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What is Term Insurance?

Term insurance is a pure form of life insurance plan which provides financial protection to the life assured’s nominee(s) in case of demise of life assured during the policy tenure. It involves an agreement between the policyholder and the insurance company, wherein the insurer provides a life cover to the life assured for which he/she pays premium to the insurer. The term plan is for a specific tenure. If the life insured dies during the selected tenure, the insurance company pays the sum assured to the family to help them deal with the expenses or debts, if any, due to the loss of the earning member of the family.

Investment plans also act as tax-planning tools, as many avenues help reduce tax liability. There are different types of investment plans, and by choosing the right one, you can invest according to your needs and grow your savings.Read Less

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Written ByPalak Bagadia
AboutPalak Bagadia
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Palak Bagadia, Associate – Digital Marketing at Bajaj Allianz Life, with experience spanning content and performance marketing, recruitment, employee engagement in the BFSI industry.
Reviewed ByRituraj Singh
AboutRituraj Singh
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Rituraj Singh,With over 6.5 years of experience in the insurance industry, Rituraj Singh, Manager- Product & Brand Marketing at Bajaj Allianz Life Insurance overlooks new product launches, compliance, and brand projects, leveraging artificial intelligence and technology to enhance outcomes.
Written on: 7th July 2024
Modified on: 7th July 2024
Reading Time: 15 Mins
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For example, say Mr. Sharma buys a term plan for his life. He chooses a sum assured of Rs.50 lakhs and a policy term of 30 years. After 10 years, he dies due to an accident. In this case, the family will receive Rs.50 lakhs as the death benefit on Mr. Sharma’s death subject to terms & conditions specified in the policy.

It guarantees* the sum assured on the insured’s demise during the term of the policy, provided all due premiums are paid. As such, if the insured dies prematurely, the family is compensated for any financial loss that they may have suffered, to the limit of sum assured under the plan. They might meet their lifestyle needs and also might fulfil their financial obligations/goals even when the breadwinner is not around. This brings out the term insurance meaning and makes it an important component of your portfolio for emergency planning.

 

What are the Types of Term Insurance?

 

Now that you know what is term insurance, here’s a look at the different types of term plans that are available in the market.

Type

Term plan meaning

Level term insurance

Under this type of plan, the sum assured remains constant throughout the policy term. If the life insured dies during the policy term, the insurer pays the sum assured and the plan terminates.

Increasing term insurance

Under this type of plan, the sum assured increases every year. If the insured dies during the policy term, the increased sum assured at the time of his death is paid, and the plan is terminated.

Decreasing term insurance

Under this term plan, the sum assured reduces every year on a pre-defined basis. If the life insured dies during the policy term, the reduced sum assured at the time of his death is paid, and the plan is terminated.

Term Plan with a return of premium

This term plan has a maturity benefit and is, different from other plans. Under this plan, if the life insured dies during the policy term, the sum assured is paid. However, if the insured survives the policy tenure, the premium paid after deducting applicable taxes is refunded back as a maturity benefit, provided all the premiums of the plan are duly paid.

 

How do term plans work?

 

To understand what is term plan you need to understand how it works.

When you buy a term plan, you choose the following details of the cover -

  • The sum assured
  • The coverage duration
  • The premium paying tenure
  • The premium paying frequency

 

Based on some of the factors such as, your age and other risk factors, the premium is determined.

You pay the calculated premium for the chosen premium paying term and frequency and enjoy the plan’s coverage.

If the life insured dies during the policy tenure, the insurer pays the sum assured under the plan as the death benefit. This benefit is paid in a lump sum or in instalments as selected by the life insured while buying the policy depending on the terms and conditions of the plan.

 

How to Choose a Term Insurance Plan?

 

Now that you know what is a term insurance plan you might have also understood its importance. When you look to buy the plan, there will be multiple options for you to choose from. In order to get a suitable policy based on your coverage needs, here are some factors that you may consider:

 

● Type of policy

 

First, determine the type of policy that suits your needs. As mentioned earlier, there are different types of term plans. Assess these plans and choose one that matches your coverage needs.

