What do you consider as the most important part of your life - of course your 'Family'. For most of us, there is nothing more important than family. Your immediate family members are the people who you rely on and who care for you unconditionally. So, if you get an opportunity to do something for your family, what would you like to do for them?
Well, you may do anything to protect them, to care for them, to give them the best they deserve in life. But what if you couldn't fulfill their wishes? What if you fall prey to an unfortunate accident which cripples you for life? Or which, in an extreme case, takes you away from your family forever? It is very hard to even contemplate that. The thought of how your dependents would survive, instills a deep fear. Questions like who will look after them and their needs like their regular expenses, educational requirements, EMIs etc. starts to plague you.
This is a scary situation, isn't it? So, what could you do to save your family from such misery in your absence? The answer is - Buy Term Insurance Policy to secure their lives.
Of course, no one likes to think on such grounds. Even your family would never like to think of a life without you . But alas! Life is unpredictable and you cannot rely on anything when it comes to life. So, it is always better to stay prepared.
However, many people do not consider insurance as the best way out to save you from such situations. This is because they do not understand insurance well and they think insurance is a complicated subject that is best to avoid. But the fact is, if you have sound knowledge of insurance, you can make the best use of it.
Hence, in this guide, we are explaining the key features of the best life insurance policy through different cases to make things simple and easy to comprehend. Hope it will influence many of you to secure your families by means of Term Insurance.
A term insurance policy is one that covers the risk of premature death. The policy insures an individual for a specific term and covers the individual’s risk of death during the specified term. If the insured dies, the policy pays a guaranteed amount to the surviving family so that the family can deal with the financial loss that they have suffered.
For instance, say an individual buys a term insurance policy for 20 years for a sum assured of Rs.50 lakhs. After 10 years, the individual dies in an accident. In this case, the term insurance policy will pay Rs.50 lakhs to the family to cover their financial loss.
In a term plan, just like all other life insurance plans, the premium is fixed for the entire duration. Also, the premium depends on the age at which you start your policy.
So, if you opt for a term plan early in life, you would get the maximum benefits as your premium would be fixed at that age while you continue to receive the benefits of the plan throughout the policy tenure.
For a middle aged man like Bhupinder, who dotes on his family, his loved ones mean everything to him. His children - a boy and a girl aged 12 and 14 years - are like his prized possession. Everything was going fine in his beautiful world that involved 6 people, including his parents, spouse and his children. However, the happiness didn't last for long. One fine day, Bhupinder was diagnosed with a terminal illness that was fatal in nature. His family was shattered, as was Bhupinder, to know about the disease. He never got involved in any sort of bad habit like drinking, smoking, then how come he ended up with such a fatal disease.
Now Bhupinder is under medical supervision. However, no one knows how things are going to advance from here. While sitting in his hospital bed, all he could think is that he should have purchased a term plan for his family way back when his friend was buying one and asked him if he was interested. However, Bhupinder was hale and hearty at that time and so he discarded the idea completely. Now, at this stage in life, all he could wish is to go back in time so that he could secure the future of his kids and other family members. But alas! It is not possible now.
So, you see how important Term Insurance can be in such situations when you feel helpless in front of destiny. For such times of crisis, you must go for a term plan, which acts like a financial security that allows your family to sustain comfortably in your absence. Though, it cannot fulfill the loss of the family member, but it can at least make sure that your family doesn't have to compromise on the basic needs and amenities required for their livelihood.
However, the irony with term plans is that they become active when you become extinct.
So, if you buy a term plan of 1 Crore or any other amount, you can be sure that your family will receive this amount in your absence. This is unless you die by committing suicide within the first year of your policy or you die while committing a crime. Other than these circumstances, you are sure to secure the lives of your loved ones financially even after you are gone.
Term insurance is quite easy to comprehend. However, to make things crystal clear, here are some key features explained below.
Talking about types of life insurance, it is very important to know the difference between the various types of life insurance available. This will help the policy seeker to understand the various plans that they are willing to buy and which suits them best.
When talking about the types of term plans, here are the main types of plans that are available –
|Type of term plan||Meaning|
|Level term plan||A plan wherein the sum assured remains constant throughout the policy tenure. The plan pays the sum assured on death. There’s usually no maturity benefit.|
|Term with Return of Premium (TROP)||A term insurance plan that covers the risk of death during the policy tenure. Moreover, if the policy matures, the premiums paid are refunded back.|
|Increasing term plan||A plan wherein the sum assured increases after every policy year. When the insured dies, the increased sum assured applicable at the time of death is paid.
