Term Insurance for Family: An Overview

What is a Term Plan?

A term insurance plan is a financial product that may provide support to your family if you were to pass away in an unfortunate manner. You may already be aware of how the cost of term insurance coverage has to be paid via premiums. These premiums may be paid monthly, quarterly, half-yearly, or yearly.

In the event of your demise during policy term, your family may raise a claim. If the claim is approved, the sum assured may be paid out to them. For your family to receive the sum assuredin an easy manner, they should be designated as the nominee/s under the term insurance plan.

Once they receive the sum assured from the term plan, your family may use the money for any reasons they see fit.

Example:

Mr Tripathi was travelling to his office when he got involved in a grievous car accident. He suffered some serious mishaps which eventually led to his untimely demise. His family was shocked. However, Mrs Tripathi understood the financial troubles that might come soon and raised a claim on Mr Tripathi’s term policy.

The insurance company processed the claim, and it was soon approved. The financial compensation received by Mrs Tripathi helped her and her two children to meet the daily expenses, continue with the education for the children, and plan for their future.

Features of a Term Plan

To get a more comprehensive understanding of family term insurance, let’s understand its features:

Availability in different variants

Your term insurance coverage needs may be different from that of others. Hence, you should have the liberty to choose a type of term insurance suiting your specific needs. Apart from pure term plans, term plans can further be categorised into increasing sum assured and decreasing sum assured term plans.

a. Increasing sum assured plans

Here, the sum assured under the term plan may keep on increasing gradually over the years. If you feel your family’s needs and expenses may increase over time, this type of plan may be suitable for you.

b. Decreasing sum assured plans

As the name suggests, the sum assured in this type of plan may reduce over time. If you have taken loans or debts and wish to secure your family against them in your absence, this type of plan may be suitable for you. Over time, as your debts and liabilities get paid off, the sum assured may also decrease, leading to a better sync between the two.

Availability of an optional maturity benefit component

Besides offering your family support during tough times, a term plan may also have a maturity benefitfeature depending on the terms and conditions of the policy. As per this feature, if you were to outlive the policy term, you may have the total of all premiums paid returned to you, subject to certain deductions. Plans offering such a feature may be referred to as Term Insurance Return of Premium (TROP) plans.

The premium of a TROP plan may be higher than the basic plans, due to the maturity benefit feature. However, note that if you were to breathe your last during the policy tenure, your family may only receive the death benefit amount. No maturity benefit may be applicable therein.

Availability of riders

Tragedy may strike your loved ones in different ways. What if an accident were to cause you to become permanently disabled? Or, if a critical illness were to come knocking at your door, how would you deal with the same? Opting for riders with your term plan may help you in these scenarios.

Some popular riders you may buy at a nominal additional cost with your term insurance plan include the waiver of premium rider, the critical illness rider, the accidental death and total/permanent disability rider, and so on. We shall learn more about these riders in the upcoming sections.

Benefits of a Term Plan for your Family

When you buy a term insurance, your family may benefit from it in various ways, such as:

Additional help coping with the loss of income

Losing a family member can be immensely difficult. However, if they are the main earning member of the family, the emotional consequences may be accompanied by financial challenges as well. In such a situation, the sum assured from a term life insurance planmay act as a source of relief. It may act as an income replacement and allow the family to pass through the financial difficulties with dignity.

Empowerment of your children to continue their education

Come what may, you do not want your children to stop receiving their education. You would want them to pursue their schooling and university at the best options available to them. You may fulfil this wish of yours even in your absence with the support of term insurance.

Accumulation of wealth in the long run

If you survive the policy maturity of a TROP plan, you may receive the maturity benefit, that is the sum of all the premiums you may have paid till then, minus the applicable deductions.

This amount may help you and your loved ones get a financial upper hand. The money received in this scenario may help you pay off a loan, buy a private vehicle, or so on.

Savings on tax

You may be able to claim tax deductions of up to Rs 1.5 lakhs against your term insurance premiums under Section 80C of the Income Tax Act of 1961 in case of old tax regime. Moreover, your family may claim tax exemptions on the death benefit payout under Section 10 (10D) of the Act subject to certain conditions.

Also, note that deduction under Section 80C of the Act can be claimed under the old tax regime and not under the new tax regime. Tax benefits are subject to terms and conditions as per the provision of the Income Tax Act of 1961, amended from time to time.

Types of Term Insurance Plans for a Family

When selecting Term Insurance for Family, understanding the different plan types is crucial to choose the right financial protection for your loved ones. Below are the five common types of term insurance plans designed for families, along with their key features and drawbacks:

Choose a plan that aligns with your family's financial goals, current liabilities, and long-term security needs.

