Term Insurance – Why and When
Term Insurance is the purest form of life insurance. It gives very high-risk coverage for the lowest premium among all insurance plans. The need for a term policy arises mainly for high-net-worth individuals (HNI), frequent travel, Home loan security, and Other loans to be taken care of. The motive is to give financial cover/security to your family in the event of the death of the insured person. This plan is most beneficial if you are the sole earning member of your family is dependent on you, or you bring the maximum share of income to your family.
Types of Term Insurance policy
There are 4 types of Term insurance plans in India. They are:
- Regular Premium payment Term plan
- Limited Premium Term Plan
- Single Premium Term Plan and
- Return of Premium Term plan
Complete protection for your loved ones
The most cost-effective way of buying life insurance is through a pure-term insurance plan. These are low-premium, high-cover protection plans where the premium is used entirely, except for a small portion used to meet administrative costs, for risk coverage.
Benefits of Term Insurance
High Life Insurance
Term insurance plans provide large life insurance coverage at an affordable premium. This cover can compensate for several years of lost earnings. The higher the cover, the cheaper the premium.
Critical Illnesses
Critical Illness Cover provides lump sum payments when a critical illness like a heart attack, cancer, kidney failure etc. is first diagnosed.
Additional Security
To increase the security of your family, a Term Policy provides additional pay-out (up to `2 crores) in case of an accidental death.
Tax Benefits
Term insurance premiums paid are allowed as a deduction from taxable income under Section 80C of the Income Tax Act, 1961. You also get tax benefits subject to conditions under Section 10(10D) on the money that your family receives in case of an unfortunate event.
Who should you buy a Term Insurance Policy?
Parents Support
Parents are generally the sole source of financial support for their children. The needs of children extend from school fees and living expenses to hefty university fees, later on in life. The kind of life insurance coverage the term plan gives, no other plan can do.
Newly – Married
Roses, chocolates and movie tickets are great, but here’s a truly long-lasting gift for your spouse – term insurance. It is better to buy a term plan before getting married. This would take out the tension in your mind and there are changes of not getting time after getting married.
Young Professionals
Young professionals are just starting their careers. Many of them are not yet married and have no financial dependents. Your job may need frequent travelling abroad and many other risks.
Term Insurance for Sip Investors
Never mix insurance with Investments. It is recommended to buy Term Insurance and invest in SIPs. Systematic Investment Plan – SIP invest a fixed amount every month in a mutual fund. The wealth creation in a SIP is driven by a stream of regular instalments which compound over time.
Retired Persons
Start Term Insurance when you are young, healthy, and fit. The premium would be lower, and the same premium would continue till the end of the policy term. Retired persons need to have term insurance if they have dependent spouses or families. Buying term insurance can also be a way of leaving an inheritance for their families.
Accidental Death
If you have opted for Accidental Death cover, your family will get an additional payout in case of death due to an accident, subject to a maximum of `1 crore.
Documents Required To Buy Term Insurance
- Age Proof → Birth Certificate, 10th or 12th mark sheet, Driving License, Passport, Voter ID, etc. (Anyone)
- Identity Proof → Driving License, Passport, Voter ID, PAN Card, Aadhaar Card, which proves one’s citizenship.
- Address Proof ⇒ Electricity Bill, Telephone Bill, Ration Card, Driving License, and Passport, should mention the permanent address(Anyone).
- Income Proof ⇒ Income proof specifying the income of the person buying the insurance.
- Proposal Form ⇒ A Duly filled proposal form is required.
- Medical Tests ⇒ Some companies may require medical check-ups to make sure that the insured does not suffer from any chronic illness.
Need to buy Term Insurance
Financial Security
Term insurance plans are an excellent way to build a financial safety net.
Flexible Payment
Term insurance plans offer you coverage for a fixed term.
Tax Benefits for Term Insurance Plans
The Term Insurance premiums paid towards a term plan are eligible for tax benefits under Section 80C of the Income Tax Act.
Sufficient Coverage
You can choose the sum assured under term insurance policies so that it offers you sufficient coverage.
Concepts & FAQ’s Term Insurance
Term Insurance should be purchased online or offline?
It is not recommended to buy a Term Insurance policy online. The premium may be cheap on buying online, but after-sale services will be worse. I have seen many policyholders discontinuing online purchased policies after some years because of service issues. It is better to buy from an experienced Professional Advisor who can come and meet you along with your nominees and give all information related to the policy
Riders are optional added benefits you can top up your term insurance with Accident Cover and the Waiver of Premium are the most popular riders, on payment of additional premium.
How Do You Decide On The Tenure Of The Policy?
Now, that would also depend on how early you purchase your term insurance policy. The earlier you buy one, the longer you can be covered. The thumb rule is to buy a policy for the maximum tenure possible and drop it when it is no longer required.
What Are The Types Of Death Covered In Term Insurance?
Nearly all types of death are covered in term insurance, including natural death and death due to accidents or illness. However, there are exceptions. For example, death due to a natural disaster or an ‘act of God’ and death due to terrorist attacks might not be covered.
How can I apply for liability-only insurance online?
To apply for a liability-only insurance policy, please visit motor third-party liability. Kindly share the required details of the vehicle, including the first registration date and policy expiry date, in the message box.
Is it secure to buy term insurance plans online?
Online transactions are completely secure and are done directly on the insurance company’s website. Today almost all financial transactions including banking, stocks, etc. have moved completely online. Even Indian Railways and Airline ticketing is completely online and lacs of people are making online payments every day.
How much Sum Assured/cover should I take in a term plan?
The amount of Life Insurance coverage you need will depend on many factors such as How many defendants you have, What kind of lifestyle you want to provide for your family, and How much you need for your children’s education.
Companies offering Term Insurance plans
- Edelweiss Tokio Life Insurance Company Limited
- HDFC Life Insurance Co. Ltd
- Max Life Insurance Co. Ltd.
- ICICI Prudential Life Insurance Co. Ltd
- Kotak Mahindra Life Insurance Co. Ltd
- TATA AIA Life Insurance Co. Ltd.
- Aditya Birla SunLife Insurance Co. Ltd.
- SBI Life Insurance Co. Ltd.
- Exide Life Insurance Co. Ltd.
- Bajaj Allianz Life Insurance Co. Ltd.
- PNB MetLife India Insurance Co. Ltd,
- Reliance Nippon Life Insurance Company Limited,
- Aviva Life Insurance Company India Ltd.
- Sahara India Life Insurance Co. Ltd.
- Bharti AXA Life Insurance Company Ltd
- Future Generali India Life Insurance Company Ltd.
- IDBI Federal Life Insurance Company Limited
- Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited,
- Aegon Life Insurance Company Limited,
- DHFL Pramerica Life Insurance Co. Ltd.
- Star Union Dai-Ichi Life Insurance Co. Ltd.
- IndiaFirst Life Insurance Company Ltd.
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