What Is Term Insurance?
Term insurance is a type of life insurance that provides coverage for a fixed period of time called a “term.”
In the event of the unfortunate death of the policyholder, term insurance provides financial protection to the policyholder’s family.
The insured has to pay the premium for the chosen term, otherwise, the policy will expire.
Term insurance is the basic life insurance everyone should have as it provides financial protection for your loved ones at an affordable premium.
The three main factors that affect the premium are the age of the insured, the sum insured and the term of the policy. The insured’s health and medical history is also taken into account when calculating the premium.
The sum insured is offered as a death benefit to the nominee in the event of the unfortunate death of the policyholder within the policy term.
In this type of insurance, the insured is not the beneficiary since the insured sum is paid to the nominee in the event of the death of the insured.
If the policyholder survives the policy term, he has the option to renew the policy with a new term, but the premium is calculated taking into account his age and health at the time of renewal.
Traditionally, term insurance does not provide survivorship benefits. But today, many insurance companies offer substantial benefits.
The entry age for term insurance is generally 18 years.
The term insurance premium can provide you with tax benefits under Section 80C Income Tax.
Some major insurance companies offer riders and add-ons that can be purchased for a modest premium increase.
Level Term Plans
Level term plans are the most basic and common form of term insurance available in the country. Under such a plan, the sum assured of your policy (life cover) and the premium will remain the same during the entire tenure of the policy. The premium of such a plan is usually determined on the basis of your age, gender, health and lifestyle habits. Almost all life insurance companies offer level term plans for their customers.
What are the Benefits of Buying a Term Insurance?
Term Insurance provides financial protection for your family in your absence by indemnifying the nominee with a lump sum amount or Sum Assured.
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Term Life Insurance Plans do not offer maturity benefits. Only Term Plans with “Return of Premium” (TROP) offer the maturity benefit which is the return of all paid premiums at the maturity in case the insured survives the policy term.
With your Term Life Insurance Plan you may opt for additional coverage or riders like Accidental Death Benefit, a Disability rider, Income benefit Rider, Critical Illness rider, etc. to give you added protection along with your base policy. The eligibility and grant of riders may vary from insurer to insurer.
Premium paid towards the Term Insurance Policy can avail tax benefits under section 80C and the proceeds of the insurance policy are tax-free under section 10(10D) of the Income Tax Act, 1961 subject to the terms & conditions laid in the Act.
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Claim Settlement Ratio – This is the most important metric to consider while choosing a life insurance provider. The metric tells us how many insurance claims were made and how many were received or paid to the insurer in a financial year, and it gives you a comprehensive idea of how likely your insurance claim is to be paid. This metric is important in determining the credibility of a life insurance company.
Term-based settlement of death claims – This is the second most important metric when choosing a life insurance provider. Term agreements for death claims help insurance buyers evaluate the efficiency of the claims settlement process. The higher the percentage of claims resolved in the shortest possible time, the better the experience for the insured’s family in the event of premature death of the insured.
Solvency Ratio: Solvency measures the ability of insurance companies to pay death claims. It is calculated as the ratio between the assets of the insurance company and its liabilities. An insurer becomes insolvent if his assets are not sufficient or cannot be settled in time, to pay the claims arising. IRDA ensures that Indian insurance companies have adequate creditworthiness. Therefore, insurance buyers must ensure that all insurance companies have the financial capacity to meet their liability if a claim arises.
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