Term Insurance

Term insurance is a type of life insurance plan, which offers financial protection to your family at a very reasonable cost. The objective of this insurance plan is to make sure that the financial needs of the policyholder's family are well-taken care of after his/her unfortunate demise. The sum assured is paid to the family incase of demise of the insured wihin a specified term period.

Types of term insurance plans

There are various types of term insurance plans available in the market, all of which are designed to suit different needs of the customers. Given below is a list of the common types of term insurance plans:-

1. Level Term Plan

   It is the simplest plan of the lot. Under this, there is no change in the sum assured and the nominee will reap the benefits once the insured is dead. For example, if someone buys a cover of Rs.1 crore, it will remain constant throughout the policy term. This type of plan is offered by almost every insurance company and is available in Pan India.

2. Term Return of Premium plan (TROP):

   TROP is a term plan that comes with an option of 'Return of Premium'. The best part of the TROP plan is that it assures maturity benefits. The policy turns out to be beneficial if the insured survives the term of the policy. This type of term plan is best-suited for those who want their paid premiums back at the end of policy term.

3. Increasing Term Insurance Plan

   Under this type, the sum assured will increase annually by a certain percentage pre-specified by the insurer and the premium will remain the same. This plan is launched keeping in mind the growing rate of inflation. For example, Mr. Ankur buys an increasing term insurance plan for 20 years that offers a 5% rate of increase in the sum assured. With every year, the sum assured will increase by 5%

4. Decreasing Term Insurance Plan

   It is a renewable term insurance plan. Under this, the sum assured is decreased every year by a pre-specified percentage. This plan is usually issued by banks to recover the loan and clear all the debts. For example, Mr. Ankur buys a decreasing term insurance plan for 20 years that offers a 5% rate of decrease in the sum assured. At the end of each year, the sum assured reduces by 5%.

5. Group Term Insurance Plan

   It offers coverage to a group of employees under a single policy. Usually these plans are purchased by companies for thier employees.

6. Joint Life Term Insurance Plan

   Here, you can cover yourself and your spouse under the same plan. In the unfortunate event of anyone's death, the surviving partner will receive the death benefit as per the plan's TnCs.

How to Choose a Right Term Insurance Plan?

Selecting a term insurance plan that suits your needs perfectly is not an easy task. There are various factors which you must consider when choosing a plan for yourself and your family. To make the process a little easy for you, we've listed down the steps which will help you in choosing the right term insurance plan:

1. Assess your financial needs:

   The first and the foremost step while choosing a term cover is to assess your coverage needs. One of the most important factors which you must keep in mind while determining your financial requirements is to opt for coverage that will be able to meet the financial requirements of your family in future.

2. Select a coverage amount:

   One of the most important parts of a term insurance plan is the coverage amount which you opt for while taking the plan. This is because the amount that you select today is what your family will receive in future as a death benefit in case of your demise. That is why, it is extremely important that you must decide a coverage amount carefully. There are a few factors that you must consider while determining the right coverage amount for yourself. Given below is a list of those factors:

   • Annual Income: If we listen to the industry experts, the thumb rule for choosing a term cover must be 15-20 times of your annual income. For example, if your annual income is Rs.5 lakhs, your choice of minimum cover should be Rs.75 lakhs-1 crore.
   • Lifestyle: Your lifestyle also plays an important role while deciding your term insurance cover. For example, if you work in a high-risk environment or live a non-healthy life, the risk of your health deteriorating is higher. Therefore, you should go for a higher cover.
   • Responsibility: If you are the only breadwinner, then your death could cause serious financial crunches in your family. Thus, to provide your family with ample funds, make sure to opt for a high sum assured.
   • Liabilities:If there is a loan hovering over your head, your immediate demise can put a lot of heat on your family. Therefore, it's better to buy a term plan with ample coverage for your family's financial safety.

3. Check the tenure period:

   The next step after selecting the coverage amount is deciding the tenure period of the plan. This decision should be solely based upon the age upto which you want the life insurance cover. Most people recommend buying coverage upto the retirement age or 65 years of age

4. Select a trusted Insurance Provider:

   Before taking a plan, it is important to make sure that the insurance provider you select has a good financial background and reputation in the market. Claim settlement ratio (CSR) is the most useful parameter in this regard. It shows the percentage of claims settled by the insurance company in a given specific year against the number of claims filed by the policyholders. It is always advisable to select an insurance company that has a high claim settlement ratio.

   For your convenience, we've listed below the claim settlement ratio of all 24 Life Insurance Companies in India as per the IRDAI report of 2019-20.

