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What Is Term Insurance?


October 01, 2019

By : Bajaj Allianz Life


What Is Term Insurance?


Term insurance is a life insurance policy that provides financial protection to your family for a specified period of time or "term" of years. A death benefit is paid out to the nominee if the insured dies during the term of the policy. Term insurance plan gives you a high life cover at affordable premium rates.


Getting Started with Term Insurance


Due to a plethora of insurance options available in the market, a majority of customers tend to overlook the simplest type of insurance. Being the simplest form of insurance, term insurance provides life cover to the policyholder and offers financial security to his/her family. The idea behind term insurance is the protection of the policyholder and his/her family as it ensures that the family is sound and secure, even in the policyholder’s absence

Before purchasing term insurance, understanding the basics of term insurance policies is a must. Knowing the benefits and the working of term insurance makes sure that you make informed decisions at the time of purchase. Hence, go through the working of term insurance mentioned below:


How Does Term Insurance Plan Work?


Amongst other life insurance policies, a term plan is the most affordable means for the long term security of your family. When one opts for a term policy, the nominees are eligible for a death benefit in case of an unfortunate event of death of the policyholder. This death benefit can help them lead a stable lifestyle even without the presence of the policyholder. For instance, let’s suppose that a policyholder has a term insurance cover of Rs. 1 crore, for a policy term of 35 years. If the policyholder dies within these 35 years, the insurance company will pay out the entire sum of Rs. 1 crore to the beneficiary/ nominee of the policyholder, subject to policy terms & conditions.

In case, he/she survives the policy term, the plan will expire, and no benefit will be given out either to the policyholder or his/her dependants.

Once you learn the basics about this policy, you’ll be able to figure the type of term insurance you want to opt for. Let’s look at these benefits of investing in a term plan mentioned below:


What are the benefits of term insurance?


1. It offers Life Cover Against Eventualities

Term insurance plans offer high life cover amount at affordable premiums. For example, with Bajaj Allianz Life Smart Protect Goal, you can get a Life Cover of Rs. 1 crore at a premium of just Rs. 21 per day*.

2. It offers Cover for Critical Illnesses

Treatment of a critical illness such as cancer, kidney failure or heart attack can cost a lot of money and it may give you a financial setback. Critical illness rider provides additional benefit in the form of a lump-sum amount on the diagnosis of a critical illness and thus provides financial stability. The critical illness cover with Bajaj Allianz Life Smart Protect Goal Term Plan offers protection against 55 major and minor critical illnesses, subject to policy terms & conditions.

3. It offers Cover for Accidental Death

You can get an additional protection by attaching accidental death benefit to your existing term insurance policy. This rider provides an additional financial support to your family by covering death due to accident.

4. It provides security with Accidental disability benefit

The accidental disability benefit can protect you against a partial or permanent disability caused due to an accident. A loss of livelihood can be caused by a permanent total disability and accidental disability benefit can act as an income replacement.

5. It allows tax benefits

Since a term plan falls under the list of policies of Section 80C of the Income Tax Act, 1961, it provides its customers with tax benefits. The premium paid towards the policy is exempted from the payment of taxes. Additionally, the death benefit offered by the term insurance is tax-free under Section 10 (10D). The above tax benefits are subject to the provisions stated in the Income Tax Act 1961.

6. Waiver of Premium Benefit Rider

With waiver of premium rider attached to your term policy, the insurance company waives your all your future premiums if you are unable to pay due to a critical illness or accidental total permanent disability.

7. Some Term Plans provide maturity benefits

One thing that is established by now is that a term plan offers death benefits to the nominees of the policyholder. But have you wondered what happens in case the policyholder survives the policy? In that case, certain term plans offer maturity benefit in case the policyholder survives the tenure of the policy.

8. It enhances the value of the cover

There are certain companies which might allow their policyholder to enhance their coverage during contingencies. For instance, a policyholder can opt for 50% enhancement at the time of his/her wedding and 25% enhancement at the time of extending his/her family. The enhanced cover allows the investor to start with a modest cover which can be further be increased with huge responsibilities coming his/her way. One needs to check the terms and conditions of the policy before making a decision.


Types of Term Insurance Plans in India


1. Level Term Insurance

Under level term plan, the sum assured remains constant throughout the policy term. The nominee receives the death benefit if the policyholder dies during the policy term

2. Increasing term Insurance

An increasing term insurance plan is a term plan where the sum assured chosen by the insured at the commencement of the policy increases every year by a predefined amount to adjust against inflation or other financial goals. Unlike a regular term insurance plan, an increasing term plan allows the policyholder to increase the sum assured during the policy period.

3. Decreasing Term Insurance

Under the decreasing term insurance policy, the life cover as well as the rate of premium payment keeps on decreasing at a certain rate during the entire tenure of the policy. The idea behind decreasing term plan is that you don't require as much life insurance cover if you have less liabilities or debt.

4. Term insurance with Return of Premium

Term Return of Premium (TROP)is a type of term insurance, which provides maturity benefit as return of premiums. If a policyholder outlives the policy term, then the sum of premiums paid by him/her is paid back, subject to policy terms & conditions.


Things to Check Before Buying a Term Insurance Plan


1. Estimate how much life cover you require

You should estimate the amount of life cover that you would require. You can evaluate this amount based on your age, lifegoals, lifestyle, liabilities etc

2. Estimate premium of the term insurance plan

After you have estimated the life cover amount, the next step is to calculate the premium that you will pay for your term insurance policy. The premium payable depends on several factors and you can use term insurance premium calculator to check the premium payable.

3. Check the Insurer’s Claim Settlement Ratio

It is important to check the claim settlement ratio of the insurance company you chose to buy a term plan from. Claim Settlement Ratio basically indicates total number of insurance claims settled by the company. The higher the ratio, the better it is.

Bajaj Allianz Life has a Claim Settlement Ratio of 98.48%~

4. Check the Insurer’s Solvency Ratio

Solvency Ratio indicates the financial capability of the insurance company to settle claims. IRDAI mandates all insurance companies to maintain a minimum solvency ratio of 150%

Bajaj Allianz Life has a Solvency ratio of 666%^

5. Availability of Riders for Additional Cover

You should choose a term plan that provides riders with additional benefits such as ‘critical illness benefit’, ‘accidental death benefit’, ‘waiver of premium benefit’ etc.

~Individual Claims Settlement Ratio for FY 2020-2021

^Figure as on 31 March, 2021

*Above illustration is considering Male aged 25 years | Non-Smoker | Life Cover Variant | Policy term (PT)– 30 years | Premium Payment Term (PPT) – 30 years | Sum Assured opted is Rs. 1,00,00,000 | Online Channel | Medical rates | Annual Premium Payment Mode | 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.


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##Our policy covers COVID 19 claims subject to policy terms and conditions being met

3Discount is available for regular premium and limited premium payment frequency under all variants of this product.

2Above illustration is considering Male aged 25 years | Non-Smoker | Life Cover Variant | Policy term (PT)– 30 years | Premium Payment Term (PPT) – 30 years | Sum Assured opted is Rs. 1,00,00,000 | Online Channel | medical rates | Annual Premium Payment Mode | 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.

~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.