As per the Insurance Regulatory And Development Authority of India (IRDAI) statistics from 2019, India's insurance penetration is one of the lowest in the world at 3.69 percent. However, it has slowly been increasing since 2014. A report by the Indian Brand Equity Foundation suggests that this number will increase at a compound annual growth rate (CAGR) of 5.3 percent before 2023.
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Though Indians normally consider insurance a luxury, recent times have shown us how exposed we can be without them. With various plans in the market, it can get tricky to choose the apt plan. Term insurance is a good place to start evaluating your options.
Term Insurance - What is it?
Term insurance guarantees coverage for a particular period of time. If the insured passes away during the time mentioned in the policy, a death benefit is paid whereas, if they don’t, the term insurance can be renewed on the expiration of the previous one. The premium amount is recalculated at the time the policy is renewed based on the policy value (the payout amount) and factors like the insured's age, health, gender, pre-existing medical conditions, and medical history in general. A medical exam is generally performed to ascertain these details and the insurance company could also need to know the insured's occupation, smoking habits, family history, etc.
Most term insurance plans in India are available for people between the age of 18-65, the maximum maturity age differing from policy to policy but the usual being between 85-99 years. The policy term could be from 5-50 years and the sum assured could be from Rs 20 lakh to Rs 1 crore, or even higher.
The benefits of term insurance
Before you consider purchasing a term insurance plan, it's perhaps necessary to understand what it brings to the table. Here are some of the major benefits of term insurance:
Tax benefits - Tax benefits on term insurance premiums paid under Section 80C and Section 80D can be claimed. The lumpsum payout, which is the assured sum as per the policy, is tax-exempt, subject to Section 10 (10D) of the Income Tax Act.
Affordable premiums - Premiums are far more affordable for term insurance plans, which means that your returns are higher compared to the premium paid.
Comparatively higher coverage - Traditional life insurance policies (ULIP or otherwise) charge you 7-10 percent of the coverage amount as a premium. So if the yearly premium is Rs 10,000, the coverage of the plan is a mere Rs 1 lakh. Term insurance, comparatively, generally offers coverage for Rs 1 crore at premiums ranging between Rs 10,000 and Rs 20,000, giving you a bigger bang for your buck.
Can cover critical and terminal illness - If the critical illness is included in the term insurance plan, a lump-sum payout is received upon the diagnosis of any critical illness or terminal illness that is covered in the plan.
Features of term insurance plans
Perhaps one of the most prominent features of term insurance, as outlined earlier, is its affordability. Since term insurance plans are for a specified period of time, a specific amount is paid out and the premium gets locked in so the same amount will be charged year on year for the entire duration of the plan.
Another feature worth noting is the ease of purchase. The entire process, including providing documentation, is very simple and quick. It is possible to buy term insurance offline via a broker or an insurer but buying plans online is way more common.
Flexibility of payment is another prominent feature. The policyholder can choose when they want to make the premium payment, whether it is annually, semi-annually, quarterly, monthly, or weekly.
Staggered claims payout is an attractive feature of term insurance. As per this option, the policyholder can decide how the sum insured can be paid out, be it in lump sum, monthly, or annually. It could also be a combination of lump sum and income or an increasing income at the inception, making maintenance of the payout rather easy for nominees.
There are various types of term insurance plans available, like a basic level term plan or an increasing term plan, and a convertible term plan. The difference between all of them is how these different features play out as part of the policy so it’s important to research which type of plan you want and how the features work.
The dos and the don'ts
Authored by Lizzie Chapman, CEO & Co-founder at ZestMoney. Views expressed are personal.
First Published: Apr 4, 2022 2:39 PM IST
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