How to Choose Term Insurance for Family in India 2025?

Choosing the right Term Insurance for Family in India 2025 involves evaluating your needs, comparing options, and selecting a plan that offers maximum value. Here’s a guide to help you make the right choice:

1. Determine the Right Life Cover:

   
   Estimate the right life coverbased on your income, expenses, existing debts, future goals, and dependents’ needs. You can use a human life value calculator for assistance.
   
   

2. Choose a Flexible Policy Term:

   
   Select a policy term that covers your working years or until your financial responsibilities decrease. Some policies offer coverage up to 99 or 100 years.
   
   

3. Check Claim Settlement Ratio (CSR):

   
   A high CSR indicates that the insurer can efficiently settle claims. Aim for insurers with a CSR above 95%.
   
   

4. Evaluate Riders/Add-ons:

   
   You can choose Riders like Critical Illness or Accidental Death Benefitby paying a little extra to strengthen your insurance cover.

5. Understand Premium Structure:

   
   Understand how your premiums are calculated—whether they're fixed, increasing, or decreasing—and how they fit your budget.
   
   

6. Review Policy Documents Thoroughly:

   
   Go through the fine print to understand inclusions, exclusions, renewal terms, and tax benefits.
   
   

7. Compare Plans Online:

   
   Use online tools to compare features, premiums, and benefits of multiple plans. Choose the one that offers the best value and flexibility.
   
   

By following these steps, you can ensure the chosen term plan supports your family’s future, no matter what life brings.

What Riders Are Available with A Term Insurance Plan?

As mentioned earlier, riders are optional add-ons you may purchase at additional cost with your term life insurance.

Here are some riders you may want to consider:

Critical illness rider

If the assured person were to be diagnosed with a critical illness, this rider pays a lump-sum pay-out to them. This pay-out may be used to treat the illness, handle the lack of earnings that may happen in such a situation, or for any purposes the assured person sees fit.

Accidental death rider

If the assured person passes away due to an accident, their family may receive an additional lump-sum pay-out on top of the death benefit amount.

Accidental permanent disability rider

If an accident may lead to a permanent total/partial disability of life assured, they may receive the rider sum assured to deal with the financial repercussions of the same.

Waiver of premium rider

This rider may help you keep your term insurance plan active even if an accident or a critical illness diagnosis may take your ability to pay the premiums. This rider may essentially waive off the premiums until maturity if the events covered by the rider occur.

Family income benefit rider

While the above rider may waive off the premiums, this rider may provide a pay-out to the assured person and their family if any of the covered events, like a critical illness diagnosis, occurs.

Why Should the Main Income Earner Get Family Term Insurance?

The main income earner in a family is often responsible for managing essential expenses like rent, EMIs, children's education, and daily needs. If something happens to them, the family could face financial instability. Term insurance acts as a safety net by ensuring that your loved ones continue to receive financial support in your absence.

You can choose how the payout is made:

• A lump sum after death
  
  
• Monthly or annual income over a set period
  
  
• A mix of both lump sum and regular income
  
  

These flexible payout options help the family manage immediate and long-term expenses comfortably. Additionally, you can pay premiums based on your preference—monthly, quarterly, half-yearly, yearly, or as a one-time payment.

In short, term insurance gives peace of mind to the main earner, knowing their family will be financially protected even when they are no longer around.

Conclusion

A term plan may be a wise product to opt for, having long-term benefits enjoyed by both the policyholder and their family members. While the financial benefits may be remarkable, one may not overlook the other benefits it may bring along, such as peace of mind and assurance of future financial security.

FAQs

1. Which is the best life insurance policy for a family?

The right life insurancedepends on your family’s needs, financial goals, age, health, and future plans. You can explore and choose based on what suits your situation best.

2. Can a term insurance plan cover more than one person?

Term insurance is typically designed to cover one individual. However, some insurers may offer joint term plans that cover two people, like spouses, under a single policy. It's best to check specific plan details before choosing.

3. How much coverage is required for a family of four members?

Coverage can be calculated using methods like Human Life Value, income replacement, or expense replacement. A common rule is 10 times the main earner’s annual income, considering loans, expenses, and future goals.

4. What should be the sum assured required for my family?

The sum assureddepends on your age, income, lifestyle, liabilities, number of dependants, and future goals. Evaluate these factors to choose an amount that provides adequate financial security to your family.

5. Can riders be purchased for term insurance for a family?

Yes, you can add riders like accidental death, critical illness, or waiver of premium to enhance your term plan. These come at an extra cost but provide additional protection based on your needs.

6. How can my family use the Term Life Insurance policy ?

If the insured dies during the policy term, the nominee receives the sum assured. This amount can be used for daily expenses, education,medical needs etc.