For instance,

  • If you want uniform coverage throughout the policy duration, choose a level term plan
  • If you want the sum assured to increase with your increasing financial responsibilities, you can opt for an increasing term plan
  • If you have a loan, for example, and you want a plan to cover the reducing balance of the loan, you can choose a decreasing term plan
  • If you are looking for maturity benefit too, a term plan with return of premium option will be the most suitable one.

 

● The Sum Assured

 

Having optimal coverage is essential for financial security. So, opt for a suitable sum assured. To assess suitable sum assured, you can use term insurance calculators, that are available online. These calculators help you estimate the optimal sum assured so that you are optimally insured, and your family gets the required financial assistance in the case of emergencies.

 

● Optional riders

 

Term insurance plans allow a range of optional riders to enhance coverage, on payment of additional nominal premium. For instance -

  • The Accidental Death Benefit rider pays an additional financial coverage in case of accidental deaths during the policy term
  • A critical illness insurance rider offers financial coverage in case the insured person is diagnosed with any of the illnesses covered.
  • The Waiver of Premium Benefit Rider ensures that all future premiums are waived off if the insured person is unable to pay them due to accidental permanent disability or a critical illness diagnosis.

 

So, basis your coverage needs, choose the suitable riders and enjoy a wider scope of coverage on payment of additional nominal premium.

 

● Claim Settlement Ratio

 

The Claim Settlement Ratio (CSR) defines the percentage of claims the insurance company has settled against the total claims received by it in a financial year. The higher the ratio the better is the probability that the insurance company will make the claim settlements. So, compare the CSR of different insurers and you may opt for the one that has a high ratio.

 

● Premium v/s Coverage

 

The suitable term insurance policy will be the one that offers an inclusive scope of coverage as per your needs at affordable premium.

Understand what is term insurance, how it works and its importance. Use the aforementioned parameters and buy a suitable policy that matches your coverage needs. Secure yourself and your family financially against unforeseen eventualities.

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Disclaimers:
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*Conditions Apply – The guaranteed benefits are dependent on the policy term, premium payment term availed along with other variable factors.

~Tax benefits as per prevailing Income tax laws shall apply. Please check with your tax consultant for eligibility.

The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information. 

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Disclaimer

*Tax benefits as per prevailing Section 10(10D) and Section 80C 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.

~Individual Death Claim Settlement Ratio for FY 2023-2024

1Premium Holiday has to be selected at inception to avail this benefit and also depends on other policy terms & conditions


Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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I hereby authorize Bajaj Allianz Life Insurance Co. Ltd. to call me on the contact number made available by me on the website with a specific request to call back. I further declare that, irrespective of my contact number being registered on National Customer Preference Register (NCPR) or on National Do Not Call Registry (NDNC), any call made, SMS or WhatsApp sent in response to my request shall not be construed as an Unsolicited Commercial Communication even though the content of the call may be for the purposes of explaining various insurance products and services or solicitation and procurement of insurance business

 

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%%Above illustration is for Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V03) considering Male aged 25 years | Non-Smoker | Policy Term (PT)– 30 years | Premium Payment Term (PPT) – 30 years | Sum Assured opted is Rs. 1,00,00,000 | Online Channel | Standard Life | 1st Year Premium is Rs. 6,238. 2nd Year onwards premium is Rs. 6,659. Total Premium Paid is Rs. 1,99,349 | Medical Rates | Yearly Premium Payment Mode | Death benefit opted is lumpsum payout and monthly installments (Lumpsum Payout Percentage : 45, Income Payout Percentage : 55) | Premium shown above is exclusive of Goods & Service Tax/any other applicable tax levied, subject to changes in tax laws, and any extra premium and is for illustrative purpose only. This is inclusive of all the discounts mentioned above.

##Tax benefits as per prevailing Section 10(10D) and Section 80C 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.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

@Term Insurance plan bought online directly from Bajaj Allianz Life Insurance has no commissions involved.

^^The Return of Premium amount is total of all the premiums received, exclusive of extra premium, rider premium and GST & /any other applicable tax levied, subject to changes in tax laws
Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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Disclaimer

Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V04)

*Tax benefits as per prevailing Section 10(10D) and Section 80C 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.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

~Individual Death Claim Settlement Ratio for FY 2023-2024

1Premium Holiday has to be selected at inception to avail this benefit and also depends on other policy terms & conditions


Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116


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