What is Term Insurance Policy
Term insurance, also known as pure life insurance is a plan which provides coverage for a specified period of time, and guarantees payment of a specified benefit on death. In the event of demise of the insured during the policy period, the death benefit is payable to the nominee or beneficiary. Furthermore, the premiums for term insurance plans are lowest as compared to all other life insurance plans, considering there is no investment component, and the entire premium is used to cover the risk and expenses.
However, if the policy term expires while the policyholder is alive, there is usually no maturity benefit, while there may be few term plans that have the option of returning the premiums paid by the insured. Traditional term policies mostly offer guaranteed death benefit. Furthermore, the premium to be paid by the policyholder is set by the insurer, and depends on factors such as the policyholder’s health, age and Mortality rate (life expectancy).
Types of Term Insurance Policies in the industry today
1. Level Term:
The most common and simplest form of all the term insurance plans is the level term, where the sum assured remains the same during the entire term of the policy. In case of death of the insured during the policy term, the nominee receives the benefits.
2. Increasing Term:
Increasing term plans are of two types:
a. Plans which auto increase by a percentage every year
b. Plans which increase on certain key events like marriage, new home, child birth etc.
3. Mortgage or Decreasing Term:
This plan is suitable for policyholders who have taken mortgage or personal loans. Thus, policyholders can lower the sum assured basis the outstanding loan.
Key Features of a Term Insurance Policy
Term insurance is a simple yet powerful tool to protect your loved ones financially. Its features make it a popular choice for those looking for high coverage at an affordable cost. Here are the key features that make term insurance a must-have in your financial plan:
1. Affordable Premiums
Term insurance offers substantial life cover at relatively low premiums. Since it’s a pure protection plan, the cost remains budget-friendly. Plans are available for different durations, allowing you to choose based on your needs. You can use a term insurance calculator to estimate the premium that fits your budget.
2. Simple and Convenient Purchase
Buying a term plan is now easier than ever. Most insurers offer online comparisons and digital policy issuance, often with minimal documentation. You can evaluate various options, check benefits, and complete your purchase from the comfort of your home.
3. Return of Premium Option
For those who seek some return on their investment, select term plans come with a Return of Premium (ROP) feature. If you survive the policy term, all the premiums you’ve paid are refunded, offering a sense of reassurance and value, even if the plan is not claimed.
4. Staggered Payouts for Claims
Rather than a lump sum payout, term insurance also gives the option of staggered claim payouts. Policyholders can choose how their nominees will receive the death benefit as a regular monthly income or as lump sum amount, helping them manage day-to-day expenses more effectively over time.
5. Flexible Premium Payment Modes
Term plans offer flexible premium payment frequencies—monthly, quarterly, half-yearly, or annually. Premium payment options such as regular, single and limited premium payment options are also available.
6. Health-Based Premium Discounts
Many insurers provide premium rebates to policyholders with a healthy lifestyle. Non-smokers or those with no pre-existing health conditions can often avail discounts, making the policy even more affordable.
Important Features of Term Insurance Policy
Term plans are affordable
Pure term plans are mostly affordable as compared to other insurance plans. These plans offer life cover for the sum assured for a specified period of time, known as the policy term. In the event of death of the insured during the policy period, the insurance company provides the death benefit to the nominee or beneficiary. However, considering term insurance plans have no savings component, there is no maturity benefit that is payable to the insured after the expiration of the policy term. However, some term plans come with return of premium option.
The premium paid by the policyholder only includes mortality charges, along with basic administration cost for the policy issuance. Thus, term plans are cheaper as compared to other life insurance products, such as ULIPs or money back plans. Their affordability, and the protection they provide to the policyholder makes them an attractive option for individuals and families.
It is easy to purchase term life insurance policy:
The prospective life assured has to decide the amount of sum assured, depending on their financial objectives, loans or debts etc. Furthermore, various online calculators also help to figure out the ideal sum assured. A term plan can be bought in two ways.
1. Offline:
Individuals can approach an intermediary, such as a broker or an agent to buy term insurance offline.
2. Online:
Online term plans can be bought directly from the website of the insurance company or through web aggregators website. Furthermore, buying term insurance online is cheaper than buying them offline, as the insurance company saves on the commissions paid to the intermediary.
Term plans with return on premiums:
While pure term plans do not offer maturity benefits, and only provide insurance coverage for the policy term, there is an option, known as term plan with return of premium. This plan offers maturity value, which is return of all premiums paid, provided the policyholder survives the term. Considering the fact that this plan provides both death and maturity benefits, these are comparatively more expensive than the basic term insurance plans.
