What Is Term Insurance?
Term Insurance is a type of Life Insurance where the insurance company offers the insured person a purely protective life cover. In exchange for this life cover, the insured person or the policyholder pays Term Insurance premium to the insurer. As the name clearly suggests, the Life Insurance cover provided by a Term Insurance plan is valid for a specified period. This is known as the term of the policy.
If the insured person passes away during the term of the policy, the insurance company pays a death benefit to the nominees or the legal heirs of the insured person. Since Term Insurance plans are purely protective life covers, it means that the insurer is not liable to pay any amount to the insured person if the latter survives the term of the policy.
Since Term Insurance plans offer a pure life cover, they are generally much more affordable than other kinds of traditional Life Insurance policies.
Term Insurance Comparison
Based on the many comparison factors available, there are different types of Term Insurance plans. Let us look at the many kinds of Term Insurance policies in the context of different parameters, and compare how they match up against each other.
Comparison Of Increasing And Decreasing Term Life Insurance Plans
Decreasing Term Insurance
| Increasing Term Insurance
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The sum assured reduces per predefined criteria. For instance, it might reduce every year by 10%.
| The sum assured increases per predefined criteria. For instance, it can increase every year by 10%
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The plan is suitable if your liabilities reduce with age and you require a lower sum assured in older ages
| This plan is suitable if your liabilities increase with age and you need a higher sum assured at later ages
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The premium payable might be lower than increasing Term Insurance plans, as the coverage reduces over time.
| The premium payable might be higher than decreasing term plans, as the coverage increases over time.
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Comparison Of Single And Joint Life Term Insurance Plans
Single Term Insurance
| Joint Life Term Insurance
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The policy is taken on a single life, i.e., a single individual is insured.
| The policy is taken on joint lives. Two or more individuals can be insured under the same policy.
For instance, a joint life policy can cover a husband and wife under a single plan.
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If the insured passes away during the tenure, the death benefit is paid.
| If any of the insured individuals passes away during the policy tenure, the death benefit is paid.
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Comparison Of Individual And Group Life Term Insurance Plans
Individual Term Insurance
| Group Term Insurance
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The policy is taken on a single life, i.e., a single individual is insured
| The policy is taken on the life of multiple individuals who form a part of a group. For instance, employer-employee groups wherein one policy covers the employees of an organisation
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The policyholder can pay the premium
| The master policy holder, for example, the employer pays the premium . In certain cases, part of the premium may also be paid by the members of the group, for example by the employee in an employer-employee scheme.
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A higher sum assured can be chosen
| Usually, very high sum assured levels are not allowed
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The policy terminates if the insured individual passes away during the policy tenure
| The policy does not terminate if any one member passes away. The death benefit for the insured member is paid but the policy continues for other members
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You can choose a long-term tenure for the plan
| Group term plans are usually offered as one-year plans which are renewable
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Comparison Of Online And Offline Term Life Insurance Plans
Online Term Insurance
| Offline Term Insurance
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You can buy the plan online through the insurance company’s website or through other online channels
| You can buy the policy through an insurance agent, broker or through the nearest branch of the insurance company
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The policy issuance is usually quicker since the documents can be uploaded with the click of a button.
| You can get your queries resolved by representative of insurer in person without having to understand everything on your own. Also, in offline term plans, the policy service issues are taken care of by the agent.
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You can compare Term Insurance plans and their premiums across insurance companies and then choose a relevant policy
| Comparison can be provided by your agent, who might also be able to select your plan, in case you are unable to decide your plan.
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What are the Different Types of Term Insurance Plans?
Term insurance plans come in different types. Each one works in a different way to suit your needs.
Level Term Insurance Plan
In this plan, the life cover stays the same throughout the policy term. For example, if you buy a policy with ₹ 1 crore life cover, that amount won’t change for the entire term. It’s a simple and clear plan, where you pay the same premium every year, and your family will get the full cover amount if something happens to you during the policy period.
Increasing Term Insurance Plan
In this plan, the life cover increases every year. This helps match growing costs. The premium might be a bit higher than a level term plan, but your family gets more financial protection over time.
Decreasing Term Insurance Plan
The life cover amount goes down over time. It is usually helpful if you have large loans, such as a home loan, that decrease in value every year. The premium for this plan is usually lower. It is chosen by people whose financial responsibilities also decrease as they grow older.
Convertible Term Insurance Plan
With this plan, you can start with a basic term plan and later convert it into another kind of plan, like a whole life or endowment plan. You don’t need to take a new medical test for this. Some insurers offer the option to convert your basic term plan into another plan like whole life or endowment, subject to specific terms and eligibility. It’s a good option if you’re unsure about your long-term Insurance needs.
