What is Term Insurance?
Term insurance can be defined as a type of insurance that is availed for a certain period of time or a fixed term (number of years). The basic differentiating feature of term insurance is that unlike other types of life insurance policies, a term insurance policy is less expensive since it does not have any cash value. The policy comes useful only if the policyholder dies within the timeframe during which the term insurance policy is in force. Term insurance plans.
Term insurance policies are offered by almost all major insurance providers and these come for various terms like 10 years, 20 years, 30 years etc. The most significant point about term insurance policies is that most of these policies have a built-in feature to get converted to permanent life insurance policies irrespective of the state of health of the term insurance policyholder.
Why Do You Need to Buy Term Insurance?
Term insurance is generally overlooked in comparison to other insurance products. The main reason for this is the belief that term insurance plans do not offer significant returns or any additional benefits besides the Sum Assured on the policyholder’s demise.
However, there are several advantages of buying a term insurance policy. These include:
Financial security - Term insurance plans are an excellent way to build a financial safety net. This is especially true in today’s world, as such a plan makes provision for the financial security of the policyholder’s dependents in the event of his/her demise.
Basic insurance product - Instead of opting for a plan with a host of other add-ons and ending up paying a high premium, opt for a term insurance plan with a fixed, affordable premium for almost the same features.
Greater returns - Term plans also fit everyone’s needs. A term insurance plan is one where the benefit received is much more than the sum invested, resulting in higher returns without the hassle of having to manage investment funds. Regular plans as well as TROP plans offer as much as 105% return on premiums paid as a benefit upon maturity.
Sufficient coverage - You can choose the sum assured under term insurance policies so that it offers you sufficient coverage. Financial advisors are of the opinion that sufficient cover is equal to 10 times your annual income. It should be noted that inadequate coverage defeats the purpose of being insured. Along the same lines, it is important that you review your insurance cover and identify areas where you can cut down, so that you are not over-insured.
Survival benefits - While a regular term insurance plan does not have any survival benefits, a number of insurers have designed plans, i.e., Term Return of Premium Plans (TROPs), that offer survival benefits in the form of premium refunds at maturity.
Policy term - Term insurance plans offer you coverage for a fixed term. This indicates that you can take term insurance for a fixed duration wherein your family is financially protected. Following this, you can retire comfortably.
Low claim rejection - Claim rejections are observed to be lower if a life insurance policy has been active for more than 10 years. Hence, it is ideal to buy term insurance to ensure that your claims are honoured.
Flexibility - Most term plans offer you the flexibility of buying the policy online or offline. In addition to this, many insurers do not insist on health check-ups if the sum assured under the plan is Rs.50 lakh or less.
Riders - Term plans can be enhanced through the use of riders that offer extra protection. These riders can be bought from the insurance company at nominal costs. Some of the riders available under term plans are accidental death benefit, critical illness, partial or permanent disability, waiver of premium, etc.
Low brokerage - In case you opt for an offline term insurance policy, you will be paying the lowest amount as broker commission. Brokerage is usually calculated as a percentage of the premium paid. Since the premium for term insurance policies are usually low, the overhead of broker charges is also reduced. If you choose an online plan, there will be no broker fees as well.
Flexible payment options - Term insurance policies offer flexible premium payment options, allowing policyholders to choose a payment plan based on their convenience. Premiums can be either limited pay, single pay or regular pay. Policyholders who choose limited or regular pay plans can pay their premiums either monthly, quarterly, half-yearly, or annually.
Choice of plan - A number of insurers offer policyholders a choice when it comes to the type of plan they wish to opt for. Policyholders can choose between single or joint life plans, depending on their need. They can thus choose to extend coverage for dependent spouses or choose a plan exclusively for the breadwinner of the family.
Tax benefits - Last, but not the least, premiums paid towards a term plan is eligible for tax benefits under Section 80C of the Income Tax Act. The death benefit received by the nominee under the plan is eligible for tax deductions under Section 10(10D) as well.
Best Online Term Plans in India:
Online term insurance plans are offered by insurance companies for the convenience of their customers. Some of the significant advantages of buying term insurance online are:
When you buy term insurance through an online portal, you may benefit from lower policy cost when compared to buying it the conventional way. From the insurer’s perspective, for online sales the involvement of life insurance agents and field officers are limited, making it a more economical way of selling insurance. Hence, the insurance company passes on this benefit to the customer.
The entire process of online application happens in a hassle-free manner.
The customer is not influenced by an insurance advisor or agent while purchasing the plan.
The customer is serviced in the same manner, irrespective of the way in which he/she buys the plan, i.e., online or offline.
Although the premiums for these plans are low, you need not be apprehensive about buying these policies. Online plans have low premiums due to two main reasons:
i) There is no intermediary in the deal.
ii) The online buyer is considered to be a low-risk customer for the insurance company. He/she would be educated, earning well, and is likely to have health insurance. In the event of an emergency, he/she would be in a position to reach a hospital on time and get access to quality medical facilities. These factors contribute towards the low risk and reduction in premium.
Some important points to keep in mind while buying online term insurance are as follows:
Premium may vary in the future - The online price quote you receive is provided on the basis of an assumption that you carry normal risk in terms of health, occupation, and your family’s medical history. After you submit all relevant documentation, the insurer may request you to undergo medical tests to arrive at the actual policy cost. In case the medical reports indicate that you are exposed to certain risks, the premium for your insurance may rise.
