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What is Term Insurance?
Term life insurance, also known as pure life insurance, is a type of life insurance that guarantees payment of a stated death benefit if the covered person dies during a specified term.
Term life insurance guarantees payment of a stated death benefit to the insured's beneficiaries if the insured person dies during a specified term.
These policies have no value other than the guaranteed death benefit and feature no savings component as found in a whole life insurance product.
Term life premiums are based on a person’s age, health, and life expectancy.
If policy holder die during the policy term, the insurer will pay the policy's face value to your beneficiaries. This cash benefit—which is, in most cases, not taxable—may be used by beneficiaries to settle your healthcare and funeral costs, consumer debt, or mortgage debt, among other things.
get a large amount of life cover at a relatively low premium rate.
Some hallmark features of term plans
Affordability:
Term insurance policies are some of the most affordable life insurance products. The premiums you have to pay for term plans are usually much lower than other life insurance policies.
Age of entry:
With the minimum eligibility age of 18 years, you can get term plans early in life. Buying a term plan at a young age helps you get sizeable coverage at very reasonable premiums.
Policy Term:
Term insurance provides coverage for specified number of years, known as the policy term. In case of an unfortunate event during this period, your nominee will receive the sum assured in your policy.
Term insurance tenures can start from 5 years and extend up to your 99th birthday if you choose the whole life insurance option. Depending upon how long your loved ones might need your financial support, you can select the right policy term for your needs.
Maturity Benefit:
Term insurance provides financial protection to your family in case of an eventuality. It is not meant to be used as an investment instrument. Thus, it does not offer any return on the premium you pay in the fortunate event that you survive the policy tenure (except in case of Return Of Premium option).
Additional add-ons:
You can add riders or add-on benefits to your term insurance policy to extend the scope of your base coverage at a nominal cost.
>> Critical Illness Rider
>> Accidental Death Cover
>> Waiver of Premium Benefit in case of a permanent disability
How much
Life cover is sufficient ?
Human Life Value (HLV) is a number that tells the present value of future income expenses, liabilities and investments. The HLV number is taken usually to understand how much money would be required to secure the lives of your dependents with term insurance, in case you are no longer around.
There are 7 points that are taken into account to assess your HLV.
These are:
1. Your age
2. Your gender
3. Your occupation
4. Your target retirement age
5. Your annual income
6. Your employment benefits
7. Your financial information on spouse and children
The basic thumb rule that can be used to find out your HLV is as follows:
For Age In Years
18-35 >>
25 times of your annual income
For Age In Years 36-45
>> 20 times of your annual income
For Age In Years 46-50
>> 15 times of your annual income
For Age In Years 51-60
>> 10 times of your annual income
Who Is
eligible for term insurance?
Term insurance eligibility can differ for each plan and insurer. All insurance providers offer plans with unique terms and conditions.
However, as per the general norms, the minimum age limit for buying a term insurance plan is 18 years. Likewise, the maximum age limit for buying a term insurance plan is 65 years.
So, make sure that you fall under this age group if you wish to buy a term plan.
Can you buy term insurance for a wife?
Yes, you can buy a term insurance plan for your spouse. In fact, joint term insurance plans are quite popular for the many benefits that they offer. These plans cover you and your spouse under a single policy.
Here is a
Stepwise checklist to buy term insurance..
>> Assess Your Financial Needs
Understand the need first, start with analyzing all sources of income, the number of dependents, existing financial liabilities, and the lifestyle expenses of your family. Moreover, you should consider the life goals of your spouse and children.
>> Estimate Term Insurance Policy Premium
Now calculate term insurance premium that you need to pay for your term insurance policy. The premium payable under a term insurance policy depends on several factors such as the chosen life cover, policy tenure, type of plan, age, gender and smoking habits. The ideal coverage amount for a term insurance policy should be around 15-25 times your annual income based on your age.
>> Check the Insurer’s Claim Settlement Ratio (CSR)
Before you proceed to select a term insurance policy, it is crucial that you check the CSR of the insurance company you choose. CSR is the ratio of the number of claims received by the insurer versus claims settled by them during a financial year. A high CSR implies that the insurance company does its best to resolve the settlement claim filed by your nominee.
>> Select Riders for Additional Coverage
Based on your needs and preferences, you can customize a term insurance policy with add-ons, also called riders. Term insurance riders are optional features that you can add to your basic plan to increase insurance coverage.
You can also opt for ROP (Return Of Premium option) where you will get all premium paid during term of policy refunded at end of policy term excluding taxes paid.