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Types of Term Insurance

In India, there are several types of term insurance, and understanding their features is essential for selecting the right plan to protect your family’s financial future. ...Read More

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You may not always be around to take care of your family. And that’s when a term plan ensures your family is well protected.

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What are the different types of term insurance?

Types of Term Insurance
July 10, 2024

Table of Content

 

What is Term Insurance and Why does it matter?

Simply put, term insurance is a type of life insurance that provides the policyholder with coverage for a predetermined amount of time. The insurer offering different types of term insurance plans pays the beneficiary the death benefit in the event that the insured person or policyholder passes away within the duration of the policy. For those looking for substantial coverage, the best term insurance plan for 1 crore can provide essential financial protection for loved ones.

Term insurance operates on a straightforward concept. In the event of your untimely death, it acts as a replacement income and gives your loved ones financial support. It guarantees that, in your absence, necessities such as home loans, schooling costs, daily living expenses, and more will be met with the cover amount.

What are the Different Types of Term Insurance Plans Available On the Market?

There are primarily six types of term insurance plans available:

1. Level Term Insurance

This is the most popular among the types of term insurance. It guarantees a set amount for the chosen tenure/duration of the policy. Because premiums are fixed, policyholders benefit from a predictable cost structure in this term insurance policy.

2. Increasing Term Insurance

In this type of insurance, the sum assured is gradually increased over the policy term to counteract the effects of inflation. The policy is a strong hedge against the rising cost of living, even though the premiums are a little higher than those of level term insurance.

3. Decreasing Term Insurance

This is another policy among the various types of term insurance plans available in India. It is designed for people who have certain financial commitments, such as loans, and it guarantees that the amount assured will decrease over time in proportion to the decreasing obligations. Meanwhile, rates don't change, guaranteeing steady coverage.

4. Term Insurance with Return of Premium (TROP)

Another one among the types of term insurance is term insurance with return of premium. The whole amount of premiums paid under this policy will be reimbursed if the policyholder lives out the duration of the policy. This type of term insurance offers a savings component, which makes it an attractive option for some even though its premiums are higher than those of traditional term plans.

5. Convertible Term Insurance

This type of policy, among the term insurance options, gives policyholders flexibility as well as the ability to convert their term policy into an endowment or whole life policy at a later time. People whose needs change over time gain from this adaptability.

6. Whole life insurance

Whole life insurance is a type of term insurance that provides life cover till the age of 100 years thus providing comprehensive financial protection for your loved ones for a longer duration.

Key Advantages Of A Term Insurance Plan

A term insurance plan provides only life cover and does not have an investment component. The key advantages of a term insurance plan are:

  • Financial protection

    • In the event of an accident, the insurance provider will give a lump sum payout to your family. This will take care of outstanding debts or mortgages, if any, future financial goals, and monthly recurring expenses.

  • Affordable premiums

    • The premiums are affordable, making the plan accessible to every individual. You can customise the plan to fit your requirements and budget.

  • Flexibility

    • You can choose the sum assured and the tenure to suit your needs and affordability. In addition, you can opt for riders like accidental death rider, accidental permanent disability rider, critical illness rider, etc., which eases your financial burden in critical circumstances.

  • Tax benefits

    • The premiums that are paid towards the term insurance plan are always eligible for tax deductions under Section 80C of the Income Tax Act*. Also, the lump sum payout and bonus received by the nominee is tax-free.

Why Choose HDFC Life Insurance Term Plans?

Customers of HDFC Life Insurance can secure their family's or loved one's financial future in the event of the untimely death of the breadwinner by choosing from a wide range of term insurance plans offered by one of the best insurers in India. HDFC offers high sum coverage at affordable premiums.

Factors to Consider While Buying Term Insurance

1. Think about Dependents and Life Stage

Everybody in the world has a different set of financial obligations, right? For instance, they might need more life insurance than an unmarried person with fewer dependents if they are the family's only provider.

So, age and present financial circumstances, therefore, serve as the foundation for selecting the appropriate term plan. The length of the policy and the amount of life insurance that the insured gets are influenced by these two variables. It is among the most common policies offered by insurers, giving various types of term assurance. Housewives play a very important in the financial well being of a family and thus it becomes important to get a term insurance for housewife.

2. Evaluate Your Current Lifestyle

When purchasing a term plan online, candidates should be aware of and assess their current lifestyle needs. This entails evaluating their general standard of living, current spending patterns, and current liabilities like loans or debts.

By doing this, you can make sure that even after the insured passes away, family members won't lower their standards of living. Therefore, always evaluate these needs realistically in order to select the best among term insurance options that will provide the necessary life coverage.

3. Examine Your Income

Selecting a term insurance amount that will be sufficient for their family is a common concern shared by many. By examining their current income, candidates can obtain a more accurate understanding of their coverage needs.