Do not let the policy move into lapsed status - The act of buying an online insurance plan is certainly a smart move. However, you should not let the policy lapse by missing premium payments. Since there would be no insurance agent reminding you of the premium payment due date, it is easy to miss renewing the insurance. It is advisable to send an ECS mandate to your bank so that the premium amount is automatically deducted on the due date. Setting up an alert on your mobile phone or computer is also a great way to remind yourself of the payment date.
Do not hide relevant facts while applying - If you are a smoker or use tobacco in any other form, your insurance premium will be 25%-30% higher than that of an individual who does not use tobacco. However, you should never hide this information in your application for insurance. At the time of a claim, if the insurer finds that the customer had concealed information, the claim will be rejected. The insurer may also cancel the policy, as applicable.
Your insurance policy is the backbone of your family’s financial security. So, you should not get into a situation where the insurer annuls the plan.
Popular Pick On Term Insurance
5 Year Term Life Insurance Policy in India
With the unpredictability that surrounds us, life insurance has become an absolute must-have. Without an insurance policy, the loss of income can have an adverse impact on your dependents’ lives. Term insurance, as we all know, is one of the most preferred and affordable types of life insurance which one can get to protect their dependents. There are various durations for which a term plan can be taken, but here, we talk specifically about 5-year term plans that are available in India. You can read about the various benefits offered by such term plans, who they are ideal for, how they work, and some of the top 5-year term plans that are available in India.
Best Offline Term Plans in India:
Offline term insurance plans are more expensive than online plans. Irrespective of that, they provide a good amount of life insurance coverage for relatively low premiums. Offline term insurance policies are far more cost-effective than endowment or money-back insurance policies. Some of the advantages of taking an offline plan include:
Policyholders get the assistance of insurance agents while applying for the plan.
Customers can get reminders from insurance agents on premium payment due dates, leading to timely payments.
How does Term Insurance Work?
A term insurance policy can be considered one of the most traditional forms of insurance. Most of the term insurance plans have a premium that increases in small amounts over a period of time. This is to account for reduction in the value of money as years pass by. It also covers the increase in mortality risk and the extra levies imposed for a longer coverage term.
To understand how it works, you can look at it in these three situations:
Buying the policy: To be able to buy a term insurance policy you don’t need to put aside tens of thousands of rupees every year. Many of the insurance policies can offer you a sum assured of up to Rs. 1 crore for a premium that could be as little as about Rs. 10,000 per annum (These are indicative figures. The actual premiums may differ depending on the sum assured and the insurance providers).
Keeping the policy: Just like any other insurance policy, you pay the premium towards these policies at a frequency chosen by you. These premiums can be paid every month, every quarter, every 6 months or once a year. They can also be paid as a lump sum instead of being paid at regular intervals.
Redeeming the benefits: Term insurance plans don’t usually come with any maturity insurance plans don’t typically come with any maturity benefits, except for term insurance with. Their main objective is to provide life insurance cover and that is exactly what they do. In case the policy holder passes away, the person who is named as the beneficiary of the policy will receive the sum assured.
The way it works is also one reason why you will notice that a lot of the time insurers refer to these plans as pure protection plans. There are no frills attached to the plan. You pay the premium and you get a fixed sum if case something happens to you.
Features and Benefits of Term Insurance:
Flexible Payment Options:
Term insurance policies offer flexible premium payment options, allowing policyholders to choose a payment plan based on their convenience. Premiums can be either limited pay, single pay or regular pay plans. Policyholders who choose limited or regular pay plans can pay their premiums either monthly, quarterly, half-yearly or annually.
High Sum Assured for Low Premiums:
Term insurance premiums are some of the lowest in the insurance sector, allowing for a prudent and relatively inexpensive way to safeguard the policyholder’s dependents in case of untimely demise. The Sum Assured associated with term insurance plans are also relatively high when compared to the premium amounts. Regular plans as well as TROP plans offer as much as 105% return on premiums paid as a benefit upon maturity.
Choice of Plan:
A number of insurers offer policyholders a choice when it comes to the type of plan they wish to opt for. Policyholders can choose between single or joint life plans, depending on their need. They can thus choose to extend coverage for dependent spouses or choose a plan exclusively for the breadwinner of the family.
On the death of the policyholder during the policy term, his/her dependents stand to receive the amount chosen at the time of choosing the policy. The amount would depend on the term plan, with the amount increasing, decreasing or remaining the same irrespective of at what juncture of the policy tenure the policyholder’s death occurs.
Policyholders can claim tax exemptions under various sections by virtue of opting for a term insurance policy. Tax exemptions can be got under section 80C of the Income Tax Act on premium amounts.
Policyholders can also claim exemptions under Section 10 (10D) of the Income Tax Act for benefits received through insurance policies.
While a regular term insurance plan does not have any survival benefits, a number of insurers have designed plans that also offer survival benefits in the form of premium refunds on maturity.
On maturity of the policy, surviving policyholders stand to receive benefits under a TROP policy only. In the case of a TROP policy, the policyholder will receive the premium amount paid over the policy tenure as one lump sum.
A number of individuals have begun to opt for add-on features to their regular term insurance policies. These add-on plans will push up the price of the premium being paid but provide additional benefits in case of accidental death, critical illness, total and permanent disability benefit etc.
Types of Term Insurance Plans:
Insurance companies offer a wide range of term insurance plans with exciting features and benefits to stand out amongst competitors in the insurance space. Term insurance can be classified into the following types:
A convertible term plan allows the policyholder to convert his/her policy into a permanent one during the policy tenure. Some insurers provide this as an additional benefit rider while others offer the same as a standalone plan. As far as the terms and conditions have been met, converting a term life policy into a permanent policy should not be a difficult process.
