All about Term Insurance

75% of all Indians are not covered by any form of life insurance. This leaves their families susceptible to financial instability and hardships, in the event of unexpected events like the death of the breadwinner in the family.

Investing in a Term Insurance Plan is one of the simplest and best ways to get insured!!

Let's understand the basics of Term Insurance.

What is Term Insurance?

• Term Insurance is a type of life insurance that provides pure risk cover. Unlike traditional life insurance, there is no investment component or maturity benefit. This translates into lower premiums.
• Unlike permanent life insurance, which provides coverage for the entire life of the insured, term insurance only covers the policyholder for a specific period of time, called Term.

How does it work?

• The policyholder pays regular premiums to the insurance company, which provides coverage for a specific period of time.
• If the policyholder dies during the term, the insurance company pays out a death benefit to the family.
• If the policyholder outlives the term, the coverage ends and the insurance company does not pay out any benefits.

Benefits of Term Insurance

• Lower and affordable premiums compared to traditional life insurance. You can get a massive 1 Cr cover for just 10k a year!!
• Can be customized to fit individual needs and are available in various term length
• Some term policies also offer the option to convert to a permanent life insurance policy at the end of the term.
• Most new-age Term Insurance provides cover against critical illnesses and permanent disabilities, for a small additional premium.
• The Premiums paid towards the policy are eligible for Tax Deduction up to a maximum of Rs. 1.5 lakh per annum, Section 80C.

Additionally, the death benefit paid out to beneficiaries is exempt from income tax under Section 10(10D).

Who should buy Term Insurance?

• People with financial dependents, such as a spouse, children, or dependent parents
• People with large debts, such as a home loan
• Primary income earners/breadwinners of the family

Who doesn't need Term Insurance?

• People without any financial dependents or debt
• People with enough savings and investments to cover their financial obligations in case of their death

Factors to consider before buying a Term Insurance

- Choose a sufficient coverage amount to cover your outstanding debts and final expenses, and provide financial support to your dependents.

A good rule of thumb is to have coverage equal to at least 20 times your annual income.

- Choose a term length that aligns with your financial goals, such as paying off your mortgage or funding your children's education.

 A good rule of thumb is to choose a term length that covers you until your youngest child reaches age 25 or become financially independent.

- Your age and health can affect the cost of your premiums. Generally, the younger and healthier you are, the lower your premiums will be. Buy it Young!!

- Consider adding the following riders to your policy

• Accidental Disability Cover - An accidental disability rider provides coverage if you become permanently disabled as a result of an accident, which can help cover medical expenses, lost income, and other costs associated with your disability.
• Critical Illness Cover - A critical illness rider pays out a lump sum amount if you are diagnosed with a critical illness, such as cancer, heart attack, or stroke. It helps you cover medical expenses and other costs associated with your illness.

- Check if the policy is renewable or convertible to a permanent life insurance policy at the end of the term.

- Buy from an insurance provider that has a high Claim Settlement (> 90%) and Solvency Ratio.

- At last, be honest and accurate when disclosing your medical history and lifestyle habits during underwriting. This can help ensure that your policy is approved and that your beneficiaries receive the death benefit in the event of your death.

Article has been co-authored by CA Garima Bajpai and Animesh Anand