What is a Term Insurance Plan?

A term insurance plan is typically a pure protection plan that offers financial protection to the insured and their loved ones in their absence. In the event of the insured’s sudden death during the term insurance’s active tenure, the policy nominee can access the sum assured once the claim gets settled. Individuals can typically access term insurance plans at relatively low cost, making them cheaper than other life insurance plans.

Things to Know about Term Insurance Policy

Individuals planning to get a term insurance plan should know the following things in detail –

  • Cheaper than traditional plans

Notably, term insurance plans are cheaper than traditional savings plans. The flexible plan allows individuals to build a substantial corpus with simple and affordable premiums.

  • Benefits of starting early

The earlier in life an individual starts to mobilize savings towards a term insurance plan the more benefits they are going to reap. To begin with, younger individuals pay cheaper premiums. To elaborate, insurance premiums tend to increase each year by nearly 10% as you age. This is because as individuals grow older they become more susceptible to getting diagnosed with diseases, critical illnesses, or raising a claim early. This makes older individuals seem more risky to insurance companies.  

  • Comprehensive lifetime protection

Term life insurance extends a long coverage that offers them protection for a long time. This ensures that the insured has a financial safety net to rely on at any point in their lifetime. This also means that individuals have to pay their insurance premium until the policy ends.

  • Lifestage benefit

Individuals can choose to bump their policy coverage through life-stage perks. This benefit allows individuals to increase their insurance coverage on major events such as marriage, taking out a home loan, and the birth of a kid.

  • Save Taxes

Typically, insurance premiums that individuals pay annually are exempted from their income and help lower their tax liability under Section 80C of the Income Tax Act of India.

Term insurance allows individuals to include add-ons to their existing plans to increase their scope of coverage. Addons on insurance such as income perks on disability, waiver of premium, and critical illness, can help individuals account for risks and income loss caused due to a critical illness, accident, or disability.

How to Choose the Right Term Insurance Plan?

In order to figure out which plan is the best for their needs, individuals need to ask two important questions – how much insurance coverage would they need and the desired number of years of coverage. It is recommended that one’s insurance coverage needs to be based on an accurate assessment of how much finances they would want to secure the financial future of their loved ones.

Ideally, the most effective way to determine this is by estimating the family’s monthly expenses for at least the next 15 years and factor in the inflation. Subsequently, individuals need to add their ongoing liabilities such as plans, EMIs, and credit card bills. They also need to add upcoming expenses and obligations and subtract their liquid assets like mutual funds and fixed deposits from the total.

After determining how much one would want to secure the future, one needs to identify when they would need coverage. Notably, a higher term attracts a higher premium. Typically, it is advised to pick a tenure till when the individual is likely to have an active liability or probable obligations.

What Is The Difference Between A Regular Pay Term And A Limited Pay Term Plan?

  • Limited Pay Term plans

Individuals pay for a fixed or limited time, say 5 or 15 years, or until they turn 60. However, the cover remains until the policy ends. This is deemed best for individuals in their 30s who are looking for extensive coverage for the long term and self-employed individuals who wish to pay off their liability during their peak earning phase.

  • Regular Pay Term-Plans

In this type of plan, individuals need to pay until the very end of the policy to retain the coverage. It’s deemed best suited for individuals in their 60s or those looking for coverage for the short term.

When Is The Right Time To Buy A Term Insurance Plan?

It is ideally suggested that an individual buy a term insurance plan when they start earning to avail of insurance at an affordable premium. Additionally, at an early age, individuals do not have major life responsibilities and financial liabilities. This means through proper financial planning individuals can save and mobilize a part of their savings towards insurance.

This especially works for those who have current and future dependents.  Individuals who delay their insurance can also consider getting a plan at least 5 years before their parents retire.  Having a provision like this beforehand will allow individuals to have a safety net for their dependents in case they meet with an untimely death. Typically, the need for having a term insurance policy is the highest when the individual has multiple dependents to look after, such as their parents, spouse, and children.

Keeping these in mind individuals should look for a life insurance policy at the earliest to avail of the required coverage and build a reliable financial safety net for the future. They can use the lump sum SIP calculator to check how age impacts insurance premiums and coverage and plan their purchase accordingly.

What Are The Required Documents To Buy A Term Insurance Plan?

Individuals are required to submit multiple documents to support their insurance application. However, the actual set of documents asked by the insurer may vary across companies. This is why it is important to check the entire list of documents to ensure a smooth application process.

Typically, they ask for documents that meet the four key requirements of the insurer to underwrite a policy. These key requirements include –

  1. Proof of identity
  2. Proof of age
  3. Proof of address
  4. Proof of income

Besides these pointers, individuals should also check the claim settlement ratio of the insurer and learn more about their customer service to understand the extent of help they can expect from them during an emergency.