What is Term Insurance

What is Term Insurance?- All you need to know

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What is Term Insurance? As the name suggests, term insurance is a type of insurance plan. But, it is different from other insurance plans. A term plan provides protection in the form of financial assistance on death but only for a given time period. The time period is decided during the inception of the policy. It applies only to the policyholder, and the death benefit is paid to your family members/nominee/beneficiary. The death benefit is the payout that the policy will provide to your family once you have passed away.

Also read: What is Insurance? types and Importance?

Why is Term Insurance Plan Necessary?

The most important reason to buy term insurance plan is for your family’s future. You may never know what will happen to you in the future. But you can prepare for it. Do it with a term insurance plan and give yourself peace of mind and your family a stress-free life.

Here are five reasons why a term plan is essential:

  • It will protect your family when you are not around.
  • It will provide financial stability and assistance for your family’s needs.
  • The payout will help your family live a comfortable life.
  • Your family can clear all your existing debts.
  • A term plan provides high cover at the cost of an affordable premium.

Features of Term Insurance Plan

The best method of understanding a term plan is by going through its features. To help you with the same, we have created a list of term insurance’s key features.

  • Affordability – This is so far the most lucrative option as it will help you save money. A term plan is less expensive in comparison to other types of insurance schemes. Buying a term insurance plan will help you plan your finances and budget effectively.
  • Online Buying Facility – Buying a term insurance plan is not different from online shopping from an eCommerce website. All you need to do is visit Coverfox, enter your necessary details and let us do the rest. When you buy online, you are getting the policy directly from the insurance provider. Plus, the entire process is paperless and hassle-free.
  • Multiple Payout Option – Under a term plan, your family can receive the death benefit in the form of a lump sum amount or at regular intervals. You can select either of the options during the start of the policy cover.
  • Rebate and Discount – Many insurance providers offer high discounts and rebates if you go for a high sum assured. Since there is no agent involved in the online mode, there is more room for a discount.
  • Premium Payment Term – Under a regular term plan, you have complete flexibility to select the premium payment option – annually, semi-annually, quarterly, or monthly. You can also choose limited pay or regular payment options.

Types of Term Insurance Plans

Just like every other insurance plan, there are different variants of term insurance. Each is unique with its own set of features and benefits. But the underlying death benefit payout remains the same.

Here are the most popular term plans in the market:

Standard Term Insurance Plan

This is the most common and basic type of term plan. All insurers offer it. Under this plan, you pay the premium regularly to avail the high sum assured. In case of your death, the sum assured will be paid to your family members. There is no maturity and survival benefit in this variant.

Term Return of Premium

As the name suggests, you get back all of the premium paid in case you survive till the end of policy period. It is an excellent option to take if you want all your money back.

Increasing Term Insurance Plan

This is similar to a standard term insurance plan with an added benefit. The life cover regularly increases by a specific percentage, usually 5%-10% of the original cover annually. This plan is ideal for beating inflation.

Decreasing Term Insurance Plan

This is the opposite of the plan mentioned above. Under this policy, your life cover decreases on an annual basis at a specific percentage.

Life Stage Event Term Insurance Plan

This is a new type of term policy. Under this plan, you have the option to increase the life cover at a particular milestone of life such as marriage, the birth of children, children’s graduation, etc. You can select different milestones.

Convertible Term Insurance Plan

Under this plan, you have an option to convert your standard term policy into an endowment savings plan or a whole life insurance policy.

Joint Life Term Insurance Plan

This is a standard term insurance variant under which you can cover yourself and your spouse. In case of death of anyone, the surviving partner will receive the death benefit. In case the surviving partner also passes away, the payout will be given to the legal heirs.

Group Term Insurance Plan

A group term policy provides cover to a group of employees of a specific company. It covers all the members employed by a company. You will lose this benefit once you have resigned from your company.

Term Life Insurance Plans Offered by the Government of India

The Indian Government has taken multiple steps to ensure the financial security of the people and their dependents. These plans are also known as Government-sponsored social security schemes.

  • PMJJBY – Pradhan Mantri Jeevan Jyoti Bima Yojana – This is a standard life insurance plan that offers Rs. 2 lakhs as cover to the family of the deceased policyholder. It comes at the premium cost of Rs. 330 per year. Citizens between the age group of 18 to 50 years are eligible.
  • PMSBY (Pradhan Mantri Suraksha Bima Yojana) – This is a standard term insurance plan that offers Rs. 2 lakhs for accidental death and full disability and Rs. 1 lakh for partial disability. It comes at the premium cost of Rs. 18 per year, and individuals between 18 and 70 are eligible.
  • PMJDY – Pradhan Mantri Jan Dhan Yojana – Although this is a savings bank account scheme established by the Government of India, it offers risk cover to the account holders. The account provides a life cover of Rs. Thirty thousand upon the death of the life assured and a build-in accident insurance cover of Rs. 1 lakh.
  • Aam Aadmi Bima Yojana (AABY) – This is a group insurance social security scheme for the low working section of the Indian society. This policy covers death due to natural causes, accidents, partial disability, or permanent total disability.