Why Is Term Insurance Important?
The insurance industry in India has grown significantly over the past few decades. As a result, many insurance companies are available for people to purchase term plans from. In addition to this, each insurer once again offers different term plans, thereby making the choices available to interested buyers quite extensive.
If you are in the market shopping for Term Insurance, you may find that there are many parameters like the life cover, the frequency of premium payment, and the mode of purchase, among other things. This is why it becomes important to compare term plans and find the policy that suits your own individual needs. You could also make use of a Term Insurance calculator before purchasing a term plan, so you can get a better idea of the right amount of life cover you will need.
Why Should You Buy a Term Insurance Plan?
Term insurance is widely recognized as a simple and affordable way to provide your family with financial security. Here are some key reasons why buying a term insurance plan may be a wise choice.
To Secure Your Family
Your family depends on you for many things, such as home expenses, education, healthcare, and more. A term insurance plan gives them financial support if you’re not around. It may help them maintain their lifestyle and cover essential expenses such as rent, school fees, or medical bills.
To Protect the Assets
Whether you’ve taken out a loan for your house, car, or business, a term plan helps protect these assets. In case of your untimely passing, the payout from the Term Insurance can be used to repay a part of your debts. This means your family may not have to worry about repaying EMIs on their own.
To Reduce Risks
If you are the primary earning member of your family, your absence is sure to affect those whom you care most about. If you have a term plan in place, your loved ones will not need to compromise on their basic needs and long-term goals, like ensuring your child has an education or your spouse has a retirement fund. It protects their future, even when life gets unpredictable.
Be Prepared for Uncertainties
Life is unpredictable, and no one thinks about the future. A term insurance policy offers a plan for the unplanned. It allows you to be at peace,knowing that your beneficiaries will have financial assistance when they're most in need after you leave.
Low Premium with Attractivel High Life Cover
One of the biggest reasons to buy term insurance is its affordability. You can get a large life cover, like ₹1 crore, by paying a reasonable premium. This is especially true if you buy the policy at a young age when your health is better and premiums are lowest.
Opting for a Term Rider
Term plans also allow you to add extra benefits referred to as riders or add-ons. You might select a rider that pays benefits for critical illness, accidental death, or disability. Riders allow you to obtain extra protection at an additional nominal premium without having to purchase another policy.
Tax Benefits
Term insurance also helps you save on taxes. The premium you pay qualifies for tax deduction under Section 80C of the Income Tax Act under the old tax regime. Also, the money your nominee receives in case of your unfortunate passing is tax-free under Section 10(10D) under some conditions, as per current tax laws.
How To Choose The Suitable Term Plan For Yourself?
Now that you know why comparison is needed, the question is how to choose the most suitable plan for yourself, you need to look into many factors like the life cover, the tenure of the plan, the premium and the needs of your family, among other things.
Here is a closer look at some of the factors that you need to consider in order to compare term plans –
Your Family’s Needs
Your family’s needs and life goals play an important role in helping you choose the suitable term plan. The benefits paid out to your nominee(s) in the event of your unfortunate demise must be sufficient to fulfil their needs and help them meet their life goals at various stages of life. Whether it is your elderly parents and their post-retirement requirements or your children and their life goals like education, these needs can help you compare and choose the suitable term plan.
The Amount of Life Cover You Need
When it comes to choosing a Term Insurance plan, one of the key things that you should consider is the amount of sum assured or the life cover that your family members will need to carry on with their life in your absence. You can get a better idea of this amount by factoring in the number of dependents in your family and their current as well as future needs. A Term Insurance calculator can also help you get a good idea of the amount of life cover needed.
The Insurer’s Claim Settlement Ratio
Before you buy a term plan, it is also important to compare the claim settlement ratio of different insurance companies. This ratio essentially indicates the number of insurance claims paid by the Life Insurance company in proportion to the total insurance claims they received in a year. A higher claim settlement ratio is naturally a good sign, because it means that the insurer honors the contract.
The Mode of Purchase
Comparing term plans according to the mode of purchase is also essential. Some plans may only be available for offline purchase, while others may be available for purchase online as well. So, before you choose a term plan, determine if you are more comfortable buying a policy online or offline. Once you have figured that out, you will be able to make a smarter choice.
