What is Term Insurance Plans in India: A Simple Guide with Examples
In today’s world, life is full of uncertainties. One important way to protect your family and loved ones financially is through term insurance plans. This article will explain term insurance in India using simple language and easy examples, making it easy for everyone to understand. It covers everything you need to know about term insurance plans, their types, benefits, and how to choose the right one.
What is Term Insurance?
Term insurance is a type of life insurance that provides financial protection for a specific period, called the “term.” If the person insured (policyholder) passes away during this term, the insurance company pays a sum of money (called the “sum assured”) to the nominee or family. This money helps them manage expenses like daily living costs, education, or loans.
Think of term insurance as a safety net you buy for your family. Imagine Priya, a 30-year-old working woman, buys a term insurance plan for 30 years with a sum assured of ₹1 crore. If something happens to her within those 30 years, her family will get ₹1 crore to help them financially. But if she survives beyond 30 years, the policy ends without any payout, meaning it is pure protection without savings or investment. hdfclife
Why Should You Buy Term Insurance?
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For young working people: Buying early means paying lower premiums and getting more coverage. For example, a 25-year-old may pay less premium than a 40-year-old for the same coverage.
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For married couples and parents: It ensures your spouse and children can live comfortably if you’re not there to support them.
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For self-employed and businessmen: Your income may be unstable, but term insurance ensures your family is protected financially if you can’t earn due to death.
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For NRIs (Non-Resident Indians): NRIs can buy term insurance in India to secure the financial future of their family living there.
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Tax benefits: Premiums paid on term insurance are eligible for tax deductions under Section 80C of the Income Tax Act, and the payout is usually tax-free under Section 10(10D). iciciprulif
Key Features of Term Insurance Plans
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Sum Assured: This is the amount your family receives if you die during the term. It should be enough to cover your family’s future needs like education, marriage, and daily expenses.
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Premium: The amount you pay regularly (monthly or yearly) to keep the policy active. Younger and healthier people pay less premium.
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Policy Term: The number of years the coverage lasts. You can choose a term of usually 5 to 30 years, depending on your needs.
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No maturity benefit: If you survive the policy term, there is no payout in most standard term plans.
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Add-ons or Riders: Additional benefits like coverage for accidents, critical illness, or waiver of premium in case of disability.
Example: Raj, age 35, chooses a term plan with a ₹50 lakh sum assured for 20 years. He pays ₹5000 yearly. If he passes away during this time, his nominee gets ₹50 lakh. If he survives, no payout happens, but he remains financially protected. sbilife
Types of Term Insurance Plans in India
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Level Term Insurance: The sum assured remains the same throughout the policy term. Premiums usually remain fixed too. Most popular for straightforward protection.
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Increasing Term Insurance: The sum assured increases each year, often to keep up with inflation or changing financial needs. Premiums are higher compared to level plans.
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Decreasing Term Insurance: The sum assured reduces every year, often used to cover loans like home loans where the outstanding amount decreases over time.
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Term Insurance with Return of Premium (TROP): If you survive the policy term, the insurance company returns all the premiums paid. It’s like buying protection but getting your money back if you don’t claim.
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Convertible Term Insurance: You can convert this plan into a whole life or endowment policy later, which offers savings along with protection.
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NRI Term Insurance: Special plans designed for non-resident Indians with terms suited to their needs. bajajallianzlife
How Does Term Insurance Work? (Simple Example)
Meet Anil, a 28-year-old engineer. He buys a 30-year term insurance plan with a sum assured of ₹1 crore. He pays a monthly premium of ₹800.
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If Anil dies any time between ages 28 and 58, the insurance company pays ₹1 crore to his family.
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If Anil lives beyond 58 years, the policy ends, and no money is paid.
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Anil’s family will not have to worry about financial difficulties after his death during the policy term.
The idea is to protect your family with a large sum at a small cost when you need it most. iciciprulife
Factors to Consider When Choosing a Term Insurance Plan
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Sum assured amount: Choose according to your income, liabilities (like loans), and future goals. Financial experts often recommend 10-15 times your annual income.
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Premium affordability: Don’t overstretch your budget; pick a premium you can pay comfortably for the entire term.
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Policy term: Match the policy term with your loan tenure, children’s education, or retirement planning.
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Company reputation: Choose companies with high claim settlement ratios and good customer service.
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Riders: Consider add-ons like critical illness, accident cover, or premium waiver for extra protection. indiafirstlife
Common Terms Explained Simply
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Sum Assured: The guaranteed amount paid to family if death occurs.
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Premium: The amount you pay to keep insurance active.
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Nominee: The person who receives the payout.
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Policy Term: Duration of the insurance coverage.
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Maturity Benefit: The amount paid if you survive until the policy ends (usually no for term insurance).
How to Buy Term Insurance in India?
