How does term insurance work and its benefits

How does term insurance work and its benefits

What are Term Insurance Plans?

Term insurance is an insurance contract for a specific term in which an insurance company promises to pay a certain pre-decided sum of money to the designated beneficiary in the event of the death of the policyholder during the term. The coverage is provided in return of premiums paid the policyholder. Basically, the term insurance plan is the pure protection plans that only cover the risk of death without any savings benefit attached to the plan. However, there are plans that have been introduced to pay back the premium at the end of the policy tenure if the policyholder survives. It’s imperative for every bread earner of the family to have adequate protection in order to secure their loved ones from financial trauma that may result from an unforeseen event like death.

Why Term Insurance? Term insurance benefits

Term insurance policies come with various benefits which makes it the must-have before planning one’s personal financial portfolio. Following are the major benefits offered by term insurance:

1. Simple structure/Easy to understand:

Term insurance is simple and easy to understand. It is a policy that provides only life cover. The policyholder needs to pay a fixed premium periodically to avail a certain pre-determined amount of coverage (sum assured). If the policyholder dies during the policy tenure, the beneficiary will be compensated with sum assured as a death benefit. In case the policyholder survives the policy term, no benefits are paid.

Let’s understand this with an example. Let’s say, Mr. Rahul, 30-year salaried man has purchased INR 50, 00,000 coverage for 25 years term. Let’s say he is paying INR. 12,000 for this coverage yearly which he needs to pay for 25 years. Suppose, Rahul dies at the age of 40 years, his beneficiary (spouse as mentioned in the policy) would be paid INR 50, 00,000 as a death benefit. Once the death benefit is paid, the policy gets terminated. In case, Rahul survives 25 years policy term, he will not be receiving anything in return at the end of the term.

2. Protection/death benefit:

The unfortunate demise of the bread earner of the family can have the worst financial repercussions in many ways. Dependants may have to suffer the loss of regular income/income stream, the burden of unpaid debts and corpus to meet various long-term goals such as children’s education, marriage etc. These things can make the family’s financial position unstable. Term insurance benefits you by paying the sum assured as a death benefit to the family (designated beneficiary) on the unfortunate demise of the policyholder during the policy term. The lump sum paid as death benefit helps to maintain the financial stability of the family.

3. Higher coverage option:

Compared to other investment cum insurance products, term life insurance being the pure protection plan offers a higher range of coverage at a relatively lower cost.

4. Low cost:

Term insurance premiums are lower in comparison to other life insurance products. As the term insurance plan only provides protection and no savings component involves, premium payable is also lower. Specifically, when you purchase term insurance online, premium will be even lower as online policies will not involve intermediary cost.

5. Tax benefits:

Though term insurance plans should be purchased on the basis of just the tax benefits provided by the plan, it’s important to know the tax implications of the plan. Premium paid towards term insurance plan in a year maximum of up to INR 1.5 lakhs qualifies for tax deduction under Section 80C of the Income Tax Act, 1961. Death benefits paid in a lump sum by the policy is completely tax-free under the provisions of Section 10(10D) of the Income Tax Act, 1961

6. Additional benefits:

Term insurance benefits are not just limited to death benefits. The plans available today are customisable as many of the plans offer additional optional benefits. There are many riders offered by various term plans which can be availed by paying an additional nominal premium in order to enhance the coverage. Riders available are critical illness rider and accidental death and disability rider etc

Top 5 term insurance plans in India

Now that we know term insurance benefits, the following are some of the best term insurance plans offered by various insurance companies.

Plan name	Entry age	Age at maturity	Sum assured	Policy term	Claim settlement ratio
TATA AIA Life Insurance Sampoorna Raksha Plan	18 years to 70 years	28 years to 80 years	INR 50 lakhs to no limit	10 years to 40 years	98.00%
ICICI Pru iProtect Smart Plan	18 years to 60 years	23 years to 75 years	Subjected to the premium amount	5 years to whole life	97.88%
HDFC Click2protect 3D Plus Plan	18 years to 65 years	23 years to 75 years	INR 10 lakhs to no limit	5 years to whole life (depending on the plan chosen)	97.80%
Max Life Online Term Plan Plus	18 years to 60 years	Up to 85 years	INR 25 lakhs to INR 100 crores	10 years to 50 years	98.26%
AEGON Life’s iTerm Insurance Plan	18 years to 65 years	Up to  75 years	Subjected to the premium amount	Till 100 years	95.67%

 

1. TATA AIA Life Insurance Sampoorna Raksha Plan

TATA AIA Life Insurance Company is a joint venture between two leading business groups – TATA sons and AIA group. Being one of the leading insurance companies, it offers a variety of life insurance products. Sampoorna Raksha is one of the popular term insurance products offered by the company which can be purchased online. Following are the features of the plan:

The pure protection plan that comes with the flexibility to choose the various death benefit options:

• ‘’Sum assured on death’’ that pays out a lump sum benefit
• ‘’Sum assured on death’’ to avail lump sum benefit and monthly income for the next 10 years
• ‘’Enhanced sum assured on death’’
• ‘’Enhanced sum assured on death’’ plus monthly income for the next 10 years
• Premium payment type can be regular or limited pay (5 or 10 years)
• Flexible premium payment mode – Yearly/half-yearly/quarterly/monthly
• Enhance the coverage with accidental death and dismemberment rider
• Offers discounted rates for non-smokers and female lives
• Large sum assured rebates are offered

