Get 1 crore coverage with low premium term insurance policy

Term Insurance
·         Term insurance Vs. life insurance
·         Types of term insurance plans?
·         Who should buy term insurance?
·         When should I invest in term plan?
·         Why do I need term plan?
Things you should know before buying a term plan
·          Eligibility for term Insurance
·          How to choose the right term insurance
·          Best-term insurance plans in India
·          Term insurance riders
How does the term insurance work?
·         Exclusions for Term Insurance Plans
·         How to claim term insurance
·         What are pay out options for term insurance?

Term insurance policy

Many people confuse the term insurance policy with life insurance policy. The key difference between the two is the type and sum of the benefit offered to the policyholder. Unlike a life insurance policy with maturity benefits, the assured sum assured is paid out to a family member in case of the death of the assured person. However, the current term insurance policy types available in the market add critical illness and disability coverage as well. They offer huge coverage at low premiums. Life insurance, on the contrary, has a border concept. They provide both maturity and death benefits aiding financial protection to your family in the future. One has to pay comparatively high premiums to get extensive coverage in the future because they have dual components like a death benefit and a savings component.

Difference between term insurance and life insurance
Parameters
Term plansLife insurance policies
scope of Coverage

Very limited as it offers only death benefitsOffers both death and guaranteed maturity benefits
Premium Cost

High sum assured coverage with low premium ratesHigh premium rates
Policy Term

Ranges 10-35 years
Wider policy term with whole life coverage option of up to 100 years in certain policies
FlexibilityLess flexible, can add riders to enhance the scope of coverageVery flexible. One can avail of the loan facility, make partial withdrawals, and pay additional premiums for more benefits.
Surrendering the PolicyEasy to surrender. Once the death benefit is paid or you stop paying the premiums, the policy lapsesTo receive the maturity benefits, one has to complete the policy term.
RenewabilityTerm plans are renewable, and one can also convert the policy into an endowment plan.Option to renew the plan once the policy matures
Investment OpportunityPure insurance planOne part of the premium is allocated to investment funds which ensure wealth creation.
Death BenefitsPayablePayable on all the policies
Maturity Benefits
No maturity benefit; with the Rop option, one can get back all the premiums paid.Offers assured maturity benefits along with the bonus, if any, to the insured
Policy LoanNo such loan facilityCertain plans offer loan facilities against the policy
Source: https://www.forbes.com

Types of term insurance plans

Level term plan

Return of premium plans

This is a pure-term plan that pays a fixed amount to ensure in case of the policyholder’s death. The premium for these policies is the lowest of all available options and varies according to factors like age, sum assured, and many more.

Many people are reluctant to digest that no returns are offered in case of assured survival after an active-term insurance policy period. To target a specific group, a term policy has introduced a new policy type called return of premium plans, where the total premium paid is returned to policyholders in case of their survival after the policy period and death benefits in case of unforeseen events during the active period. However, premiums at the juncture are high as it provides double benefits.

Increasing sum assured plan

In this plan, the policyholder can increase the sum assured every passing year while raising the premiums accordingly. The option is available while purchasing the term plan. The premiums for this type of policy are high compared to level-term plans.

Decreasing term plans

These term plan work just opposite to increasing term plan. The term insurance policy amount keeps decreasing each passing year with varying premiums, and they work better when you have huge dues to pay every month.

Term plan with riders

These plans come with additional options like accidental death and critical illness benefit. The additional riders you want can be purchased with level-term plans by paying a little extra premium.

Term insurance plans with income benefits.

This type of policy works better for income replacement. Instead of paying a lump sum to the nominee in case of unforeseen events, the sum assured is given to the nominee in periodic installments. While a part of the sum assured is offered in a lump sum, the rest is invested in interest-bearing financial instruments to generate regular income for the nominee. However, the nominee can convert the future income payments at any juncture and get a lump sum equal to the current value of income benefit installments.

Who should buy term insurance?

Term insurance is the right policy for anyone with financial dependents, parents, wives, or children.

Parents

Parents who want to secure their children’s financial future in case of unforeseen circumstances should buy this term plan.

Newlyweds

Purchasing the term insurance policy India in the early period of marriage will give the spouse the financial security they need most.

Working women

Working independent women can add financial security to their parents, children, or spouse while they spend a busy balancing personal life and professional career. The lump sum they receive could help the family to clear the debts or reach their goals.

Taxpayers

Term insurance policies can add certain tax benefits reducing their tax liabilities. The premiums are eligible for tax deduction under the income tax act 1961.

Retirees

A term insurance plan in golden years can assure financial security for a spouse in case of unforeseen death. They can maintain a normal lifestyle with the sum received.