Best price term life insurance
The key features of convertible term insurance are described below:
Even before a policyholder converts the term insurance into whole-life insurance, the policy will be more expensive. The coverage offered by a standard term insurance policy and that by a convertible policy may be the same. However, the convertible insurance plan will have higher premiums, owing to the built-in cost attributed to the conversion facility.
Another advantage of a convertible term insurance plan is that the life assured is not usually required to appear for a medical examination while switching the plan from term to permanent. This is particularly useful because if the life assured’s health has waned after buying the convertible plan, he/she will still be able to avail whole life coverage that would not have been possible otherwise.
If the policyholder pays all premiums on time he/she can keep the policy in-force with the option of conversion later on in life.
You should buy a convertible policy now if you are unable to afford whole life insurance. In the future even if you are able to buy whole life insurance, your health may disqualify you from doing so. In effect, you choose the affordable insurance now while also creating a path to the lifetime option in case your insurance needs and health condition changes over time.
When buying convertible insurance make sure that you are aware of the timeframe within which you should convert the plan. You should keep a close eye on this aspect and also on the investment part of the plan.
When you have a convertible term insurance policy, every year that you wait to convert will make the conversion rate go up by 10%-15%. This is because you will be moving up into higher rate bands as you grow older. If you are sure that you will be going for a conversion, it is better that you do it while you are young and in a low rate band.
Difference between convertible and renewable life insurance:
While shopping for term insurance plans, you may have come across schemes that are “renewable”. There is a misconception that the two are synonymous. The fact is that renewable and convertible policies are two different products.
If a policy is referred to as being renewable it means that the plan can be extended even after the end of the term. The premiums for renewal of the policy may however be much higher than the original premium. On the other hand a convertible policy provides you the ability to switch from term insurance for a specific duration to whole life insurance. Renewable plans usually do not offer this option.
TROP plans are standard term life insurance plans with a slight variation in the method of providing survival benefits. On survival, policyholders are returned the total amount of premiums paid by them during the policy tenure, excluding tax. Such a method ensures that the money spent on the policy is returned to you after a specific interval.
Key features of Term Return of Premium plans are:
Just like a regular insurance plan, a TROP offers a refund of the premium upon the policy’s maturity, provided that the policyholder survives till that date.
A TROP plan generally allows policyholders to add riders or benefits to their existing plans to increase the coverage.
TROP plans have a slightly higher premium amount compared to regular term insurance due to the premium repayment facility.
Term Return of Premium plans offer you tax benefits on the premiums paid, under Section 80C of the Income Tax Act. These plans also enable you to enjoy tax benefits on the payouts from the policy under Section 10(10D).
Some insurers offer returnable TROP plans. This means that if the policyholder opts to discontinue the premium payment and return the plan, the premiums that have been paid till date will be reversed. However, there will be deductions pertaining to medical examination costs and stamp duty charges. You should discuss this facility with your insurance advisor before investing in a TROP plan.
The policyholder has the option to stop paying premiums towards a ROP plan after a predefined duration, usually 3 years. The policy will then move into paid-up status. The death and maturity benefits in this case will be reduced by a ratio of total premiums paid to the total premiums payable under the plan.
You should keep the following points in mind before investing in a ROP policy:
Read all policy-related documents carefully. This is very important as it helps in understanding the inclusions and exclusions under the plan.
In the event of an unforeseen incident, the sum assured under the plan should be sufficient to help your family survive the difficult phase. So, choose the plan coverage judiciously.
Opt for an insurance company of repute. Since there are many players, private and public, in the market today you should not fall for marketing messages or advertisements. Instead use your best discretion when selecting an insurance provider.
When looking to buy a plan, you should check the claim settlement ratio of the insurance company. Ensure that the insurer has a good customer service/grievance cell as well.
Before finalising on a plan, understand the premium payment frequencies and flexibilities the scheme offers. This way you will be well-equipped to make the purchase.
Trops Versus Fixed Deposits:
There have been debates on the returns offered by TROP plans. There is a general belief that TROP policies have inflated premiums with respect to the survival benefits offered. Many compare TROP schemes to fixed deposits as well.
It is understood that fixed deposits (FDs) yield higher returns in comparison to TROP plans. While TROP policies pay back the full premium as survival benefit, there are no interests or other incentives offered. On the other hand, an FD account returns the principal amount and compounded interest at maturity, which is far higher than the survival benefit under a TROP plan.
But the vital life insurance coverage that TROP policies provide the life assured should not be ignored.
The insurance market is flooded with various types of policies that it often becomes difficult for the buyer to choose the best suited plan. Decreasing and increasing insurance policies are two of the commonly used terms in the insurance realm. Let’s take a look at the features and benefits of the aforementioned policies:
Decreasing Term Insurance: In this type of policy, the sum assured on death as well as the premium decreases at a certain rate throughout the policy term. Such plans are generally offered by financial institutions to insure the property held as collateral against the loan offered. It is an additional safety component which ensures that the bank will get back the amount released as loan, in case of the worst scenario. The duration of the policy term can vary between 1 and 30 years.
The essence of decreasing term insurance is that a person’s requirement for high insurance coverage decreases with age, as certain liabilities do not exist beyond a point. Decreasing term insurance plans are not suitable for individuals who have no other form of life coverage. If you buy only one life insurance package, it should be a pure term insurance policy, as it would offer you a level death benefit throughout the tenure.