1. ICICI Pru iProtect Smart Plan

ICICI Prudential Life Insurance Company is one of the leading private insurers that has a countrywide presence. The company offers a wide range of life insurance plans to cater to various protection and investment needs of people. ICICI Pru iProtect Smart is a popular product on the digital platform. Following are the salient features of the plan:

• • Flexibility to choose the protection cover in four options – life, life plus, life and health, all in one
  • The policy provides comprehensive coverage against death, disability and critical illness (depending on the option chosen)
  • Special discounts for female lives along with extensive coverage by covering breast cancer and cervical cancer
  • Sum assured can be increased while achieving major milestones in life
  • Flexible payout options to choose from – Lump sum, monthly income and increasing income
  • Provide an overview of Term insurance
  • Add what are the benefits of term insurance (high life covers at lower premiums, tax benefits, death benefits option, etc.)
  • Flexible premium payment mode – Yearly/half-yearly/monthly

1. HDFC Click2protect 3D Plus Plan

HDFC Life Insurance Company is a well-established private insurance player in India that offers various individual and group insurance policies. HDFC Click2Protect 3D Plus Plan is a term plan that provides comprehensive protection. Following are the features of the plan:

• • The plan offers flexible protection options to choose from 9 different plans:
    • Life option
    • 3D life option
    • Extra life option
    • Income option
    • Extra life income option
    • Income replacement option
    • Return of premium option
    • Lifelong protection option
    • 3D Lifelong protection option
  • • All the plans come with three in-built features – Death benefit, accidental total permanent total disability and terminal illness
    • Increase in sum assured during major life stage events
    • Premium payment methods – single, limited pay and regular pay
    • Maturity benefit is offered under the return of premium variant
    • The policy offers top-up option to enhance the cover
    • Flexible premium payment mode – Single/yearly/half-yearly/quarterly/monthly

4. Max Life Online Term Plan Plus

Max Life Insurance Company is one of the most popular insurance companies in India that offers a wide array of life insurance products with innovative features. Max Life’s online offering, Max life online term plan plus also has various new-age features. Following are the features offered by the plan:

• • Comprehensive term insurance plan that gives protection against death, disability and critical illnesses. There are three variants to choose from – life cover, life cover + monthly income, life cover + increasing monthly income
  • Flexibility to increase the sum assured based on the life stage requirement
  • Plan can be opted with the return of premium to receive the maturity benefits
  • Flexible premium payment mode –yearly/half-yearly/quarterly/monthly

5. AEGON Life’s iTerm Insurance Plan

AEGON Life Insurance Company that came into operation in India in the year 2008 offers various individual and group insurance plans. iTerm insurance plans are one of its popular offerings on the online platform.  Following are the features of the plan:

• • The policy provides comprehensive protection with in-built terminal illness cover
  • Coverage can be enhanced with various optional riders
    • Aegon Life accidental death rider
    • Aegon Life waiver of premium rider on critical illness
    • Aegon Life critical illness rider
    • Aegon Life women critical illness rider
    • Aegon Life disability rider
  • • Premium payment methods – single and regular pay
    • Flexible premium payment mode – Single/yearly/half-yearly/quarterly/monthly

How to buy Term Insurance? The process to apply for term insurance

Term Insurance can be bought online without any hassles. It is quite easy and simple to buy term insurance through Turtlemint. Following are the simple steps to follow for purchase online:

1. Log on to Turtleminthome page
2. Choose the category as ‘life insurance’
3. Once you click on the category, various types of insurance available under that category will be displayed.
4. Click on ‘term life plans’
5. Provide your profile details such as gender, marital status, date of birth, income details and contact details and more depending on the plan type you have chosen
6. Once you submit the profile details, a wide range of plans available under term insurance will be displayed
7. You can compare term insurance plans offered by various life insurance companies on the side by side basis and select the right one as per your needs
8. After choosing the plan, provide relevant details and continue to make payment

Documents required for buying term insurance plans

Following are the documents required for buying term insurance plans:

• Identity proof – PAN Card/Passport/Voter’s ID card/Aadhaar card
• Address proof – Bank statement/Driving license/ Passport/Aadhaar card/Voter’s ID/Ration card/electricity or telephone bill
• Income proof – Income tax return for last 3 years/salary slips/latest form 16/Bank statement
• Passport size photographs
• Medical check-up reports (if required)

Frequently Asked Questions (FAQs)

1. How much term insurance coverage do I need?

Deciding the coverage depends on various factors. Keep your liabilities, investments, number of dependents, your income and lifestyle in mind while choosing the cover. Coverage requirement may vary from individual to individual.

2. What is Return of premium term insurance plan?

Return of premium term insurance plans is designed to provide maturity benefit. In case the policyholder survives the policy term, return of premium policies pays back the premiums paid by the policyholder on maturity. The premium for such plans is relatively higher in comparison to a regular term plan.

3. What should be the ‘ideal term’ for term insurance plans?

The policy tenure needs to be chosen depends on each individual’s requirement. It’s important to be covered until your retirement age that is usually 60 years. As, after that, you may not have financial dependants and unpaid debts. Calculate the term of the policy that you need to take based on these factors.

4. What happens to the policy if I surrender or terminate the policy during the policy term?

In term insurance plans, the major benefit provided is the life cover. If you surrender in between you would not only lose out on premium but also be deprived of risk cover for the rest of the tenure. There is no surrender value paid in term insurance policies.

5. What is the claim settlement ratio?

Claim settlement ratio indicates the company’s claim payment ability. Claim settlement ratio is a ratio of a number of claims settled against the number of claims filed with the company.

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Courtesy Article:  Supramind / October 16, 2019