For instance, say a term plan increases the sum assured by 10% and an individual buys a policy with a sum assured of Rs.20 lakhs. After the first year, the coverage will be Rs.22 lakhs. In the third year it will be Rs.24 lakhs and so on. If the individual dies in the third year, the family will receive Rs.24 lakhs
|Decreasing term plan||A plan wherein the sum assured decreases every year. On death, the reduced sum assured is paid.
For instance, say a term plan decreases the sum assured by 10% and an individual buys a policy with a sum assured of Rs.20 lakhs. After the first year, the coverage will be Rs.18 lakhs. In the third year it will be Rs.16 lakhs and so on. If the individual dies in the third year, the family will receive Rs.16 lakhs
|Single life term plan||In this plan, one individual is insured. For instance, if you buy a single plan term plan for yourself, you will be insured under the policy|
|Joint life term plan||Under these plans, two or more lives are insured under the same policy. So, if you and your spouse buy a joint life term plan, both of you will be insured. If either dies, the sum assured will be paid.|
If you buy term insurance without knowing its meaning, you might suffer like Mr. Mehra, who works in a tea factory. Mr. Mehra wanted to buy insurance to secure his family in case of any untoward situation that might take place with him in the factory. He wanted a plan which would allow financial security to his family if he dies during the policy duration. But if he survives the term of the policy he wants the insurer to refund back the premium paid by him.
However, Mr. Mehra had no knowledge about the Term Return of Premium (TROP) Plan, in which premium paid by the insured is returned at the end of policy duration if the insured survives the plan. Thus, he had simply bought the Level Term Plan which only secures his family in the event of his death within the tenure of the policy and doesn't return the money if he survives the policy. These kinds of mistakes are common if people don't know about term insurance properly.
So, like Mr. Mehra anyone can make a mistake if they do not understand the precise meaning and benefits offered by various types of Life Insurance plans. Thus, having knowledge about the various plans is important.
Each of the different types of life insurance or term insurance has its own significance and advantages. However, it is best to know which type will serve you in what way before finalizing on the best term life insurance policy to buy.
When you decide on buying a term plan, the ideal cover to consider is the second most significant aspect after deciding on the type of plan. So, what exactly is an ideal cover? Like in other insurance policies, you cannot predict an amount as ideal even in the case of a Term Plan. Of course, there are many factors that impact the decision to choose this amount. For instance, when Aditya, who is a teacher by profession, planned to buy a term plan, he was unsure about the cover amount he should go for. He was looking for a plan that could fetch his family enough money to pay off the home loan and the car loan that is going on. Further, he wanted a good education for his young kids and a decent living for his family.
Now, the decision to choose the cover was critical as he had to consider various things including the inflation or the rising prices. His family, especially his wife who is also a teacher is good at budgeting and she runs the family well while maintaining a financial plan. So, Aditya is sure that she would manage well in whatever amount he insures. So, he goes for a term plan that will provide INR 50,000 every month to his family. Since this amount will be in addition to the salary that his wife earns, Aditya is certain that this amount would manage the loans and education of kids along with managing other requirements.
Hence, it depends on the family expenditure as well as the debts and loans which allow the insured to choose a cover that serves as an ideal one. Moreover, this ideal cover may also become invalid in a few years when the prices of things rise further due to inflation. Hence, consider all such aspects.
In the above case, Aditya could finally decide on the ideal cover for this term plan that could sustain his family well. However, his next concern was regarding policy duration. He knows that in the term plan, he has to keep paying for the policy premiums until he dies. In case, he stops paying for the policy or misses a premium or two, it might lapse. So, for how long you want to keep paying for the policy depends on you and this choice has to be done while buying the policy.
After considering all aspects, Aditya decided to pay for the policy till he turns 60 years. He calculated that by then his kids will be independent and he and his spouse will be able to manage with their retirement pension. So, it seems running the policy till 60 years is a good option. However, it might vary from person to person. If you do not have your spouse' income to fall back on and if you think your children will not be financially independent till you turn 60, you may decide to make the policy last till you turn 70 years old.
Hence, you need to opt for a term plan till you are financially responsible for someone else, till about you are 60 or 70 years of age.
You are sorted in terms of the type of term plan to buy, the cover amount and the policy duration. You have opted for each feature quite meticulously. And you think you are good to go. But hold on! Did you consider the Claim Settlement Ratio (CSR) of the insurer whom you are planning to buy your term plan from? Yes, this is another very important aspect that you cannot avoid in your term plan.