While the main advantage of choosing decreasing term insurance is that it can be used for personal asset protection, small businesses also use these plans to insure indebtedness for startup expenses or operational costs.
Increasing Term Insurance: Under increasing term insurance plans, the insurance coverage increases at specified durations when the policy is in full force. It evaluates risks on par with the rising costs at any given time in the future and compensates accordingly. The cover usually keeps increasing till the time it attains a value which is 1.5 times higher than the original cover.
Increasing term life insurance policies are configured to offer respite from inflation. It also ensures that the death benefit is substantial when it is finally paid out to the nominee.
One of the main disadvantages of the increasing term insurance plan is that the premium increases according to the benefit. Hence, these policies get more expensive over time.
Increasing term insurance is less common than other forms of term insurance.
These plans are particularly suitable for couples who plan to have a child in the near future, and would like to save up for the same.
Aegon Life Insurance offers an increasing term insurance plan that is a variant of the regular scheme. The sum assured under the policy increases by 5% every year till the value reaches twice the initial amount in 20 years. After this point, the sum assured remains constant. It should be noted that the sum assured cannot go beyond double the original sum assured. The rise in the value of sum assured cannot be stopped either.
How to Choose a Term Insurance Plan:
The market is flooded with term insurance policy options, with varying policy terms, benefits and sum assured amounts. Navigating this maze of policies and making sure you choose the one that fits best and meets your requirements is a difficult task.
The following points should be kept in mind when looking for a term insurance plan:
When picking an insurance policy, it is always advisable to look at the insurance company’s reputation. This is important as a term insurance policy is a long term investment and as a policyholder, you should not be left in the lurch in the event the company shuts down or meets with any difficulties. Checking the company’s FICO score would be a good way to gauge its stability and reliability.
The insurance company’s claim settlement ratio is an indicator of the number of claims settled out of every 100 claims received by the company. Insurance companies with a healthy claim settlement ratio are seen as more reliable and a better choice, as a higher settlement ratio is considered favourable. The IRDA publishes the claims settlement ratio for all insurance companies for a particular year.
The riders provided by the insurance company in addition to the regular policies are also to be considered. A policy that provides the basic coverage and also offers additional benefits and riders is seen as a secure one, and insurers who provide a wide range of riders are considered a good option.
The amount you would be paying in terms of premium for the protection offered is a key factor in selecting a term insurance policy. Given that these policies can have a tenure of up to 20 years, the amount being paid annually as premium is a significant amount. Thus companies that offer reasonable protection for low premiums are preferred by policyholders.
When selecting a term insurance policy, take into account factors like inflation. Term insurance policies are usually taken for 10-20 years, during which time inflation will erode the value of the rupee, resulting in lower returns at the time of maturity. To offset this, consider companies that offer plans where the cover increases by 5% - 10% annually to keep in line with inflation.
It is advisable to compare insurance plans online so that you have a clear idea of the options available to you. The facility of policy comparison is offered by neutral third-party financial websites, free of cost. So, it is wise to make use of this facility as much as possible.
In case you feel that you are unable to decide on a plan by yourself you can always seek the assistance of an insurance advisor for the same. This way you can be assured of expert insurance advice/suggestions that would enable you to pick the right policy.
It is vital that you read the terms and conditions within the policy document thoroughly before signing the dotted line. This enables you to understand the minute details pertaining to the inclusions and exclusions under the plan, so that there are no confusions in the future.
Eligibility Criteria of Term Insurance:
Before anyone can take a life insurance policy, they will have to meet certain eligibility criteria which can be:
The minimum age of the policyholder will have to be 18 years old when taking the plan.
The maximum entry age will depend on the minimum tenure of the policy.
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The maximum age at the time of maturity for these policies can be 75 years but this could change from one insurer to the next.
The minimum age for maturity will be determined based on the minimum age at entry and the minimum tenure offered.
The sum assured will also be a factor in calculating the eligibility as many policies have a fixed minimum sum assured.
This may not be mandatory but some insurers may ask you to undergo a medical check-up prior to taking the policy.
Documents Required for Term Insurance:
All insurance companies mandate that you submit a set of relevant documents while applying for term insurance. Following is the list of documents you will need to provide when taking a term insurance plan. Document requirements may also differ from insurer to insurer.
Proof of identity using documents like passport, Voter ID card, Aadhaar card, driving licence, letter from a public servant or authority verifying identity.
Proof of age with documents like passport, birth certificate, driving licence, PAN card, etc.
Proof of address with documents like utility bills (electricity, telephone), ration card, bank account statement, Voter ID card, or passport.
Proof of income with documents like Income tax returns, employer’s certificate, or Income Tax assessment order.
Some recently clicked passport sized photos.
Term Insurance Premium Calculator:
Insurance companies providing term insurance are often fielded with questions regarding the premium to be paid for a particular policy. As the premium amount is integral to selecting a policy, a number of companies have a premium calculator on their websites which allows policyholders to calculate the premium they would be paying for particular policies. The premium calculator facility is available to all individuals who wish to calculate an estimate of the premium to be paid.
The premium calculator for most insurance companies requires you to input details such as your gender, date of birth and mention if you are a smoker or non-smoker. The coverage amount required (depending on your needs) is to be entered as well.
On doing so, the premium amount to be paid will be displayed on screen. The premium amount would be calculated based on the maximum policy term offered by the insurer.
