Term insurance is one of the simplest yet most effective ways to secure your family’s financial future. Yet, despite the simplicity, it’s essential to understand the key features of term insurance before making a decision.
Let’s explore the critical elements to look for in a term insurance plan and understand how they can align with your family’s needs and financial goals.
What is Term Insurance?
Before diving into the features of term insurance plans, it’s important to understand what term insurance is. A term plan is a type of life insurance policy providing coverage for a specified term, or duration, typically ranging from 10 to 40 years. These plans offer pure risk coverage, meaning that the insurer pays a death benefit to the policyholder's nominee in case of an untimely demise during the policy term.
Unlike other forms of life insurance, term insurance does not accumulate a cash value or provide returns at the end of the policy term. The insurer pays a predetermined sum assured to the nominee. The premium paid is purely for risk coverage, making it one of the most affordable ways to secure substantial life cover.
Key Features of Term Insurance Plans
Understanding the features of term insurance is critical for choosing a policy meeting your family’s requirements. Here are some of the most important features to consider.
One of the most significant features of term insurance is its affordability. Compared to other forms of life insurance, term insurance policies have much lower premiums, especially for young and healthy individuals. Since the policy only provides death benefits without any maturity benefits or cash value, insurers can offer coverage at a lower cost.
For example, a 30-year-old non-smoker can obtain a high sum assured with relatively low premiums. The earlier you invest in a term insurance plan, the lower your premiums will be.
A key feature of a term insurance plan is the high sum assured it offers at a low premium. This ensures your family has sufficient financial support to meet their needs in your absence. When choosing a term insurance policy, make sure to calculate the sum assured based on your family’s current lifestyle, outstanding debts, future expenses such as education or marriage, and inflation.
Using a term insurance calculator can help you determine the appropriate coverage amount for your family’s financial security.
Flexibility in Policy Term
Most term insurance plans offer flexibility in choosing the policy term. You can select the duration of coverage based on your financial responsibilities. For instance, if your children are young and dependent on your income, you may want to choose a longer-term policy. On the other hand, if you expect to retire soon and have fewer financial responsibilities, a shorter policy term may suffice.
Death Benefit Payout Options
Many term insurance plans now offer flexible payout options for the death benefit. While the traditional lump-sum payout is the most common, some policies provide alternatives such as:
These options can be helpful in managing large sums of money responsibly, especially if your family may not be accustomed to handling significant financial assets.
Lump Sum plus Monthly Income:
A portion of the sum assured is paid immediately, while the rest is distributed as monthly payments over a specified period.
The entire sum assured is distributed as monthly income over a pre-defined period, ensuring your family has a steady stream of funds.
Riders for Enhanced Coverage
Another critical feature of term insurance plans is the availability of riders, which offer additional coverage options to address specific risks. Riders come at an extra premium but can significantly enhance the protection provided by your policy. Some popular riders include:
Accidental Death Benefit Rider:
This rider provides an additional payout in case of death due to an accident. It’s a good option for individuals working in high-risk occupations or frequently travelling.Critical Illness Rider:
This rider offers coverage for life-threatening illnesses such as cancer, heart attack, or stroke. Upon diagnosis, a lump sum is paid out, which can help with medical expenses and other financial obligations.Waiver of Premium Rider:
In case the policyholder becomes permanently disabled or critically ill, this rider ensures future premiums are waived while the policy remains in force.
Including riders in your term insurance plan can offer a more comprehensive financial safety net for your family.
Tax Benefits**
One of the key advantages and features of term insurance is the tax benefit it provides. Under Section 80C of the Income Tax Act, premiums paid for term insurance qualify for tax deductions up to ₹1.5 lakh per year. Additionally, the death benefit paid out to your nominee is tax-exempt under Section 10(10D), ensuring your family receives the full sum assured without any tax liabilities.
Increasing and Decreasing Term Insurance
Some term insurance plans offer the flexibility to increase or decrease the sum assured based on your evolving financial responsibilities. This feature is particularly useful for individuals whose financial needs may change over time due to factors such as inflation, increased liabilities, or changing family dynamics.
Claim Settlement Ratio
A high claim settlement ratio is one of the most important features of term insurance plans that you should evaluate when choosing a policy. The claim settlement ratio indicates the percentage of claims settled by the insurer out of the total claims received in a given financial year. A higher ratio reflects the insurer’s reliability in honouring claims, which is crucial for ensuring your family receives the promised benefits.
Grace Period and Policy Lapse
In case of missed premium payments, term insurance policies typically provide a grace period, allowing policyholders extra time to pay without losing coverage. If the premium is not paid within the grace period, the policy may lapse. It’s essential to check the grace period provided under your term life insurance policy to ensure you don’t unintentionally lose coverage.
Using a Term Insurance Calculator
When purchasing a term plan, using a term insurance calculator is essential for determining the right coverage and premium amount. A term insurance calculator takes into account various factors such as age, income, financial obligations, and existing debts to recommend the appropriate sum assured and premium for your specific needs. This can help you get a better idea of how a term plan will fit into your overall financial planning.
Choosing the right term insurance plan requires a thorough understanding of its key features, benefits, and suitability for your family’s financial situation. The features of term insurance plans, make them an essential tool for financial planning. By carefully assessing the above features, you can make an informed decision and select a life insurance policy providing peace of mind and financial security for your family.
** Tax exemptions are as per applicable tax laws from time to time.
Customers 
Distributor 
Employee 
