Term insurance is a pure protection life insurance plan that provides you with a life cover` to financially secure your family in case of an unfortunate event. With term insurance, your loved ones get a significant payout to ensure that their future goals are financially secured, no matter what!

Term insurance typically have a long policy term. The usual tenure opted range from 10 to 30 years and can go on till the policyholder is 99 years old. Traditional term insurance does not have a cash component and offers no benefits if the life insured outlives the policy term. Term insurance is an affordable way to secure a high sum assured and ensure your family’s financial safety.

A closer look at the product can help you understand what is term insurance and how does it work to determine whether it is ideal for your needs.

How Term Insurance Plans Work?

Term insurance plans are specifically designed to offer financial protection during a defined period. Below is a step-by-step breakdown of how term insurance works:
  • It is a legal agreement:A term insurance plan is a legal contract between the insurance company and the policyholder. The policyholder agrees to pay premiums to the insurer. In return, the insurance company offers a life cover` to the insured for the chosen policy term. This contract stays active until any of the parties break it. This usually happens if the policyholder does not pay the premium, surrenders the policy or miscommunicates on their form regarding their age, health or other factors.

    Like all legal contracts, term insurance plans have strict terms and conditions. It is essential to read these in detail to get a clear idea of what the policy demands.

  • Application process:Term insurance plans can be bought by following the application process. These plans have an eligibility criterion that all applicants must meet. Insurance companies usually check the applicant’s age, health status and pre-existing illnesses, income, gender, occupation and lifestyle habits. If the company is satisfied with the applicant’s profile, they offer them a policy.

    When you apply for a term insurance plan, you must submit the application form along with essential documents like your identity and address proofs, income proofs, citizenship proof and photographs. You may also have to undergo a medical test to establish your health status. It is important to be honest during the application process and present accurate information. In case of any discrepancy, the insurer may reject the nominees claim at a later stage.

  • Assessing your requirements:A critical step in purchasing term insurance involves identifying suitable plans that match your needs. You must start by evaluating your existing financial commitments, including any outstanding debts, loans and other liabilities. Additionally, you must consider the financial needs of your dependents, such as your spouse or children. These factors can help you calculate the funds required by your loved ones to cover their living expenses and other essential needs in your absence.

    It is also important to consider factors like your age and income. This can help you determine the amount of money you need to replace your income to maintain your family's standard of living.

  • Premium quote:The premium for a term insurance plan is decided basis your age, health status, sum assured of the plan, add-on riders, tenure of the plan and other similar factors. It is important to pay attention to this as they can directly impact the cost of buying term insurance. For instance, buying term insurance at a young age can help you get a lower premium. This can help you save money over time.

    Comparing multiple plans can be another way to save money. This can help you find an affordable plan with the right features.

  • Covering increased insurance needs:Term insurance plans are a long-term commitment. Their tenure can last for 30 years or more. Therefore, it is important to select flexible plans that allow you to modify the features based on your evolving needs. Some term insurance plans allow you to enhance the life cover` when you get married or have children. Term plans also let you add riders to ensure better financial protection for your loved ones. Such provisions keep the plan aligned with your changing financial goals.

  • Assigning a nominee :Selecting a nominee for a term insurance plan is one of the most crucial decisions you need to make. The nominee is entitled to receive all the money from your policy in your absence. Therefore, it is important to select and nominate the designated person after careful deliberation. Additionally, you must inform the nominee about the claim settlement process so they are well-prepared to follow the steps.

    In the case of any changes in your relationship with the nominee, you must also remember to change the nominee in your insurance plan. This will ensure that the right person gets to benefit from your insurance payout.

What types of term insurance plans are available in India?

Below is an overview of the various types of term insurance plans available in India:

  • Level-term insurance

    This type of plan offers a consistent death benefit and premium that remains the same throughout the policy term. These plans are suitable for those seeking stable and predictable coverage for the long term.

  • Decreasing term insurance

    In a decreasing term insurance plan, the death benefit decreases over time while the premium remains constant. This type of policy can be suitable for people with declining financial obligations, such as loans with a short repayment term.

  • Increasing term insurance

    An increasing term insurance plan offers an increasing death benefit that grows over time. The premium in such plans may also increase at predetermined intervals. This type of policy is suitable for people with increasing financial needs, such as married couples waiting to have children or people getting married soon.

Conclusion

Term insurance is a vital financial tool that can safeguard your loved ones in your absence. Understanding how term insurance works can help you select a suitable plan that matches your goals. It can also help you make informed decisions after carefully considering your unique circumstances to ensure that the plan provides the necessary protection for your loved ones.

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` Life cover is the benefit payable on the death of the Life Assured during the policy term.

COMP/DOC/Jan/2024/111/5182

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