Inflation
To choose the suitable term plan, you also need to factor in inflation. Your family’s needs today will not be the same as their needs tomorrow, and the amount of money needed to meet those needs will increase with time, primarily due to inflation. Therefore, in addition to comparing term plans and using a Term Insurance calculator, you also need to account for inflation and make sure that the life cover you choose will be sufficient for your family 10 or 20 years later.
Who Should Buy a Term Insurance Plan?
Term insurance may be suitable for several individuals at different stages of life. It offers financial protection for your loved ones and helps secure their future. The table below explains who should buy term insurance and how it benefits them.
Types of Individuals
| Term Insurance Benefits
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Young Professionals
| Affordable premiums, long-term protection, and future planning support
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Married Couples
| Secures the spouse financially in case of early demise
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Parents with Young Children
| Ensures children’s education and daily needs are taken care of
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Home Loan Borrowers
| Helps repay outstanding loans, preventing a burden on the family
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Business Owners
| Provides a financial safety net for dependents and business continuation
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Single Earning Members
| Protects financially dependent parents or siblings
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People in High-Risk Jobs
| Covers the risk of sudden death and offers peace of mind to the family
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How Much Term Insurance Costs for Different Ages?
The premium of a Term Insurance policy depends on the age of the life insured, among other factors. It is higher for higher ages. Here’s how the premium changes across ages –
In the 20s:
In your early adulthood, you are usually healthy and have a low mortality risk. As such, premiums may be lower at these ages.
Between 30s to 50s:
As you age, your mortality risk may increase. You might also develop health conditions. So, premiums may be higher compared to your 20s, and if you have any medical condition, the premium may be further affected.
In your 60s:
Some insurers may restrict the entry age beyond 60 and some may offer lower tenures with a maximum maturity age criterion. So, premiums may be higher than younger ages and existing illnesses, if any, may increase the premium further.
Factors to Consider When Choosing Between Term and Other Types ofLife Insurance
Choosing the right type of life insurance depends on your needs and goals. Here are four important things to think about when deciding a plan.
Affordability
Term insurance is affordable as you can get a life cover by paying a small premium. This may be a good option if you have a lot of responsibilities.
Coverage Duration
If you only want coverage for a specific period, like until your children finish school or your loan is paid off, term insurance is a good option.
Long-term Financial Goals
Life insurance plans like whole Llfe insurance comes with a savings feature. You can use this saved amount later for retirement, emergencies, or your child’s future needs. Whereas, term insurance doesn’t offer savings; it only provides protection.
Conclusion
Now that you know more about Term Insurance, you will find that it is easier to compare term plans before you make a purchase. In addition to this, tools like Term Insurance calculators also make comparison and decision-making easier for purchasers.
FAQs
What is the difference between term insurance and other types of life insurance?
Term insurance is a type of life insurance that offers pure protection for a fixed period. It pays a death benefit if the life assured passes away during the policy term, but it has no maturity or savings component. Other types of life insurance, like whole life or endowment plans, combine life cover with a savings or investment element.
What is the best age to life insurance?
The best age to buy life insurance is between 20 and 30 years. At a younger age, premiums are lower, and you can lock in better rates. It also helps cover long-term financial goals and gives your family more protection for a longer period at a lower cost.
What happens if I stop paying premiums for term insurance?
If you miss a premium payment for term insurance, insurers generally provide a grace period of 30 days. If the premium is not paid within this grace period; the term insurance policy will have no payout or benefit after lapsing.
Can I have both term insurance and other types of life insurance?
Yes, you can have both of them. Many people choose term insurance for its affordable and high life cover, while also investing in other life insurance plans (like endowment or whole life) for long-term savings or wealth-building. Having both allows you to balance cost-effective protection with future financial planning.
Which life insurance plan is better?
The better plan depends on your goals. Term insurance is best for pure protection. Other life insurance plans like ULIPs, endowment, or whole life are better if you want life insurance along with savings or investment. Choose based on your age, future needs, and financial comfort.
What are the 3 benefits of term insurance?
Term insurance gives you:
- High life cover at low cost
- Tax benefits under Sections 80C of the old tax regime and 10(10D) , subject to the provisions of the Income Tax Act , 1961
- Financial protection for your family in case of your sudden death during the policy term. Some plans also offer riders at a nominal additional premium for added protection and return of premium on survival.
Who is not eligible for term life insurance?
This depends on the eligibility conditions of the plan and on the insurer, usually people below 18 or above 65 may not qualify. Also, individuals with serious medical issues or incomplete documentation may face rejection. Every insurer has specific eligibility criteria. It's best to check with the insurance provider before applying to know the exact criteria.
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