Any additional benefits included as part of the policy would be displayed below the premium amount payable. Some insurers provide an estimate based on the insurance plan selected, and will provide the premium amount based on the type of plan and coverage it offers. The premium calculator is an excellent way for individuals to check their premium contribution if they wish to opt for a particular term insurance policy.
Exclusions for Term Insurance Plans:
Term insurance plans cover a list of specific events and circumstances. Depending on the type of plan selected, this could be an exhaustive list. However, there are some exclusions that term insurance policies do not provide coverage for. Given below is a list of exclusions:
Suicide: Suicide is an exclusion in all term insurance policies. Insurers will not pay dependents in the event of the policyholder committing suicide within a year of purchasing the policy. In the case of group insurance, suicide will not be liable for compensation as well.
Death due to war, terrorism drought: Death due to natural calamities and acts of war are not covered under a term insurance plan.
Death due to actions by the insured: Accidental death brought on by the actions of the policyholder (such as extreme sports etc.) are not covered as these are viewed as self-imposed risks by the policyholder.
Death due to intoxication or narcotics: If the policyholder’s death was brought about by or as a result of consumption of alcohol or narcotic substances, the insurance company is not liable to compensate dependents.
Term Insurance Claim Process:
In case the life assured policyholder passes away, their dependents will be required to file a claim in order to receive the amount which the insurer has assured to pay on such an event. The claim process is usually quite simple and easy to follow in most cases. Given below is a step-by-step guide to file your claim for a term insurance policy:
Step 1 – Inform the Insurer About The Claim:
The initial step to filing a claim involves intimating your insurance company regarding the claim. To do this, you must contact your insurance provider via any available channel i.e. via phone, email or by visiting the branch. Only when you have informed the insurer about the claim will the claim settlement process be initiated.
Once you have informed the insurer about the claim, you will be required to submit the necessary documents to support your claim. Documents usually required for supporting a claim include the original insurance policy document, proof towards the claim, deceased life assured’s death certificate and medical records, apart from some other documents. Some insurers may also ask you to submit additional documents to further verify the claim.
The final step in the claim process is the decision regarding the claim and subsequent settlement. After the required documents have been provided to the insurer, the claims department will verify the documents and the claim before taking the decision on the settlement. The insurance company may honour the claim if everything is in order or may deny it if there is any discrepancy in the claim and proof provided for it.
Term Insurance Renewal Process:
When your term insurance policy is about to expire, make sure you get it renewed on time. Term insurance policies can now be easily renewed online with just a few clicks. Here are the basic steps involved in the renewal process. This process may be different for different insurers.
Review your policy: The first step of the renewal process of to review the existing insurance policy that you have. This will give you a chance to review the cover and discounts that your policy provides and make any changes as are necessary. Since many of us may not use our insurance cover for a long time, it is wise to make changes to your cover with time as your priorities change.
Provide policy details : Urer’s website and click on the policy renewal tab. Once you click on the tab, you will be asked to provide your policy details such as the policy number, date of birth, name, etc. after this step, you will be asked to confirm the details you have just provided.
Make the payment: The last step of the renewal process is to make the payment on the policy. Nowadays, one can make the payment for policy renewal online via a number of channels such as by cheque, by credit card/debit card, vi an ATM, via SMS, via online banking, via mobile wallets, bank auto-debit facility, bank collection centres, or at the branch office itself.
How Much Term Insurance Do I Need?
There is no set formula that can be applied to answer the question of how much insurance is enough insurance. What can be done, when trying to answer this question, is to take into consideration the factors that have the maximum impact on the sum assured. These factors will include things like how much you can afford to pay as a premium, what is the sum assured that you think will be adequate for your families future expenses and is the sum assured you want available.
Things to Know About Term Insurance Plans:
As explained, buying a term insurance plan is the most economical way of securing yourself and your dependents. There are multiple features and benefits associated with term insurance policies which makes them stand out from the rest of the insurance options. Let’s take a look at some of the must know features of term insurance policies.
An economical approach towards financial security:
Most of the insurance companies offer term life plans at lower rates of premium, because these plans offer coverage only for a predefined duration. What makes these plans cheaper is that, most of the times the person insured survives the policy term, in which case the company will have to pay nothing in return. However, this is not the case with TROP plans where the premiums are returned on survival of the policyholder. A simple term plan can be compared with a vehicle insurance policy which compensates only at times of an accident.
Even term plans can offer better returns on investment:
Even though term plans are opted widely by people worldwide, a considerable few are still hesitant to go for it because of the zero returns on survival of the term. However, some insurance companies offer a Term Return of Premium (TROP) plans, under which the person insured will be paid all the premiums that he/she has paid during the policy tenure. Generally, TROP plans are priced a bit higher than normal term insurance plans.
A monthly income for dependents of the policyholder:
Buyers at the time of application can choose whether the death benefits should be paid as a lump sum to the nominee or in installments. However, if at the time of claims the nominees choose to take the entire amount as a lump sum, they can avail the same at a reduced value.
Enhancement of insurance coverage:
In term plans, you also have an option to increase the level of insurance coverage at different stages of your life. The percentage of increase depends purely on your insurer and on the type of plan selected.
Choose your premium term and policy term:
Your term insurance plan allows you to choose the tenure at the time of policy inception. It’s an excellent feature which helps you to choose the plan based on your financial situation. This particular feature of term plans makes it a better risk management planner for loans and debts.
Factors Which Affect Term Insurance Premium:
When it comes to term insurance, there are several factors which affect the premiums which the insurer quotes on your policy. These factors are:
Your age plays a major role in the premium you pay on your policy. The younger you are, the lower your premiums are likely to be and the older you are, the higher your premiums will be. It is always advised to purchase a life insurance policy when you are young.