Do you know if your insurer, whom you are considering for your term insurance to secure your family, is capable enough to pay the benefits to your nominee? How has been the claim settlement ratio of your insurer so far? Have they been paying benefits to their customers lately? All these and much more are questions that you need to ask and get the answers for about your insurer before deciding on the insurance company to buy your policy from.
If you do not consider this aspect, your family might also suffer like the family of Mr. Sunil Joshi. Mr. Joshi bought a term plan from a lesser known company as they were offering good coverage at a low premium along with many other benefits. However, when he died, the company denied benefits to his family on a baseless ground.
So, it is very important to check the Claim Settlement Ratio of the insurer and go for a company that offers good CSR. The ratio means the percentage of claims that the insurance company settled against the total number of claims made on it. So, if 100 claims are made on the company and the company settles 90 of them, the CSR will be 90%. The higher the CSR the better is the company in terms of claim settlement and vice versa.
After you have considered the key features of a term plan, the next essential aspects to think about are the life insurance riders or additional coverage that you can buy with your term insurance policies. These add-ons are used to strengthen your base policy so that you can have robust financial security for your family.
Roshan Khan, a medical representative by profession, has just started his career. However, on the advice of his father, he decided to buy a term plan. Since he is at the initial stage of his career and has a meager salary, his father suggested that he should buy a policy with a low coverage amount so that he can pay a low premium. However, senior Khan also stated that his son should opt for life stage benefit in term insurance so that he can increase the cover amount later in life when Roshan gets married and has children. Because, at that time his current coverage amount will not be adequate to sustain his family.
Even junior Khan thinks that the life stage benefit option in term insurance is a viable one and goes with his father's guidance. So, if you are young in your 20s and want to invest on a term plan, you can seek Life stage benefits. Under the benefit, you are given the flexibility to increase the sum assured during important milestones of your life, like marriage and child birth.
Hina, a beautician by profession, wanted to secure the future of her son who is just 11 years old. She lost her husband last year and is surviving on her skills in the beauty industry. Her salon is running well and she has a decent income. However, she is scared for her son's future in case any untoward situation comes up. What if she also dies suddenly like her husband or becomes crippled? Who will look after her son? How will he survive? Hence, Hina was planning to buy a term plan to secure the future of her son. One of her clients suggested that she should go for a term plan with a 'Waiver of Premium' benefit and explained to her the importance of waiver of premium meaning. This way, she can be sure that even if something happens to her and the payment of the remaining premiums of the term policy couldn't be done, the policy will continue to benefit her son. Further, this waiver can also be used in case she is diagnosed with a critical disease or if she has to quit her work due to some sort of permanent disability.
So, to ensure that a term plan goes on smoothly even if the insured person is unable to make the premium payment, Waiver of Premium is the best way out. The benefit waives the premium in the case of disablement or critical illness without disturbing the continuity of the policy. Thus, under this rider, even if Hina is unable to pay the premiums, the policy would continue without having to pay future premiums.
India is among the top 10 countries when it comes to the number of road accidents, resulting in deaths and disability every day. The fear of accidents is so intense, many people stay away from driving their own vehicles due to this fear. So, most of them want to know if term insurance covers accidental death?
When Mr. Naresh Singh bought his term plan, he was sure that he wanted an accidental death cover in term insurance as a rider to add to his policy. Probably the fear of accidents and the fact that he has to commute 20 km every day to reach office made him take this decision.
If you too are worried about the accidental statistics of India, you must also go for an accidental death benefit coverage in which the insurer offers additional accidental coverage to the nominee of the insured along with the term insurance cover. In the case of an accident, the insurer pays an additional lump sum benefit under this rider. That is, of course, if you die in an accident. So, by paying a little extra on your premium you can buy this security for your family.
In the current scenario, getting term insurance with critical illness cover is very important. Why? Because critical illnesses are so common these days. Diseases like Cancer, cardiovascular ailments, and kidney failure are claiming lives every day.
That is why Suresh opted for a critical illness cover term insurance plan. He has seen as a young boy how his father had to struggle when he was diagnosed with cancer a few years back. Despite having a health insurance policy, his family went through too much hardship to avail the best treatment for his father during that time. This is because due to the illness his father had to sit at home leaving his job and the family had to do all sorts of odd jobs to cover for the income.
So, Suresh opted for an INR 10 lakh critical illness benefit in case he also faced a similar situation later in life. However, he knows that availing this rider means losing out of the insurance benefit as most insurers pay this amount from the sum assured of the policyholder. However, he thinks it is still worthwhile. If you think the same, just go for it.
