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What is Term Insurance?
Term insurance is a type of life insurance that provides financial protection for a set period. If the policyholder passes away during this time, the insurance company pays a death benefit to the beneficiary. Before buying term insurance, it's important to understand its key features and why it might be a good choice. ...Read More
To delay is to regret
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.
1 Crore Term Insurance@ Rs.21/day***
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ROP
Return of Premium^
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Claim Processing#
99.50%
Claim Settlement Ratio##
66 Million
Lives Insured@
₹3 Trillion
Assets under
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Total Premiums@
TERM INSURANCE PLANS BUYING GUIDE
What is Term Insurance? Definition and Meaning
Table of Content
1. Why Term Insurance is better?
2. Some of the key features that make term plans indispensable include
3. Who should buy Term Insurance plans?
4. Factors to Consider before Buying a Term Insurance Plan
6. How Term Life Insurance Works?
7. What is the Online Term Insurance Buying Process?
8. Why buy HDFC LIFE Click 2 Protect Super?
9. How much Term Cover do I need?
Why Term Insurance is better?
Term plans provide pure life cover. This means there is no savings or profits component. They are basic plans which make term insurance and life insurance more affordable vis-à-vis other options. It is possible for the policyholder to opt for a larger life cover at a lower premium when compared to a similar endowment plan.
Some of the key features that make term plans indispensable include
1. Larger life cover
Since term life insurance plans are more affordable it is possible for an individual to opt for a higher life cover for the same premium as an endowment plan. For e.g. a 30-year old can get a term plan with a cover of Rs 1 crore for a 30-year term by paying a premium.
The Rs 1 crore endowment plan would most likely be out of reach for most 30-year-olds. However, purchasing a term plan for a comparable coverage is more reasonable.
You can even avail life cover till the age of 100 years by opting for a whole life insurance.
2. Riders
The policyholder can attach riders to the term plan, thereby enhancing the utility of the policy. So by opting for a critical illness rider or a critical illness plan, for instance, he is entitled to receive the sum assured on being diagnosed with the critical illness. This is in addition to the death benefit of an equal amount on death over the term of the policy. There are other riders to choose from like - loss of employment cover, disability cover, waiver of premium cover, among others. The policyholder should select riders based on his specific needs to make the life cover more suitable and meaningful.
3. Enhanced cover
Certain insurance companies provide the flexibility to enhance life insurance coverage throughout critical life stages of the policyholder's life. For instance, the policyholder may be permitted to enhance life cover by 50% at the time of marriage and by 25% when they become a parent. This flexibility allows the policyholder to start with a modest cover and increase it as their responsibilities grow, along with the ability to pay higher premiums. To better understand how much additional coverage you might need during these milestones, you can use a life insurance calculator. It helps you estimate the right amount of life insurance coverage based on your changing financial responsibilities.
4. Innovative features
While insurance companies have been quick to innovate in general, they have been most innovative with regards to what is term plans. For instance, companies have been quick and proactive in cutting premium rates even offering extra discounts to certain categories like non-smokers, for instance. Buying term plans is now quite convenient thanks to the internet. It is possible for a healthy individual, as defined by the insurer, to buy a term plan over the internet without taking medical tests for term insurance.
5. Tax Benefits
Buying term life insurance plan can also bring with it a host of tax benefits. As per section 10 (10D) of the Income Tax Act*, the sum assured that a policyholder receives after the maturity of the plan is tax-free; this also applies when the person insured surrenders their policy or loses their life. Furthermore, the bonuses that are received with this amount are also exempt from tax, under section 10 (10D).
6. Multiple Payout Options
When you sign up for a policy, you are required to pay a fixed amount to the chosen insurance provider to receive benefits. You can choose monthly, quarterly or annual payouts, as per your convenience. What this ensures is the death benefit to the beneficiary, in case of the demise of the policyholder. It could either be given out as a lump sum payout or in a staggered manner, which is equal to the sum assured.
7. Premium waiver
Premium waiver, as the term suggests, is a benefit that waives any future premiums in the event of an exceptional condition. For instance, this applies in cases where the insured policyholder is a victim of permanent disability due to an accident. This is applicable only if all the previous premiums have been paid.
Who should buy Term Insurance plans?
Term insurance plans are affordable life cover options for everyone, whether they are business persons or salaried employees. These plans protect against life's uncertainties at any age.
In their 20s, opting for a plan with high coverage and low premiums is a wise decision. In their 30s, term insurance helps protect growing families and manage increasing financial responsibilities. Even in their late 40s and 50s, it provides enough coverage for major expenses like children's education and weddings, while also aiding in retirement planning.
It’s also crucial to secure the financial future of homemakers with the help of term insurance for housewife.
