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Why Term Insurance Has Low Premiums

Securing the future of your loved ones is undoubtedly on your priority list. While there are many ways to go about doing this, purchasing life insurance is one of the preferred ways to ensure that even in your absence, your family has the financial resources necessary to carry on and keep up with their life goals. Now, if you’ve have ever looked around for life insurance plans and compared the policies from different life insurance service providers, you would have no doubt come across term insurance plans.

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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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You may have even heard a great deal about the term insurance benefits you get to enjoy by buying a term plan. However, if you are still not sure what exactly this kind of insurance is, and why it is more affordable than other types of life insurance, this guide can help you out. Let’s begin by trying to understand the answer to the most fundamental question - what is term insurance?

 

Term insurance meaning: What is term insurance?

 

Term insurance is the purest form of life insurance. As the name makes it quite evident, the life cover offered by the term insurance plan is valid for a specific period, which is the policy’s tenure. In return for the coverage provided, the insurer charges a nominal amount from the policyholder. This is the term insurance premium.

In the unfortunate event of the policyholder’s/life assured’s demise during the tenure of the plan, the insurance company pays the term insurance benefits or death benefits to the nominees of the policyholder/life assured.

 

How does term insurance work?

 

So, now you know the answer to the basic question - what is term insurance? However, to get a clearer idea of what this kind of life cover is all about, it is necessary to understand how term insurance works. What better way than to take an example to understand the workings of a term plan?

Let us assume that a policyholder is interested in purchasing a high life cover for his family, in return for affordable premiums. In that case, a term plan is one of the preferred choices. Therefore, he purchases a life cover for himself of, say Rs. 1 crore for a period of, say 20 years. The insurance company charges him a term insurance premium as the cost for this life cover. He continues to pay this premium each year, over the tenure of the plan.

● Now, in case the policyholder passes away during the tenure of the policy of 20 years, then, the insurer will pay the nominees a sum of Rs. 1 crore as death benefit.

● In case the policyholder survives the policy term of 20 years, then no benefits will be paid out to the nominees.

This is how term insurance works. One of the key defining features of term insurance is that it comes with affordable premiums. Let us see why this is so.

 

Why does term insurance have low premiums?

 

There could be many different reasons for term plans having low term insurance premiums attached to them. Here is a closer look at some such reasons.

● Pure life cover

This is universally one of the key reasons term plans have low premiums. Since they are pure life covers, they offer death benefits only. The sum assured is paid out to the nominees only in case of the policyholder’s/ life assured’s demise during the tenure of the policy, as we saw in the example earlier. Therefore, the costs associated with term plans are affordable.

● Online purchases

Purchasing a term plan online can also result in lower premiums, primarily because it reduces the costs associated with distribution and other aspects. The benefits of these cost savings are directly passed on to the customers mostly in the form of lower premiums.

● Purchase at an early age

The younger you are when you purchase a term plan, the higher the chances that your term insurance premium may be more affordable. This is because the risk of the insurable event i.e. demise of the policyholder happening when they are younger is relatively lower.

● Healthy lifestyle

A healthy lifestyle can also be another reason for your term insurance premium being lower. For instance, a smoker may be charged a higher premium than a non-smoker may, simply because the mortality risk for a smoker is higher.

 

Things to keep in mind while buying a low premium term plan

 

Before you buy a low premium term plan, make sure you factor in these elements, so you can purchase a cover that is adequate -

● The needs and life goals that your family members have, so you can get a cover that is sufficient to cover them in your absence

● The debts and liabilities in your name, so the term plan’s benefits are sufficient to cover these, thereby eliminating any financial burden on your family

● The insurer’s claim settlement ratio, which is better if it’s higher, since it means that the chances of your nominees’ claim being settled are higher

● Inflation, so you can determine the right amount of coverage needed to protect your family’s future years from now, when they will need a higher amount to sustain their current lifestyle

 

Conclusion

 

If you’re looking for a life cover that is high enough without having to tighten your purse strings too much, a term plan can be the preferred option. With low premiums coupled with other term insurance benefits like tax savings, there is a lot you can gain by opting for a term plan.

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Disclaimers:
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~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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Disclaimer

%%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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Life Cover + 16% Discount** +Save Tax*!
Under Section 80C & 10(10D) of Income Tax Act, 1961*
Get Life Cover + Save tax up to Rs 46,800*
₹2 Cr Term Plan
@ 21/Day²
Free Health Management Services
upto ₹ 31,000 p.a.^^

Disclaimer:

2Above illustration is for Bajaj Allianz Life eTouch II- A Non-Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N198V01) considering Male aged 23 years | Non-Smoker Preferred | Annual Income =>Rs. 15,00,000 per annum | Indian Resident | Policy Term (PT)– 30 years | Premium Payment Term (PPT) – 30 years | Sum Assured opted is Rs. 2,00,00,000 | Online Channel | Standard Life | 1st Year Premium is Rs. 7,159. 2nd Year onwards premium is Rs. 7,760. Total Premium is Rs. 2,32,199 | Medical Rates | Yearly Premium Payment Mode | Death benefit opted is lumpsum payout and monthly instalments (Lumpsum Payout Percentage : 40, Income Payout Percentage : 60). Income payout instalment opted for 40 years | Premium shown above is inclusive of Online Discount only, no other discounts have been considered and 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. For more details on risk factors, terms and conditions please read sales brochure & policy document (available on www.bajajallianzlife.com) carefully before concluding a sale.

**5% Discount applicable for customer's first individual life insurance policy, applicable only on first year’s premium. 5% Discount for salaried customers, applicable only on first year’s premium. 6% Discount on online purchase is available for regular premium payment and limited premium payment frequency, applicable only on first year’s premium.

*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%.

^^Get Free Health Management Services upto Rs. 31,000 per year

Health Management Services Frequency Cost (₹)
Doctor Insta-Consultations 3 consultations per month = 36 consultations per year Average cost per session = ₹500
Total cost per year = ₹500 * 36 = ₹18,000
Health Coach
(Diet & nutrition consultations)
1 consultation per month =
12 consultations per year
Average cost per session = ₹500
Total cost per year = ₹500 * 12 = ₹6,000
Emotional Wellness
(Psychologists consultations)
1 consultation per month =
12 consultations per year
Average cost per session = ₹500
Total cost per year = ₹500 * 12 = ₹6,000
Network discounts: Throughout the year Assumption – Total expense on these services throughout the year
Medicines (M) = ₹5,000
Lab-test booking (L) = ₹5,000
Total discounts that can be availed:
M - 10% = ₹500
L - 10% = ₹500
Total per year as per assumption ₹31,000

Note: The above mentioned costs are based on estimated average market price for respective services. T&C apply.

Doctor Insta-Consultations and Health Coach Services are unlimited and the above numbers are assumed only for the purpose of calculation of the yearly benefit.

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

 

BJAZ-OT-EC-10260/24

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