The critical illness rider covers a list of illnesses. If the insured is diagnosed with any of the covered illnesses, a lump sum benefit is paid that can be used for advanced treatments or any other financial obligation that the insured might have.
A terminal illness doesn't mean that you should lose all hope and die an untimely death even without giving a fight to the disease. Rather, terminal illness means that you should do whatever is in your hand to survive and give life another chance. Maybe you can look for the best treatment in India or abroad. However, you will require money for the same. And if you have money to get the best treatment, it will definitely boost your morale to live.
This is because the stress of having no option or no money to get the best treatment serves as a great barrier pushing the already sick person into despair. So, opting for a terminal illness rider benefit is a must. With this rider, you can get an additional amount or may be entire sum assured from the insurer to get the best treatment if you are diagnosed with a terminal illness.
However, to avail this benefit you need your doctor's certification stating that you are suffering from a terminal illness and your insurer should also accept that evaluation. So, it is better to consider all such clauses before opting for this rider, else it might not serve you as the best life insurance rider.
The key aspect about the increasing cover option is that you can beat inflation by opting for this coverage. See, when you buy a life insurance policy of a certain coverage amount, you are not sure if the amount would be sufficient 20 years down the line. So, the sum assured that looks fine now might sound trivial later. So, if you buy an increasing cover option along with your term plan, you will be saved from the worries of inflation with every passing year. This is because your sum assured will increase every year by 5 to 10 % as pre-defined in the policy schedule.
Puneet, who works in the stock market, knows well about the ups and downs that take place in the market. So, he was sure that buying a term plan with increasing cover option is the only way out to cover the requirement that he is looking at from his term plan in the long run. So, he doesn't mind paying a higher premium amount for this plan.
Thus, an increasing cover term insurance plan, not only helps one to fight inflation, but it also takes care of increasing responsibilities and thus coverage requirements in life. So, if you are in your early stages of life without much responsibility, but you feel that it would surely go up in the years to come, then you can also opt for this plan, like Puneet wherein your life cover would increase steadily over the years to provide adequate coverage at a later point in time.
Like increasing cover where you are worried about inflation, there is a decreasing cover as well. In this case, the coverage amount decreases as you grow old. Now, you might be thinking why one should opt for this cover. See, when you are young you have a lot of responsibilities, so you opt for an enhanced sum assured. However, as you grow old, your responsibilities gradually decrease. Your children are all grown up, married, settled with the best jobs and you are free from half your duties. All your loans and debts are covered and you do not have a surmountable amount of financial burden. So, you may consider a decreasing cover option in such a scenario.
This is what Navni Parihar did when she picked up her term plan. Because she wanted to reduce her burden of paying a hefty premium in her later life. So, she calculated everything meticulously and planned accordingly with a term life insurance that sufficed her requirement. Being well aware about insurance was a great support in this regard.
However, everyone may not be that lucky. You never know what future lies for you. Hence, it is very important to consider all aspects of this rider if you are considering getting this plan.
If you are wondering whether you can receive a tax benefit by opting for a term plan, let me assure you that you will. This is because the premium paid towards a Term Plan is eligible for a tax benefit upto Rs 1.5 lakhs per annum under section 80C, provided your sum assured is at least 10 times the premium amount. Since the premium payout in term plans is the least, this condition is automatically fulfilled in almost all cases.
Also, suppose you add any health riders to your term plan, such as critical or terminal illness riders. In that case, that portion of the premium is eligible for a tax deduction under section 80D upto Rs 25,000 per annum.
Also, in TROP plans, the premiums refunded back are tax-free under section 10(10D) provided the sum assured is a minimum of 10 times the annualised premium amount. The death benefit received by the nominee is always tax-free without any clause.
So, by now you know what life insurance is and about most of the features of life insurance plans. These plans serve you well if you understand them and plan them carefully. Hence, it is advised to understand the terms properly and buy a plan only when everything is crystal clear to you. If required do take the help of an expert to get your queries addressed.
Moreover, it is also important to consider if term insurance is covered under 80C or 80D section of income tax. This way, you can avail tax benefits under your term insurance So, while opting for a plan, do give it a thought if the plan will suit your tax saving needs.
Term insurance is the simplest and purest form of life insurance where the insured pays a premium for a particular period of time that might range between 10 to 30 years. If the insured dies during this time period, the nominee of the insured receives a cash benefit.