Your family’s medical history:
If your family has a medical history of any critical or life threatening illness/condition like cancer, diabetes, etc., then you will be considered a higher risk as compared to someone who does not have a family history of any major life threatening disease/condition. A high-risk applicant will be charged higher premiums automatically.
Insurers will also look at the state of your health at the time you apply for the policy and also in the past. If you have been suffering from any chronic illness in the past or your current medical condition indicates any future health issues like high blood pressure, your policy premium rates might be affected. Applicants who are generally healthy often have to pay lower premiums in comparison.
People who are obese or overweight on the weight to height ratio scale may be asked to shell out more in terms of policy premiums as they carry greater chances of medical issues in the future.
It is commonly advertised by insurance providers that non-smokers are eligible for special discounted premium rates on policies as compared to smokers. This is because smokers may be at a higher risk of cancer or other smoking related health hazards as compared to a non-smoker.
Like smoking, alcohol consumption can also lead to health problems. Which is why, insurers will enquire about your lifestyle habits during application as heavy alcohol consumption is linked to several health complications, increasing the applicant’s risk.
Those who often indulge in high-risk activities for leisure such as skydiving, bungee jumping, paragliding, hang-gliding or any other form of adventure sporting activity are seen as high-risk applicants and may be required to pay higher premiums. However, there are several insurers who have designed policies specially covering these high-adrenaline activities.
Insurance providers often advertise lower premium rates for women applicants as compared to men. This may be due to the fact that women usually have longer lifespans as compared to men.
How To Buy Term Insurance Online:
Purchasing a term insurance plan has now become easier than ever, thanks to the revolution led by the online shopping. Term insurance, like many other types of insurance can now be easily purchased online. Unlike earlier times, purchasing term insurance now is much easier and hassle free. While the process of purchasing term insurance online may differ from insurer to insurer, the general procedure is as given below:
Start off by logging on to the insurer’s website and click on the tab which reads term/life insurance. Do ensure beforehand that the insurer you have chosen does offer term insurance plans.
Once you click on the term insurance tab, you will be required to provide details like the sum assured you wish to take, the term for which you want the policy and the period for which you want to make premium payments.
After you have entered your preferences, the website will display the policy premium amount based on your inputs. You will see the premium amount based on your inputs
If you are comfortable with the premium which needs to be paid for the policy, you can proceed to select the bank to make the payment for the premium.
Once the payment has been made, you will receive an acknowledgement regarding the transaction.
The insurance company should respond back on your application within a period of 3 weeks letting you know whether or not your application has been accepted.
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If the application is accepted, you will be sent the policy document online via mail, which will be followed by a hard copy which will be sent to your registered address.
Importance of Term Insurance:
Term life insurance plans, also known as protection plans, have become popular in the past few years owing to the benefits which they offer. Why is it important to be covered under a term plan? Here are some reasons:
Term plans offer risk cover – Term insurance plans are categorized under pure risk cover plans as they offer protection in case of death of the life assured policyholder. Protection here is provided in the form of death benefit and there is usually no maturity benefit associated with term plans. However, while many people may consider this an unnecessary expense, these plans offer much needed financial support if the sole breadwinner of the family may pass away.
Term insurance offers affordable protection – Term insurance offers one of the most important benefits, which is of providing risk cover at a very affordable price. Nowadays, you can get a 25 year term insurance cover for a nominal sum of Rs.2508 p.a. which will provide you with a risk cover of up to Rs.10 lakh. Purchasing term insurance online can be even more inexpensive.
A must-have for sole income earners – Term insurance plans can be of invaluable importance for those who are the only income earners in their family and have others depending on them financially. In case of the unfortunate demise of the life assured who is also the only earning member of the family, the term insurance plan will provide the life assured’s beneficiary/nominee with the death benefit sum assured. This way, families of such individuals will not become financially unstable after the unfortunate demise of the life assured. The benefit provided by the term insurance will serve as a financial cushion to take care of immediate expenses in case of a loss of income.
Dependents are protected from short-term liabilities – In case of death of the life assured, the surviving family members or dependents often feel the stressful burden of any debts or loans which are remaining to be paid. With the loss of an earning family member, finances can go for a toss. This is where a term plan can offer invaluable financial help to the struggling dependents. The benefit assured by a term insurance plan can help the dependents pay off any impending loans or debts like a home loan, children’s tuition fees, car loan, personal loan, etc.
How To Choose The Right Term for Your Term Plan:
One of the main reason why term plans are preferred over other types of insurance plans is because it provides cover at affordable prices for a duration that the customer needs. However, when it comes to term insurance, how does one decide the term for which the plan should be taken? The right duration for a term plan will differ from individual to individual, depending on their unique financial situation. When deciding the term of a term insurance plan, you must consider the financial liabilities which your family may have to face if you pass away and how long it would take for those liabilities to be paid off. Some of the factors you must consider when choosing the term of your term plan are:
Liabilities can come in many forms, such as loans or mortgages and must be paid in or before time to avoid penalty. When you choose the term for your term insurance, it is advisable to consider the time it would be required to pay off such liabilities. For instance, if you have a home loan which will be fully repaid in a period of 20 years, then your policy term must be a minimum of 20 years.