When should I invest in term plan?

The right time to buy term insurance is earlier than you know it. Young individuals with a low health risk will enjoy a huge lump sum with a lower premium, and the opposite works as you grow age. The younger age you buy the policy, the better will be financial security you will be offering to your family at an early age.

Age Benefit
In 20’s
High sum assured at low premiums
In 30’sEnsure the same standard of living for the family in case of death.
In 40sShould have one if you don’t yet because it provides good financial coverage to children to pursue their goals in your absence
In 50’sHave one If you don’t want liabilities to burden your family after you. You can also buy riders if you can afford them.  

Why do I need term plan?

Get large cover at low premiums.

Term insurance policies are designed to provide substantial cover to the policyholder at affordable premiums.

Secure dependents financially

The primary motive of the term policy is to aid financial protection to the policyholder’s dependents. The sum issued to the dependents can be substantial enough to manage the rest of live hood in the absence of the bread earner of the family.

 Ensure assets

The term insurance can offer a considerable lump sum on the death of the family’s bread earner. Suppose the big assets like a home or any big assets are under hypothecation at the time of policyholder death; you can release them by clearing the outstanding payments with a lump sum received from the term plan and enjoy long-term benefits.

You can rest assured that your dependents are financially secure in any unforeseen circumstances that take off your life by opting for a term insurance plan for the desired coverage.

Things you should know before taking the term plan

You should determine your coverage amount based on your future financial obligations. The coverage amount should be enough for the dependents to pay off the liabilities and maintain a standard of living even in their absence. It would be best to calculate the time value of money and potential financial expenses while deciding the coverage amount.

Policy term

Pick the policy term aligning with your financial goals, affordability, and the dependents’ needs. Make sure you compare different policies and their premiums before picking one.

Consider adding riders to the policy.

Adding riders like accidental death riders and critical illness riders will enhance the coverage. However, you should understand the exclusions in the policies, like no coverage for suicide or deaths due to a few pre existing medical conditions.

Peace of mind

Adding riders like accidental death riders and critical illness riders will enhance the coverage. However, you should understand the exclusions in the policies, like no coverage for suicide or deaths due to a few pre existing medical conditions.

Right insurance provider

Pick the insurance provider not only based on their reputation but also their efficient and quick claim settlement. You should also know the surrender value if you discontinue it during the active period.

Eligibility

Features Eligibility
AgeMin 18 max 65
Policy tenureMin 5 years max no limit( varies for each provider)
 Premium Payment Frequency Single payment
· Limited payment
· Annual payment
Death Benefit Pay out Options lump Sum
Monthly Income Payment
Part Lump Sum payment, Part Monthly
Income paymentIncreasingly Monthly Income Payment Part Lump Sum Payment Part
Documents Requiredincome Proof
Identity proof( age and address proof)
Application Form
medical testsOne should undergo tests to determine the premium calculating the risk.

How to choose the right term insurance?

  • Look for an insurance company with good claim settlement and solvency ratios.
  • Get a customer review to know if they had a pleasant experience with the provider.
  • Know about the policies with better benefits like flexibility payment and payout options other than maturity benefits.
  • Try considering the inclusion of riders like accidental death and critical illness coverage to have better financial stability in your tough times.*
  • Term insurance is not just about giving the dependents a lump sum death benefit. You can choose the payout options depending on your financial goals, like monthly payments instead.

Best-term insurance plans in India

Insurance companyName of the planInsurance premium
TATA AIA life insuranceTATA AIA Life Insurance Sampoorna Raksha Supreme98.02%
HDFC life insuranceHDFC Click 2 Protect Super Life
98.01%  
ICICI PrudentialICICI Pru iProtect Smart97.90%
Max life insuranceSmart, secure, plus99.35%
PNB MetLifePNB MetLife Mera Term Plan Plus98.17%
Aditya Birla Life InsuranceAditya Birla Life Sheild Plan98.04%
SBI Life InsuranceSBI e-Shield Next93.09%
Kotak LifeKotak e-term Plan
98.50%  

Insurance riders

Term policy rider adds extra cover to policyholders for their base policy. One can buy the riders for the term insurance for additional premiums.

Types of Term Insurance Riders

Different insurance companies offer term policies with riders at various costs and terms. Here are different types of riders offered by insurance companies.

Accidental Death Benefit Rider: 

The rider benefits the nominee in case of the policyholder’s accidental death by paying an additional premium to the base premium, which remains fixed throughout the tenure. However, terms insurance policy may have a cap on the sum assured received during the event.

2. Accelerated Death Benefit Rider:

If the family person is prone to critical illness that constitutes huge medical expenses, the rider, like the accelerated death benefit rider, can serve in handy. One can avail of part of the sum assured to pay the medical expenses.