Term insurance is a type of life insurance plan. It is a pure form of insurance with no benefits if the insured outlives the plan. It usually only offers death benefits to the nominee of the insured. On the other hand, life insurance is a broader concept. It includes different types of plans that have a component of cash value associated with it. Here, the nominee of the insured gets a death benefit if the insured dies during the term of the policy. However, if the insured outlives the plan, he/she can avail maturity benefits as well. Besides, term insurance only protects the insured for a limited number of years, whereas life insurance allows lifelong coverage.
Term insurance plans allow financial security to a family in the event of sudden death of the policyholder. Term plans also allow optional coverage in case of critical illnesses or accidental deaths of the insured. These plans cover you for longtime at premiums that are easily affordable.
Yes, accidents are covered in term insurance policies. Term plans pay the sum assured to the nominee of the insured, irrespective of the cause of death.
Yes, term insurance plans do cover death due to natural causes.
There is no rule for maximum life coverage, it depends on the underwriter’s discretion based on the individual’s financial and medical records and documents provided. There is a basic thumb rule of total life insurance coverage 15 to 20 times of the insured person's annual income, but this is not a hard and fast rule. You could have higher wealth protection requirement which requires higher life insurance coverage.
There are multiple ways of calculating your life insurance coverage requirement such as Human Life Value method or the Income Replacement method or the Expense replacement method. However, the simplest method is the basic underwriter’s thumb rule method wherein you can opt for a reasonable amount of life insurance coverage for 10 to 20 times of your annual salary.
There is a simple formula to calculate life insurance coverage as mentioned below:
Life Insurance Cover = Annual Salary (Current) multiplied by Years Left Until Retirement.
This is the requirement of the minimum amount of coverage that you should have.
The ideal period for term insurance is between 5 years to 40 years or until the insured turns 99 years. Actually one should opt for a policy as per the retirement age of the person.
Here are the top 3 life insurance companies in India offering term insurance with best claim settlement ratio:
There is no such thing as the “best” term plan as it totally depends on your requirement. All plans have been designed keeping the interest of the policyholders in mind. However, you can check the most popular term insurance plans and then opt for the one which best suits your needs.
Here are the most popular term policies available in India:
The life stage benefit option in term insurance adds flexibility to the term plan of the insured. This benefit helps in accommodating the growing needs of the insured. Here, the policy adapts to the life goals of the insured by bumping the coverage amount at different crucial stages of the insured person's life.
Waiver of Premium is a rider in term insurance which can be opted for along with an insurance policy. This unique rider waives off all the premiums payable in the future if the insured person becomes physically disable.
Waiver of Premium rider can be added to a life insurance policy at the time of buying the policy or during renewals as an additional premium to enhance the coverage of your policy.
Accidental death benefit in term life insurance means that the nominee of the insured will be paid an accidental benefit amount along with the standard benefit if the insured dies in an unforeseen event of an accident.
Most of the riders available with term insurance policies are significant in their own way. However, getting a critical illness rider is a must because this rider helps a person from drying out his/her finances in the treatment of any critical illness.
A Terminal Illness Accelerated Death Benefit Rider is a life insurance policy add-on that allows the insured to access the term insurance death benefit of his/her policy while they are alive. This is possible in case the insured is diagnosed with a serious illness that qualifies as Terminal in nature under the policy where the condition cannot be cured and is likely to die soon.
Solvency means the financial capacity of an insurer to meet the required obligations. Thus, the solvency ratio of an insurer allows one to have a better understanding of the financial position of the life insurance company that you are planning to buy an insurance from. If the insurer has a high solvency ratio, it means they are financially sound and are capable of reimbursement for all valid claims.
In an increasing term insurance plan, the sum assured of the policy increases every year by a predefined amount. This is done to adjust the amount as per the inflation rate or other financial goals of the insured.
You can reduce the term insurance premium by choosing a longer premium payment period for your policy. This is because choosing an extended period of tenure means that the risk is spread over a longer period and this makes the insurer to offer term insurance policies at a lower premium rate. However, once the policy commences, your premium is fixed for the entire duration and cannot be changed.
* Rs. 531/month is starting price for a 50 lakhs term life insurance for an 25 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.
* Rs. 2000/month is starting price for a 2 crore term life insurance for an 25 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.
* Rs. 723/month is starting price for a 1 crore term life insurance for an 25 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.
* Rs. 1505/month is starting price for a 2 crore term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.
* Rs. 531/month is starting price for a 50 lac term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 30 years of age.