Rebates:
Rebates are offered by life insurance companies for choosing a higher sum assured. Furthermore, for females and non-smokers, special discounted premium rates/rebates are also offered by the insurance companies.
How Does a Term Insurance Plan Work?
Term insurance is a pure risk life insurance plan designed to provide financial protection to your loved ones in the event of your untimely demise. Here's how it works:
1. Choosing the Right Plan
To get started, you choose the coverage amount, policy tenure, premium payment frequency, and any add-on riders to enhance coverage (like accidental death benefit rider or critical illness benefit rider etc which are available at additional nominal premium). Many insurers provide online calculators to help you determine the ideal sum assured based on your financial needs.
2. Paying Premiums Regularly
Once your plan is in place, you need to pay premiums regularly—monthly, quarterly, half-yearly, or annually, depending on your chosen mode. Consistent premium payment is essential to keep the policy active.
3. Receiving the Death Benefit
If the life assured passes away during the policy term, the nominee receives the death benefit. This payout can be structured as a lump sum, monthly income, or some may offer a mix of both—offering flexibility based on the family’s needs.
Term insurance ensures peace of mind by securing your family’s financial future, even in your absence.
Term Insurance Benefits
Simplicity:
Unlike plans such as endowment plans and ULIPs which combine insurance cover with savings or investment components, term insurance plans are easy to understand. Term life insurance policies are simple and easy to understand, where the life assured has to pay the premium, and get insurance cover for the term they choose.
Tax Benefit:
Under Section 80C of the Income Tax Act, 1961, the premium paid for term life insurance is eligible for deduction in case of old tax regime. Furthermore, maturity benefit, death benefit and surrender benefit are eligible for tax benefits as per Section 10 (10D) of the Income Tax Act 1961 subject to certain conditions.
Competitive Pricing:
Life assured can easily compare term insurance plans with respect to their price, thus creating a competitive market for term policies.
Low Premiums:
The premiums paid for term life insurance plans are significantly lower than the premiums paid for other kinds of life insurance plans, as it doesn’t involve a savings or investment component.
How Are Term Insurance Premiums Determined?
Term insurance premiums are calculated based on factors like your age, health condition, lifestyle habits (such as smoking etc), occupation, the chosen sum assured etc. Younger, healthier individuals usually pay lower premiums. In some cases, insurers may request medical tests to better assess your health risks. The higher the risk, the higher the premium. Selecting additional riders or benefits can also influence the overall premium amount.
FAQs
Q. What are the features of term insurance?
Term insurance offers high life cover at affordable premiums. It includes flexible premium payment options, a choice of payout modes (lump sum or monthly income), and additional riders like accidental death benefit rider or critical illness benefit rider etc. These additional riders can be availed at an additional nominal premium to enhance coverage. Some plans also offer a return of premium option if the life assured survives the term.
Q. What is the scope of term insurance?
The scope of term insurance lies in providing financial security to your family in case of your untimely demise. It helps cover liabilities like daily expenses, children's education etc. With low premiums, flexible terms, and large cover amounts, it ensures peace of mind and long-term protection.
Q. Which is an important term in insurance?
One of the key terms in insurance is “premium.” It is the fixed amount you pay to the insurance company to keep your policy active. The premium is influenced by your age, health, coverage amount, policy duration etc and must be paid regularly to receive policy benefits.
Q. What is term insurance, and what are its benefits?
Term insurance is a life insurance plan that provides coverage for a specific period. If the insured passes away during this time, the nominee receives the death benefit. Key benefits include low premiums, high coverage, flexible payout options, and the ability to enhance cover with riders.
Disclaimer:
The views stated in this article are not to be construed as investment advice and readers are suggested to seek independent financial advice before making any investment decisions. For more details on risk factors, terms and conditions please read the sales brochure & policy document (available on www.bajajallianzlife.com) carefully before concluding a sale. Bajaj Allianz Life Insurance Company Ltd., Regd. office Address: Bajaj Allianz House, Airport Road, Yerawada, Pune - 411006, Reg. No.: 116, CIN: U66010PN2001PLC015959, Call us on toll free No.: 1800 209 7272, Mail us: customercare@bajajallianz.co.in
Tax benefits as per prevailing Section 10(10D) and Section 80C (under old tax regime) of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy
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