 3. Accidental Disability Benefit Rider: 

If the policyholder suffers a partial disability or permanent disability due to an accident, an accidental disability benefit rider can serve the need. Many term plans offer the benefit for 5-10 after suffering a disability due to an accident. This rider is often attached to an accidental death rider.

4. Critical Illness Benefit Rider: 

If the policyholder is diagnosed with a critical illness during the active period of the policy, the policyholder can receive an assured lump sum immediately. You have a right to continue or terminate the policy after diagnosis per the terms stated in the policy.

5. Waiver of Premium Rider: 

The pending premiums of the policy can be waived if the insurance holder cannot pay premiums due to disability or loss of income. The rider gives assurance about the payment of premiums till the policy expires. In the absence of such riders in the policy, the inability to pay premiums will expire term insurance plan, and no death benefit will be offered.

6. Income benefit rider

The rider can add to base term insurance by paying extra premiums. The rider can serve as a source of income for the dependent in case of the policyholder’s unfortunate death. You will get additional income every passing year, along with the sum assured for 5-10 years

How does Term Insurance Work?

Term insurance work differently compared to other insurance policies. The policyholder has to pay a premium for 10-30 years. It is a contract between the insurance company and policyholder to pay the death benefit to the nominee on the insured’s death. One can buy a term insurance policy for an assured sum of 1 core with an annual premium of as low as 10,000(indicative). You will enjoy great flexibility in paying premiums for the policy like monthly, quarterly, half a year, and annually as per your choice to keep the policy active. These are pure protection plans and have no maturity benefits. The dependent of the assured gets a lump sum if any unforeseen death happens during the active period of the plan.

Application process

Many reputed companies in India compete in the market to offer term insurance policies with low premiums. You may hear that you can get a policy of 1 crore at the lowest premium. This is the case for every individual; the insurance company will calculate the insurer’s risk to calculate the premium. The assessment process is called underwriting. They may want you to undergo a few medical tests to assess your current health and take your age, lifestyle, and occupation into consideration to decide the premium.

Choose a term length.

Choosing the term length could be a tough play for many. If you have children, you may choose the term long enough for them to make their living. The longer the term length, the more will be the premium you pay for assured coverage. Getting a policy term for a longer length at a younger age is always a good idea, as the future is always uncertain.

How much coverage is enough?

Judging how much coverage you need in life is critical play. To know it right, you should calculate human life value, which means the coverage you receive through a term insurance policy should be 15 to 20 times more than your current annual income. You can even take the help of online tools to know your future coverage needed based on your current expenses.

State beneficiaries

It would help if you now chose the beneficiary of a term policy. i.e., the nominee who receives the lump sum on any unforeseen event. It need not necessarily be one person; you can divide the benefit between your spouse and children.

Exclusions for Term Insurance Plans

  • The insurer will not receive any benefits from them in some exclusive circumstances. Know them ahead of time to ensure you are not one among them.
  • If the policyholder commits suicide within one year of taking the insurance policy, no compensation will be provided.
  • If the policyholder’s accidental death is due to self-imposed actions like involving in extreme sports, no benefit will be offered.
  • The nominee will not receive the term benefit if the death happens due to natural calamities and war.
  • The death that happens due to the consumption of alcohol or narcotic substances, the insurance company does not compensate dependents.

Claiming term insurance

If the policyholder’s death happens in unforeseen circumstances, the dependent has to file the claim to receive the assured amount. It is a simple and easy process to follow.

  • Inform the insurance company regarding the event by contacting the insurance provider to initiate the settlement.
  • Submit the policyholder’s necessary documents, death certificate, and other needed proofs as requested by the provider.

After the claim department reviews your application, they will decide to settle the claim for you.

What are pay out options available for term policy?

A full coverage amount is disbursed to the nominee as claim settlement in case of unforeseen death of the policyholder. Various insurance companies offer great flexibility to the nominee in choosing the payout options.

Lump sum

In this option, the total coverage amount is settled to the nominee in one go if the policyholder dies during the active policy period.

Monthly income

In this pay-out option, the total amount is given to the nominee in equated monthly installments and can be a substitute for income in the absence of the family’s breadwinner.

Part Lump Sum and Part Monthly Income Death Benefit Payout

 In this payout option, part of the coverage is issued to the nominee as a lump sum, and part is disbursed through monthly installments to meet various financial requirements of the nominee.

Increasing monthly income death benefit

In this payout option, the death benefit increases monthly income for a pre-determined period. The increasing installment will increase by 5%-10% simple interest every year until the total coverage is paid to the nominee.

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