Factors to Consider before Buying a Term Insurance Plan
Some of the key features and benefits of term insurance plans include:
1. Protection against uncertainties:
Term insurance plans offer protection against uncertainties, ensuring the financial well-being of your family. With affordable premiums, you can provide substantial coverage and ensure a worry-free future for your loved ones.
2. Incorporating add-on riders:
Add-on riders like the Accidental Death and Dismemberment Rider and the Waiver of Premium Plus Rider. These riders come at an extra cost but provide additional benefits, giving you comprehensive coverage and peace of mind.
3. Coverage for critical illnesses:
While critical illnesses may feel distant in your 20s and 30s, their impact can be devastating. To address this, consider adding a critical illness rider to your term insurance plan. This additional coverage provides financial support in the event of covered illnesses, protecting your savings.
4. Protection against accidental death or disability:
Term insurance is crucial for protecting against the financial burdens of unpredictable accidents. Acting promptly to secure an accidental death or disability rider ensures comprehensive coverage for accidental dismemberment and death.
5. Availing tax benefits*:
Term insurance plans provide tax relief up to Rs. 1.5 lakh under Section 80C, while critical illness covers offer additional tax benefits under Section 80D.
6. Multiple payout options:
Term insurance plans provide multiple payout options, allowing your family to receive financial assistance in a structured manner that meets their specific needs during unexpected situations.
Types of Term Insurance
In India, term insurance has become a popular and cost-effective option for life insurance, guaranteeing financial security for policyholders and their families. Here are the different types of term insurance available in India:
1. Level Term Insurance:
The most common type of policy, providing a fixed sum assured throughout the life of the policy. Policyholders benefit from a predictable cost structure because premiums are constant.
2. Increasing Term Insurance:
To offset the effects of inflation, this variant sees the sum assured gradually increase over the policy term. Despite slightly higher premiums than level term insurance, the policy is a robust hedge against the rising cost of living.
3. Decreasing Term Insurance:
This type of policy is tailored to individuals with specific financial obligations, like loans, to ensure that the sum assured declines with time, in line with the decreasing financial obligations. In the meantime, premiums remain constant, ensuring stable coverage.
4. Term Insurance with Return of Premium (TROP):
In this policy, if the policyholder survives the policy term, the total premiums paid will be refunded. Although TROP premiums are higher than traditional term plans, TROP offers a savings component, making it an appealing option for some.
5. Convertible Term Insurance:
In addition to offering adaptability, this type allows policyholders to convert their term plan into an endowment or whole life policy at a later stage. Individuals whose needs may evolve over time benefit from this flexibility.
It is crucial for Indian individuals to understand the nuances of these term insurance options in order to make well-informed decisions based on their unique financial goals and family needs. In order to ensure financial stability and comprehensive coverage in the face of life's uncertainties, assess your personal circumstances and choose a policy aligned with your long-term goals.
How Term Life Insurance Works?
Level term policies are policies with level premiums for specific durations like 10, 20, or 30 years, commonly referred to as "level term" policies. Insurance companies charge policyholders a premium, typically paid monthly, in order to provide them with the benefits they are entitled to.
Premiums are calculated by insurance companies based on factors such as health, age, and life expectancy. There might be a need for a medical exam based on your health and your family's medical history, depending on the policy you choose.
Generally, premiums are fixed and paid throughout the term. The insurance company pays the death benefit to the beneficiaries if the insured person dies before the policy expires. In the event the term ends and the individual dies afterward, there is no coverage or payout. The insurance can be renewed or extended, but the new monthly premium is determined by the person's age at the time of renewal.
Most term life insurance policies are convertible, allowing them to be converted into permanent life insurance policies within a specified period of time. Premiums increase when term life insurance is converted to permanent life insurance.
What is the Online Term Insurance Buying Process?
To understand the significance of term life insurance for your family and identify a plan that suits your specific needs, it is essential to grasp the significance of life insurance for your family and understand its meaning. You must understand the meaning of term insurance and its role in providing financial security to ensure your family can cover regular expenses, a child's education, and other responsibilities.
Term insurance is not only important when understanding the meaning and recognising the importance of purchasing a policy, but it is also necessary to research the meaning, features, and benefits of term plans. In just a few simple steps, you can purchase term insurance plans online quickly and easily.
To buy a term insurance policy, follow these steps:
1. Determine Your Family's Financial Needs Before Investing in Term Insurance Make sure you fully understand your family's financial needs. Take into account your family's income sources, dependents, financial liabilities, and lifestyle expenses. You should consider the life goals of your spouse and children before buying a term policy.