Factors to Look before Buying a Term Insurance Plan

To help you make the best decision possible, we at Coverfox have created a list of things you should consider before getting a term insurance plan. Read more about it here:

  • Amount of Coverage – This is your first step, to begin with. Determine how much coverage you need for your family to live a happy life after you are gone. Keep a check on the inflation, current economic condition, future expenses, and liabilities. Always go for a plan that provides 15 to 20x of your annual income as the sum assured.
  • Time Period – With a term plan, you can quickly determine the tenure of the policy. The tenure should not be less as it might not meet your outstanding long-term debt. At the same time, it should not belong as the amount of premium will get higher annually.
  • Options for Riders – Enhance your existing term policy with rider options. Look for terminal and critical illness riders/personal accident cover/disability cover/waiver of premium. These options will protect you from life-threatening diseases/medical hospitalization in the long run.
  • Corona Covid-19 Cover – Due to the ongoing pandemic, it is advisable to buy a term plan that provides a death benefit if the policyholder passes away due to Covid-19.
  • Claim Settlement Ratio or CSR – Always go for an insurer that has a high claim settlement ratio. This will ensure that your claims are more likely to get settled.

Factors Affecting Term Insurance Premium

Your term insurance premium depends on a lot of different factors. These factors influence the price of your policy. Here a few:

  • How Old Are You? – Age is one of the most prominent factors that influence the price of your term insurance premium. That is why insurers always say, ‘it is better to buy a policy when you are young, and the premium is less because the amount of premium payable increases with age.’
  • What Do You Do? – Insurers consider individuals based on the type of occupation. If you work in a hazardous environment such as a coal mine, chemical factory, oil rig, fire department, you carry more risk than people employed in a stable office environment. Thus, the premium is expensive for high-risk occupations.
  • Your Gender – Insurers consider women’s lives less risky than men’s as men throughout the world do most of the dangerous workload. Therefore, the premium is cheaper for women.
  • Body Mass Index – If you do not live a healthy lifestyle and are overweight, you are more likely to develop harsh health conditions during the latter years of your life. Insurers charge a higher premium for such individuals.
  • Family History or Existing Medical Complications – If you are genetically prone to lifestyle diseases or have a history of terminal illness in your family, your premium payment amount is going to be expensive.
  • Place of Residence – If you live in a geographical location that is subject to natural calamities such as floods or earthquakes, your premium payment amount will be expensive.
  • Substance Abuse – Smokers and alcoholics have no option but to shell out more money for the premium payment amount.

Term Insurance Claim Process

Buying a term policy is half the battle won. You and your family members need to be completely aware of the term insurance claim process. At Coverfox, we have dedicated customer service and nominee assistance team. We want you to get the best outcome from your term plan in a hassle-free manner.

How to File a Claim on Death?

In case of the policyholder’s unfortunate demise, the family members/beneficiaries/nominees must inform the insurance company as soon as possible. Delaying things will only make it difficult during the time of claim settlement. You can do the same via:

  • Online mode – Visit the official website of the insurer and intimate a claim.
  • Phone Banking – Contact the insurer via phone banking or email.
  • Branch Banking – Physically visit the bank branch or insurer’s office with the relevant documents.

Once you have submitted the application form and the relevant documents, the insurer will thoroughly investigate and approve the same. Post verification, the claim will be processed.

Once the claim has been successfully processed, the payout will be directly transferred to the beneficiary’s bank account.

Documents Required in Case of Natural Death

  1. Policy Document
  2. Duly Filled Claim Form/Application Form
  3. Death Certificate of the Policyholder
  4. Medical Practitioner’s Report/Autopsy Report
  5. Claimant’s Statement
  6. KYC of the Beneficiary/Nominee/Family Member

Documents Required in Case of Unnatural Death

  1. Claim Intimation Form
  2. FIR form the Police Station
  3. Policy Document
  4. Post Mortem Report / Chemical Analysis Report (Viscera)
  5. Physician’s Statement
  6. Medical/Hospital Records
  7. Driving License of the Policyholder (in case of a car accident)
  8. Settlement Option Form
  9. Cremation Certificate
  10. Witness Report
  11. KYC of the Beneficiary/Nominee/Family Member

Exclusions of Term Insurance Plan

There are certain instances which are not entertained by any term insurance provider, do keep an eye out for these:

  • Suicide
  • Self-inflicted Injury
  • Death due to Mental/Psychological Imbalance/Abnormality/Disorder
  • Any Pre-Existing Illness or Health Condition
  • Participation in Extreme Sports or Illegal Activities
  • Criminal and Delinquent Behaviour
  • Participation in Defence Activities
  • HIV/AIDS/STDs/Venereal Diseases
  • Driving without a valid license or under the influence of alcohol/Intoxication
  • Substance Abuse and Narcotics
  • Pregnancy and Childbirth
  • Cosmetic Surgery and Dental Treatment
  • Congenital Defects and Genetic Diseases

Final Thoughts

A term insurance plan provides protection in the form of financial assistance on death but only for a given time period. having term insurance is a big plus in your life, especially in retired life. term insurance products will give both financial security and insurance coverage. I hope this post will give a good idea about term insurance.

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