   S.No	Insurance Company	Claim Settlement Ratio 2019-20 (in %)
   1	LIC	96.69
   2	HDFC	99.07
   3	SBI Life Insurance	94.52
   4	ICICI Prudential	97.84
   5	Max Life Insurance	99.22
   6	Bajaj Allianz	98.02
   7	Kotak Mahindra	96.38
   8	Aditya Birla	97.54
   9	Tata AIA	99.06
   10	India First	96.65
   11	PNB Met life	97.18
   12	Canara HSBC OBC	98.12
   13	Reliance Nippon	98.12
   14	Exide Life Insurance	98.15
   15	Bharti AXA	97.35
   16	Star Union	96.96
   17	Future Generali India	95.28
   18	Shriram General Insurance Life Insurance	91.61
   19	IDBI Federal	96.47
   20	Pramerica Life Insurance	98.42
   21	Aviva Life Insurance	97.53
   22	Aegon Life Insurance	98.01
   23	Sahara Life Insurance	89.45
   24	Edelweiss Tokio	83.44

5. Check for add on benefits or riders:

   As we've already discussed in the previous section that there are a variety of riders and add on benefits available within the term insurance plan, it is suggested that you should check for such riders and opt for the ones that suit your needs the best.

6. Choose a payment option

   There are three broad types of premium paying options available within the term plan- Limited pay, Regular pay and Single pay. Each of these options has its own advantages and drawbacks and that is why, it is important that you must carefully select a payment option while taking a term insurance plan. To help you make an informed decision, we've discussed below the types of premium payment options-

   • Regular premium payment option: Under this payment option, the policyholder is required to make periodic payment of the premium amount in monthly, quarterly, half yearly or yearly mode. Usually, the majority of people prefer taking a regular payment option as paying premium at fixed intervals becomes more convenient and affordable in the long run. This payment option is best for the people employed under fixed salaries.
   • Limited Payment option: As the name suggests, a limited payment option allows the policyholder to pay the premium for their entire policy term in a limited period of time, such as 5 or 10 years. This means that the policyholder can pay the premium within a short time period and enjoy the insurance benefits for a long time. If you're a business person and have chances of witnessing a sudden increase in your income, then this payment option can work the best for you. Also, you can opt for this option if you don't prefer paying premiums for a longer period of time.
   • Single Payment options: With a single premium payment option, the policyholder is required to make a one-time complete payment of the entire premium amount of the plan. Generally, this payment method is very less chosen since many people find it a financial hardship to pay the entire premium in one go. Also, it is often suggested by the financial advisors that the single premium payment option costs policyholders much more than other payment modes as inflation changes the value of money in the longer run.

7. Select a payout option

   While signing up for the policy, you'll be required to choose a payout option. It is important that you must select a payout option carefully because this is how death benefit will be paid out to your family in future. Generally, there are 4 types of death benefit payout options available. We've given a brief description about these types in the section given below:

   • Lump-sum Payment: Under this option, the claimant's family will receive the lump sum amount. For example, if the policyholder has chosen a sum assured of Rs. 1 crore, then the lump sum amount of Rs. 1 crore will be paid to the claimant.
   • Monthly Income: With this option, the beneficiary will receive the total sum assured in monthly installments. For example, if the sum assured is Rs. 1.2 crores, then the family of the policyholder will receive Rs.1 lakh/month for 10 years.
   • Lump-sum + Monthly Income:With this option, the beneficiary will receive 50%-70% of the assured amount (in a lump-sum) just after the death of the insured, and the rest of the amount is paid through monthly installments. Suppose the policyholder has chosen a sum assured of Rs. 1 crore and has opted for 50%-50% of lump-sum and monthly installments. On his death, the family of the policyholder will receive Rs.50 lakhs and the remaining amount will be paid in monthly installments.
   • Increasing Monthly Income:Under this option, the beneficiary will get the total sum assured in increasing monthly installments. The installments increase @10-20% (yearly) to help the dependents fight inflation. For example: If the policyholder's family gets Rs.1,00,000/month, and the increasing percentage is 10%, then from the next year, the family will receive Rs.1,10,000/month.

8. Compare premiums and buy online

   There are a variety of term insurance plans available in the market nowadays. Selecting the best plan for yourself out of this wide variety of options often becomes a bit puzzling for the customers. That is why, it is best to compare the plans first and then select the one which suits your needs perfectly. For easy and quick comparison of insurance plans, visit our Term Insurance Calculator page.

Factors That Affect Term Insurance Premium

Below is a list of a few factors that have a direct impact on the term insurance premium. Let's check them out.

1. Age

   The basic idea of term insurance is to offer financial coverage to the claimant in return for a premium amount, which is directly linked with the age of the policyholder. That means, the older you opt for a term plan, the higher premium you have to pay.