2. Before investing in term life insurance, calculate the premium you will need to pay based on factors such as life cover, policy tenure, plan type, age, gender, and smoking habits. Calculate your term insurance premium using a term insurance calculator. Make sure you have coverage that is 15-25 times your annual income so that you are adequately protected financially.
3. Check the Claim Settlement Ratio of the Insurer (CSR) before selecting a term insurance policy. This is the ratio of claims received to claims settled during the past financial year. A high CSR indicates the insurer's commitment to efficient claim settlement.
4. You can customize your term life insurance with riders that add an extra layer of financial security in case of an emergency.
5. Once you have all the necessary information and understand what is term insurance plan means, you can pay the premium online.
If you require further assistance, please contact the customer service team for more information on term life insurance details and make an informed decision that meets your needs.
Why buy HDFC LIFE Click 2 Protect Super?
HDFC LIFE Click 2 Protect Super^^ is a versatile term insurance plan that offers comprehensive coverage to safeguard your loved ones in unexpected events. It provides the flexibility to customise coverage according to your individual requirements, ensuring financial stability for your family. With unique features like life stage protection, the plan allows you to adjust coverage as your life progresses. In addition to its robust protection, HDFC LIFE Click 2 Protect Super offers the convenience of online purchasing and the option to enhance coverage with riders. Combining affordability, flexibility, and reliable protection, this plan provides a secure future for you and your family.
How much Term Cover do I need?
Calculating your Human Life Value or HLV is a simple, quick, and clear way to answer this question. A life insurance cover calculator, like the HLV, provides an easy-to-use method of estimating how much term insurance do I need. Here is a basic rule to determine your HLV:
Age In Years |
Income Multiple |
18-35 |
25 times of your annual income |
36-45 |
20 times of your annual income |
46-50 |
15 times of your annual income |
51-60 |
10 times of your annual income |
For instance, if a 32-year-old man has an annual income of 10 lakh, the recommended Life Cover for him would be 25 times his income, totaling 2.5 crores.
Conclusion on What is Term Insurance
Term insurance is a type of life insurance that provides coverage for a specific period of time. Beneficiaries receive a death benefit if the insured person dies during the policy term. This type of insurance typically offers the choice between level premiums, where the premium remains the same for the entire term, or increasing premiums, where the premium gradually rises over time. Additionally, some term policies may allow for conversion to permanent insurance, providing the insured with the option to extend coverage beyond the initial term. For those seeking significant protection, the best term insurance plan for 1 crore can offer valuable financial security for loved ones.
FAQs about What is Term Insurance
1. Who is eligible for term insurance?
In most cases, any person who is 18 or above can get a term insurance policy, while the maximum age limit goes up to 65 years. Please check with your chosen insurance provider to see if there are any term insurance eligibility criteria to fulfill.
2. What are the factors that affect the term insurance premium?
Before your premium is decided, your insurance provider will evaluate certain factors like your age, gender, medical history, location, occupation, lifestyle, and more.
3. Can I buy term insurance for a spouse?
Yes, that option is available if you want to go for it. There are joint-term insurance plans that provide coverage to both you and your spouse, as part of the same policy.
4. How much term insurance do I need?
As per the best practice, the sum assured should always be a minimum of 10 times your annual income; if you choose a higher range, that’s even better. While this is the norm, make your own judgment, based on your individual needs and preferences.
5. What are the minimum and the maximum age to buy a term insurance policy?
You can buy a term insurance policy from the age of 18 to 65 years. But there are exceptions too-certain insurance companies that offer plans to older people too.
6. What is a term insurance rider?
The rider is a benefit that a policyholder can opt for over and above their chosen policy. These provide added assurance in case of accidents, permanent disability, or even critical illnesses.
Similar Articles:
- 10 FAQs on Term Insurance
- Demystifying Traditional Term Plans
- Top Features of Term Plans that You Must Know About
- What Will Happen When a Term Life Insurance Policy Matures?
- 4 Simple Methods to Calculate : How Much Term Insurance You Need
- Factors to consider while buying a term insurance
- 5 Reasons Self Employed People Should Buy Term Insurance
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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.
Written By:
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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Here are a few more articles about Term Insurance.
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We at HDFC Life are committed to offer innovative products and services that enable individuals live a ‘Life of Pride’. For over two decades we have been providing life insurance plans - protection, pension, savings, investment, annuity and health.
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* Subject to conditions specified u/s 10(10D) of the Income tax Act, 1961.
^^ HDFC Life Click 2 Protect Super (UIN: 101N145V03) is a Non-Linked, Non-Participating, Individual, Pure Risk Premium/ Savings Life Insurance Plan.
^ Available under Life & Life Plus plan options
##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
***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).
@As per integrated annual report FY23-24, available on www.hdfclife.com. As of May 2024
ARN - ED/05/23/2240