Commitments or Dependents
If you have dependents like young children who are financially dependent on you, the term of your plan must ideally be the duration (no. of years) till your can children support themselves. You must also take into account milestone life events like weddings, or starting a career when deciding the term of your policy. Ideally these events must fall within the term of the policy so that in case you may not be around to financially provide for your family, their needs are still taken care of.
Long term plans are significantly more expensive than short term insurance plans. When choosing the term for your plan, you must first consider whether you are financially comfortable paying the premiums over a longer period of time or not. Long term plans provide cover for a longer duration but are more expensive. Short term plans are relatively more affordable and also provide cover for a sizeable number of years.
Whole Life vs Term Insurance:
When one talks of term insurance, the immediate other option which pops in one’s mind is whole life insurance. Term insurance is a specific type of life insurance where the life assured pays premiums towards the policy for a fixed pre-specified term. In case of death of the life assured before the term of the policy, their beneficiary will receive the death benefit. Term insurance policies are also categorized as pure life insurance policies as they only offer protection.
Whole life policies, on the other hand, are full life insurance policies where the cover of the policy extends until the death of the life assured. The premiums for such policies are paid either for a limited period of the policy term or for the life insured's entire life time. Whole life policies also provide survival benefits and maturity benefits, in addition to the death benefit. These policies may sometimes also offer premium investment options.
Term Plan Vs Endowment Policy Vs ULIP:
There are a lot of life insurance products that are available to customers and they can range from a term plan to an endowment plan to a ULIP. So the question really is how term insurance stacks up against ULIPs and
The interpretations that we can draw from the table are:
For a sum assured of Rs.1 crore, the premium for a term plan is about Rs.9,000 whereas for endowment plans, it is much more and ULIPS don’t always offer a fixed sum assured.
The premium payment options are the same for all the insurance plans.
While ULIPS come with an inherent risk due to investments made in equity and debt markets, term insurance plans are quite safe.
If you opt for a term insurance with a return of premium option then when the policy matures, you stand to get 100% of your premiums back.
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Advantages of term insurance policies
They are extremely simple to understand. Certain life insurance plans like endowment plans encompass the element of risk cover along with the savings factor. Such plans are known as cash-value plans. As compared the complexity offered in cash-value plans, term insurance policies are highly simplified.
One is required to pay regular premiums in order to get coverage in a term insurance pricings and rates of term insurance policies are competitive as most term plans are structurally similar. Owing to this, purchasing a term plan has become almost equivalent to buying a commodity.
Hence, the term insurance market has gained a competitive advantage over traditional life insurance insurance policies are extremely flexible as one has the choice to opt-out of the policy by simply not paying the premiums. Since the premiums were being paid for the risk cover only, the policyholder does not get anything back. In a cash-value plan, however, the full survival benefit is provided only at the end of the policy term. If insured stops paying premiums while the policy is still in-force, they will not be able to salvage their savings, thereby increasing the financial loss and burden significantly.
Why One Should Purchase Term Insurance Policies?
The purpose of a comprehensive life insurance policy is to offer financial protection to the family members of the life assured in case of an unforeseen event, like death of the policyholder. However, in India, this purpose is greatly misunderstood to a certain extent.
Most people invest in life insurance policies, or purchase term plans to earn a return on the said investment. Term insurance policies are the ones that does not have the investment element, however, offers insurance until the end of the policy.
Cost-effective Term Insurance Policies
Most people view a life insurance policy as an investment objective, something that will earn them an optimal return at the end of the policy term. However, owing to reasons such as these most people are unable to utilise life insurance policies to their maximum potential. More than an investment product, a life insurance policy is essential for the protection of one’s family members (loved ones).
The reason why most individuals prefer term plans is because of their cost-effective benefit. These policies do not invest the policyholder’s money, in fact, they pay for the insurance component only, hence upon completion of the term of the policy, the policyholder does not receive a survival or maturity benefit. However, if the policyholder passes away while the policy is still in force, the subsequent nominee/beneficiary of the policy receives a lump sum payment in the form of death benefit.
A term insurance policy is highly advisable for those who do not want to give away a large portion of their salaries towards premiums. A large cover can be obtained through a term plan for a relatively low cost.
IDBI Federal Life stake no more on sale after the takeover of IDBI Bank
The stakes of IDBI Federal Life Insurance which were for sale as IDBI Bank required the capital, are not on sale anymore after the takeover by Life Insurance Corp. of India (LIC). As per the terms of this acquisition, IDBI Federal LI will have to infuse Rs.13,000 crore in the IDBI Bank. Since this company will be on the block after the clearance of the Union Cabinet to collect 51% stake in IDBI Bank Ltd, there is no chance to have the IDBI Federal LI in the market in the coming days. Earlier IDBI Bank had the plan of selling its entire stake of 48% in the joint venture for around Rs.3,000 crore.
How will Artificial Intelligence Lead to Disruption of the Insurance Industry?
From being able to settle insurance claims in a jiffy, to selling insurance policies via a person’s recent selfies, artificial intelligence or AI is indubitably a revolutionary hack that the world is in dire need of!
However, where the insurance sector is concerned, how artificial intelligence will help insurers and insured individuals is a different matter altogether. The great news is that like cab-hailing apps, food-ordering apps, and so on, AI is highly probable of disrupting the manner in which insurance is sold and purchased in the world. This possible disruption will not only be advantageous for the general public, but it will also go a long way in assisting insurance companies bifurcate risk groups, conduct risk assessment with accuracy, and even help save them (the insurance companies) tons of money!