   To get a clear picture about how age affects the premium amount, refer to this age slider.

   

   Premium: Rs.900/month

   Age: 25

   *Note- Premium in the above image is calculated from ICICI Prudential's website, for a fixed sum assured of Rs. 1 crore and for a duration of 30 years.

2. Gender

   According to surveys done in India, women have a life expectancy of 70.4 years, while men have a life expectancy of 67.8 years. This means, women live longer than men as per statistics. Fortunately, insurance companies work on risk-based pricing. Therefore, women have to pay a lower premium as compared to men.

3. Coverage & Term

   The higher the coverage you choose, the higher premiums need to be paid. This applies to a longer policy period as well.

4. Self & Family Health History

   If the policyholder has a history of health issues such as diabetes, high blood pressure, among others, then the insurance companies charge a higher premium amount. Moreover, the company may charge higher premiums if one has a family history of critical illness.

5. Profession

   Your work profile is also one of the significant factors that determine your premium amount. For example, if a policyholder is employed in a high-risk work profile (for example mining, etc), there is a greater risk of injuries/illnesses. So, the insurance company will charge a high premium in return for the policy.

6. Lifestyle

   The way you live your life affects the term insurance premium. For example, if you are a regular smoker/drinker, you have to pay a higher premium. Infact as per PolicyX.com Term Insurance Price Index, the average male smoker pays 57% higher than a non-smoker while a female smoker pays 57% higher than a non-smoker.

Compare Term Insurance Plans

Term insurance premiums vary across insurance companies significantly. As you can see from the table below, for a same person, the premium per month ranges from 500 to 1000 which is like a difference of 100%. Hence it is recommended that you compare policy features and premium from top insurance providers and purchase a plan that offers the best price.

Please note that the data for the premium amount in the table is calculated for a 30 year old non smoker male, for a coverage of Rs. 1 crore for a policy term of 20 years.

To help you make a more informed decision, we have prepared a list of the best term insurance plans in 2021. Refer to our Best Term Insurance Plans page and find out your ideal plan.

*Excluding taxes

Source- Premium amounts have been calculated from the respective insurance providers' website.

From the above graph, it can be clearly noticed that the premium varies significantly across companies and plans. This is due to various factors like plan features, companies claim experience, etc.

How To Compare & Buy Term Insurance From PolicyX.com?

PolicyX.com has designed a simple process to buy term insurance online. Here are the steps-

Term Life Insurance Plans By The Government Of India

The Central Government of India offers certain term insurance schemes, through which policyholders can safeguard their dependents financially. Let's have a look at them.

1. Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)

   The Pradhan Mantri Jeevan Jyoti Bima Yojana is a life insurance policy that can be renewed on an annual basis by policyholders.

   Key Features:

   • This policy offers a life cover of Rs. 2 lakhs.
   • The premium charged for this plan is Rs. 330 per annum.
   • Individuals between 18 years and 50 years can purchase this policy.
   • Tax benefits can be availed as per the prevailing tax laws

2. Aam Aadmi Bima Yojana

   The Aam Aadmi Bima Yojana was formed as a merger of two social security schemes, namely the Aam Aadmi Bima Yojana and the Janashree Bima Yojana, which previously existed.

   Key Features:

   • To subscribe to this scheme, members need to be between 18 years and 59 years.
   • The initial premium that will be charged for this scheme is Rs. 200, out of which 50% of the premium amount will be subsidized from the Social Security Fund.
   • This scheme also provides accidental death/disability benefits and a scholarship benefit.
   • This scheme is available to people who belong to rural landless household (RLH) and are from below poverty line (BPL) family.

   Know More About Aam Aadmi Bima

3. Pradhan Mantri Suraksha Bima Yojana (PMSBY)

   Pradhan Mantri Suraksha Bima Yojana was announced by the Government of India in the 2015 budget.

   Key Features:

   • People within the age group of 18-70 years having individual bank accounts whether single or joint account status, are eligible for this policy.
   • The policy offers coverage worth Rs.2 Lakh against accidental death and full disability and Rs. 1 lakh for partial disability.
   • The term of the policy is one year and can be renewed annually.
   • A premium amount of Rs. 12 per annum is deducted from the policyholder's bank account through ‘auto-debit' facility in one installment.

   Know More About PMSBY Plan

Benefits of Term Insurance Plan

Term insurance plans offer a variety of benefits to the policyholders. Let's have a look at those benefits-

Financial Protection

In case of your unfortunate demise, your family will receive the sum assured, which will help them to fulfill their financial requirements. You can also opt for a monthly income benefit so that instead of lump-sum amount, your family will get a monthly payout.