Everybody has unique financial responsibilities that take up different amounts of their income, and understanding their financial constraints can improve their investing. 

4. Add Riders to Your Plan

Insurers offer riders as extra coverage to supplement the standard coverage of a policy. By adding an additional premium, these coverage can be added to a base policy at the time of purchase or renewal.

Term insurance plans typically include riders such as a waiver of premiums, an accidental death and permanent disability rider, and a critical illness rider. Therefore, picking the appropriate add-ons can help maximise the benefits that are offered under a term plan.

5. Check the Claim Settlement Ratio (CSR)

The percentage of settled claims relative to the total number of claims received by the insurer during a given fiscal year is known as claim settlement ratio. This percentage is still important to take into account, even though it shouldn't be the only determining factor. The likelihood of a claim being resolved under the insurer is generally higher the higher the CSR.

How to Purchase Term Insurance Online?

The procedure for purchasing a term insurance plan online varies with the insurance provider. The basic procedure for buying a term plan online is given below:

  • Access the official insurance provider website.
  • Navigate to the ‘Term Plans’ option available on the top tab.
  • Use the Term Insurance calculator on the website to evaluate the premium for the term plan.
  • You get an insight into the term insurance plan of your choice, add-on options, and customisation for an informed decision.
  • You can also compare the different types of term insurance plans available for a better understanding of the terms and features under each plan before purchasing the policy.
  • Fill out an online application form available on the website after you have chosen a suitable plan.
  • Click on the submit button.

Once submitted successfully, an insurance agent from the company will contact you and guide you through the procedure.

Summing Up

An essential component of the financial portfolio is a term insurance plan. That being said, there is no "one size fits all" plan, which is why term insurance plans come in a variety of forms. Generally, people purchase protection plans to ease the financial shock that their dependents might experience in the event that the family's sole provider passes away.

No one's needs are the same, so no one plan can work for everyone. As such, there are various term plan types to take into account when making financial plans.

FAQs on Types of Term Insurance

Q: Which is the Most Common Type of Term Insurance?

The most common type of term life insurance bought by people is the level term life insurance.

Q: How many term insurance plans can I purchase?

There is no hard and fast rule here. You can buy more than one (or multiple) term insurance policies from different insurers. But ensure that you always disclose your existing varieties of term insurance policies to them and avoid any secrets as this may later be seen as a fraud.

Q: Can I change the sum assured for my term insurance plan?

During the term chosen for whatever among type of term insurance policy available in India, you are able to modify the sum assured of your term insurance plan, according to the majority of insurance companies. Nevertheless, the additional coverage might come with a higher premium.

Q: Are riders applicable to the different types of term insurance policies?

A variety of riders are available to meet your specific needs, including Critical Illness, Accidental Permanent Disability, and Accidental Death Benefit riders.

Q: Do I need to undergo a medical examination before buying a term insurance plan?

Yes, before granting you the ability to purchase any of the types of term insurance policies, the majority of insurers require you to go through a thorough medical examination. On the other hand, some insurers may provide coverage without requiring a medical exam; however, these types of term insurance plans may have higher premiums.

Q: Can I switch between the level term to decreasing term insurance?

Yes. You can switch from the level term to decreasing term insurance if your financial commitments change. The premiums are lower for decreasing term insurance when compared to level term insurance since the payouts keep reducing with time. Understand the implications before you make the switch, and also evaluate the premium costs, outstanding debts, and insurance requirements before opting for the conversion.

Q: What are the advantages of purchasing a convertible term insurance policy?

The advantage of purchasing a convertible term insurance policy is that it provides an affordable term coverage today with an option to convert it to a permanent policy at a later date with the same death benefit. However, the conversion is permitted after a period specified in the plan.

Q: How does term insurance that has a return of premium differ from the other types of term insurance policies?

The difference between the return of premium and the other types of term insurance policies is that if you outlive the policy term, the insurance provider returns all the premiums paid or a part of the premiums paid as a maturity benefit. It also provides death benefits to the nominee/or beneficiaries like other term plans, and the survival benefit is a rider.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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##Individual death claim settlement ratio by number of policies as per audited annual statistics for FY 2023-24.

#Provided we have received all the relevant and required documents and no further investigation is required. Claim settlement process would be completed within stipulated timelines once the claim request is approved

^ Available under Life & Life Plus plan options

*Subject to conditions specified u/s 80C of the Income tax Act, 1961.

***Online Premium for Life Option for HDFC Life Click 2 Protect Super (UIN: 101N145V04), Male Life Assured, Non-Smoker, 20 years of age, Policy term of 25 years, Regular pay, Annual frequency, exclusive of taxes and levies as applicable. (Monthly Premium of 622/30=20.7).

 

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