Unclaimed Amounts Need to be Published Regularly by Insurers
People and policyholders (especially in India) are often not proactive enough to claim their benefits from their life insurance policies. Therefore, such unclaimed amounts are often forgotten about, on the account of no one claiming them for a long time.
The most simple solution to this problem is publication of such amounts on the website of the insurance provider who has the unclaimed amount. On a mandatory basis, insurance providers are obligated to publish information regarding such amounts on their respective websites. This activity needs to be undertaken on a half-yearly basis. The Insurance Regulatory and Development Authority of India (IRDAI) has asked insurance providers to develop a facility on their websites through which policyholders, beneficiaries, and so on can access information regarding any unclaimed amount that they may have.
Upon receiving information about any unclaimed amount, a policyholder or beneficiary is required to contact the insurer immediately and commence the claim procedure. All insurers will mandatorily complete the KYC (knowing your customer) process before releasing claim amounts. Multiple layers of verification may be required on the insurer’s end to avoid any fraudulent activity.
The current rules set by IRDAI mandates the transfer of unclaimed funds to Senior Citizens Welfare Fund (SCWF), an initiative of the Indian Government. These funds will essentially promote the welfare of senior citizens in India.
Fitness trackers may be crucial in the future for insurance pricing and product design
In the future, insurance companies may capture the health status of customers based on the reading on fitness trackers. The Insurance Regulatory and Development Authority of India (IRDAI) has set up a committee to utilise the data that is monitored by fitness trackers for decisions regarding product pricing.
If these recommendations are effective, it is unclear as to whether the cost of the trackers will be borne by the insurer or the customer. In short, people who lead a healthy lifestyle are likely to get insurance at lower premiums.
The working committee that undertook the task of examining the concept of insurance pricing based on wearable health devices has already submitted a report. This report indicates that insurance products related to wearable devices should be tested on a pilot basis well before launch. It also stressed on the fact that the customer should agree to share data for participation in the insurance scheme.
Insurance companies may consider getting into an agreement with fitness brand manufacturers to provide customers the luxury of choice in terms of devices.
Telangana farmers will be given an insurance cover of Rs.5 lakh under ‘Rythu Beema'
The farmers of the Telangana state will get an insurance cover of Rs.5 lakh under ‘Rythu Beema' which is a life insurance scheme specially designed for the betterment of the farmers. In different parts of the state, the agriculture, finance, and power ministers are conducting meetings in order to disburse the policy bonds to the farmers who are eligible for the same. Under this insurance policy, farmers who fall in the age bracket of 18 years to 59 years will get benefited with a Rs.5 lakh insurance cover. The premium fixed for every individual farmer is Rs.2,271 which will be borne by the government on behalf of the farmers. In fact, the government will be spending Rs.1,000 crore for paying the premiums. For offering this insurance scheme to the farmers, the government of Telangana has collaborated with the Life Insurance Corporation (LIC). The distribution of the policy papers will start from 15 August 2018.
Exide Life Insurance Leads Awareness Campaign
In order to promote the importance of a long, happy, and insured life, Exide Life Insurance formulated a customer-oriented awareness programme recently. Because Indians remain to be the most uninsured of the lot, trainings and awareness programmes such as this help in imparting important knowledge and information to the population.
Very recently, Exide Life Insurance Company held a training programme for the mass in which they were told about the many ways in which they can secure their futures. They were also enlightened about the fundamentals of financial protection in order to be able to lead a happy, secure, stress-free, and insured life. Ever since its inception, Exide Life Insurance has been engaging in active dialogue with the commoners in order to make them understand the importance of insurance. They initially carried out this activity in the Tier-1 and Tier-2 cities only.
The organisers of this campaign said that they were essentially helping people understand the basics of finances and put their money in the right place in order to avoid any financial mishaps. They have also been equipping them with the accurate information about the many financial instruments they could be investing in to make life easy.
The three most powerful agendas that were promoted in this matter are ‘Start Early’, ‘Power of Compounding’, and ‘Adequate Life Insurance’. To elucidate the matter further, one must begin investment in financial products early on in life. This way one has to pay relatively lower premiums. The next important step is understanding the power of compounding interests. Thirdly, it is also important to understand the need to have sufficient life cover.
One must not purchase too much life cover just for the sake of it, but one must ensure that one and one’s family is sufficiently protected in the future.
The initiative taken forward by Exide Life Insurance is remarkable and has embarked on a journey to make more and more people aware about the concept of insurance.
Aegon Life Insurance Company Plans Growth: Focuses on Term Plans
While the insurance market is flooded with insurers who want to promote endowment plans (for their insurance benefits), Aegon Life Insurance has different plans to market its products. In a bid to grow ever more popular in the sector of life insurance, Aegon Life has decided to make term insurance policies its focus point.
Term insurance policies, as the name suggests, are essentially valid for a specific period of time - 10, 15, 20, 25, or 30 years. Within this period of time, the policyholder receives coverage, although, in case of untimely/sudden demise of the policyholder, his/her family will receive a lumpsum amount of money (in the form of death benefit). For this reason, term policies have lost their value in the market, because in India people focus more on the savings part of a financial product more than its investment and security objective.
Even though the Indian market is flooded with insurance providers promoting investment and savings products, the protection market has the scope to develop tremendously. In fact, one of the officials working at Aegon Life Insurance was reported to have said that the protection market is growing at a relatively faster pace than the savings or the investment market. Aegon Life, moreover, managed to sell more term plans in the Financial Year 2018 and the road ahead only looks brighter for these plans (term plans).
GST of 18% is applicable on life insurance effective from the 1st of July, 2017
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