your term insurance cover should be 10 times your annual income. Anything below this might not be sufficient to take care of your nominee in your absence. Any amount above this is a good option, however, it’s not advisable to take a higher sum, as the extra premium paid towards the plan can be diverted to better investment avenues that are profitable. Listed below are certain factors that you need to check before selecting a sum assured amount:

Your Annual Income: In the event of the policyholder’s death, the nominee will be provided the death benefit payout. This payout can act as income replacement for your family until they are able to get back on their feet. Thus, it is essential to consider your annual income and opt for a sum assured that amounts to at least 10 times your annual income, if not more.
Your expenses: Before you opt for the sum assured, it is necessary to calculate your monthly expenses in order to determine how much you can pay as the premium. Since the premium payable is linked to the sum assured, you will need to first determine your premium payment ability.
Your liabilities: If you have several loans and debts to clear, it is advisable to opt for a large sum assured since it will ensure that your nominee is able to pay off your debts without any hassle in the event of your death. However, if you are relatively debt-free, you can get away with opting for a lower sum assured.
Your investments and savings: Since the point of opting for a life insurance policy is to provide financial security to your dependents, it is essential to first assess the value of your assets, investments, and savings. This will, in turn, help you determine how much you need to opt for as the sum assured in order to provide sufficient financial security to your loved ones.

Documents Required to Buy a Term Policy

Mentioned below are some of the documents required to purchase a term insurance policy:

What is Term Insurance?