Higher Sum Assured with Low Premium

Term insurance plans are available at a very nominal cost. It may be as low as some hundreds or thousands per month. As compared to that, the sum assured can be in lakhs and crores (depending on the customization of policy options).

Lifetime Cover

Generally, term insurance plans offer coverage until 65 years. However, there are a few life insurance companies, which provide coverage for 100 years as well. So, if you buy a term plan at an early age, you and your family can enjoy its benefits for a long time.

Multiple Death Benefit Payout Options

A term insurance plan lets you choose your death benefit payout as per your needs and requirements. One can choose from Lump-sum payment, Monthly Income, Lump-sum + Monthly Income, and Increasing Monthly Income.

Tax saving

Yes, this is an additional benefit of investing in a term insurance plan. On buying the same, you are liable to get tax benefits under section 80C and 10(10D) of the Income Tax Act, 1961

Additional Riders

To enhance the overall protection, you can add several riders to your term insurance plan. Insurance companies allow you to avail of add-ons (riders) with your term insurance policy on paying an extra premium. A brief explanation of such riders is given below-

• Critical illness Rider- This rider covers many illnesses that are deadly in nature. The insurance company provides coverage against all the hospitalization expenses in the form of a lump-sum payment.
• Accidental Death Rider- This rider provides coverage against accidental death. When you opt for this rider, your insurance company will offer the sum assured along with the rider benefit to your nominee.
• Accidental Disability Rider- This rider provides coverage against any partial or permanent disability arising due to an accident. Under this type of rider, full sum assured amount is offered to the policyholder in case of total disability and partial disability gives partial sum assured.
• Terminal Illness Rider- With this rider, the policyholder gets early access to some or complete sum assured amount in case (s)he is diagnosed with an incurable illness
• Premium Waiver Rider- As per this rider, all the future premiums are waived off if the policyholder is disabled, critically ill, or dead.

Exclusions

Just like every other thing in the market, term insurance comes with a (*) sign- exclusions. Let's view it.

Death due to the following reasons are not covered under a term insurance plan-

• Consumption of drugs/liquor.
• Complication due to pregnancy/childbirth.
• Act of criminal nature.
• Suicide (within 1 year of issuance of the policy).
• War or involved in a hazardous activity.

Importance of Term Insurance

Life, in general, is very unpredictable. You can never rest assured about what the next moment might have for you. That is why, it becomes important to make sure that at every step, our family and their needs are secured. And one of the best ways to do this is by investing in a term insurance policy. A term insurance is like a backup plan that will support your family if something unfortunate happens to you in future. It will provide much needed financial support to meet your family's daily expenses and fulfill their long-term goals (such as your child's education, marriage, etc.) as well. Also, with the help of riders (add-ons), you can cover disease and disability under a term insurance plan. It's one of the most affordable ways to protect the financial future of your family.

Buying a term insurance policy will prove to be beneficial for all of us since securing the future of our family is everyone's top priority. And especially if you fall in one of these below mentioned categories, then you must definitely consider investing in a term plan as you are more likely to benefit from it. Let's check out what these categories are-

What All Documents Are Required To Buy A Term Insurance Plan?

How To Get A Successful Claim In Term Insurance?

In case of the demise of the policyholder, the nominee should inform the insurance company and share the required documents with them. Documents will vary in different scenarios and are bifurcated below for your reference.

Case 1: Natural Death

• Policy document in original.
• Claim form issued by the insurance company.
• Application from the claimant.
• Any other documents required by the insurance company.

Case 2: Accidental Death

• Post Morterm report of the accident.
• FIR report of the police.
• Policy document in original.
• Claim form issued by the insurance company.
• Statement of attending doctor or certificate of medical attendance.
• Any other documents required by the insurance company.

Case 3: Death Due to Sickness

• Original discharge summary from the hospital.
• Supporting medical reports.
• Policy document in original.
• Claim form issued by the insurance company.
• Application from the claimant.
• Any other documents required by the insurance company.

Case 4: If Nominee Also Dies Along with Insured

In such cases, the legal heir of the claimant becomes the beneficiary. The legal heir can get the benefits only after attaining the age of 18. But his/her guardian must immediately inform the insurance company. The age criteria may depend completely on the provisions of the insurance companies or IRDA.

Case 5: If the Nominee Dies Before the Policyholder

When a nominee dies before the policyholder, it's the responsibility of the policyholder to nominate other beneficiaries. This can be done either online or by informing the customer care.

Note: Once the insurance provider accepts the claim, it will release the pay-out. If the claim is rejected, the reasons for the same will be communicated to the claimant.