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Online: Most companies have websites and apps where you can compare plans, calculate premiums, and buy online quickly.
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Offline: You can visit insurance agents or company branches to buy policies.
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Documents needed: Identity proof, age proof, address proof, income proof, and medical reports if required.
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Medical Tests: Usually required to check health before policy approval.
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Payment: Pay premiums by online transfer, cheque, or auto-debit. iciciprulife
Benefits of Term Insurance Plans
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High coverage at low cost: Get a large sum assured at an affordable premium.
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Financial security: Helps family pay for education, loans, and daily expenses after your death.
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Tax savings: Premiums paid are eligible for income tax deduction.
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Peace of mind: Your family’s lifestyle is protected even without your income.
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Simple and transparent: Easy to understand without complex investment options.
Exclusions and Limitations of Term Insurance Plans
While term insurance provides important financial protection, it also has some exclusions and limitations that everyone should be aware of before buying a plan. These are situations or conditions under which the insurance company will not pay the death benefit to the nominee. Understanding these will help avoid surprises later.
Common Exclusions in Term Insurance
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Suicide Exclusion:
Most term insurance plans do not pay the sum assured if the policyholder dies by suicide within the first 12 to 24 months of buying the policy. For example, if Rahul buys a term plan and dies by suicide within a year, his family may not get the full insurance amount. Instead, they may receive only a refund of premiums paid minus some charges. -
Death Due to Criminal Activities:
If the insured person dies while committing a crime, or if the nominee is involved in the insured’s death (like murder), the insurer will not pay the claim. -
Death Under Influence of Alcohol or Drugs:
If a policyholder dies due to driving or acting recklessly under the influence of alcohol or drugs, the claim can be rejected. -
Death Due to Hazardous Activities:
Deaths during participation in high-risk activities like skydiving, bungee jumping, racing, or mountaineering may not be covered unless a special rider is bought. -
War or Terrorism:
Deaths caused due to war, riots, or terrorist attacks are generally excluded from coverage. -
Pre-Existing Medical Conditions:
If the insured did not disclose known medical problems like cancer, heart disease, or diabetes when buying the policy, the insurer can reject claims related to these conditions. -
Death Due to Childbirth or Pregnancy Complications:
Some insurers exclude deaths related to pregnancy or childbirth, so it's important to check policy details.
Limitations of Term Insurance
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No Savings or Maturity Benefit:
Unlike other life insurance plans, term insurance only offers protection. If you survive the policy term, you don’t get any money back. It’s purely for risk protection and not for investment. -
Coverage Ends After Policy Term:
Once the term ends, coverage stops. If the person wants lifelong coverage, other plans like whole-life insurance are more suitable. -
Premiums Can Increase with Age:
If you buy a term policy at an older age or renew it after expiry, the premium amount rises significantly. -
Limited Flexibility:
Term plans are less flexible compared to other insurance products. Riders and add-ons can help but may increase the premium.
Simple Example to Understand Exclusions
Imagine Anil buys a term insurance policy. If Anil suddenly dies in a car accident while driving drunk, his family might not get the insurance money because death under intoxication is excluded. But if Anil dies in a natural accident like a heart attack or a non-risky accident, his family will receive the sum assured.
Important Tips
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Always tell the truth about your health and lifestyle when buying a policy.
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Read the policy document carefully to understand exclusions.
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Choose plans with riders if you want broader protection.
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Keep paying premiums on time to avoid policy lapse.
Knowing these exclusions and limitations helps in making a smart and informed decision when buying term insurance. It ensures that your family will be truly protected without any surprises during claims
Frequently Asked Questions (FAQs)
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Can I surrender term insurance before maturity? Usually, no. Term insurance is pure protection without savings.
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What if I miss a premium payment? You get a grace period (usually 15-30 days) to pay; otherwise, the policy may lapse.
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Can I buy term insurance at older age? Yes, but premiums will be higher as risk increases.
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Are term insurance payouts taxable? No, death claim payouts are tax-free.
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How do I nominate beneficiaries? You fill in nominee details when buying and can update later if needed.
Conclusion
Term insurance is a simple and powerful way to secure your family’s future. It provides peace of mind knowing that your loved ones will have financial support if anything happens to you. By choosing the right plan, term, and sum assured, anyone can protect their family easily and at an affordable cost. Start considering term insurance early in life, so you can get the best benefits at the lowest premiums.
References
- https://www.hdfclife.com/term-insurance-plans/what-is-term-insurance
- https://www.iciciprulife.com/term-insurance/what-is-term-insurance.html
- https://www.avivaindia.com/insurance-guide/term-insurance/what-is-term-insurance
- https://www.pnbmetlife.com/articles/protection/meaning-and-types-of-term-life-insurance.html
- https://www.iciciprulife.com/term-insurance.html
- https://www.sbilife.co.in/en/knowledge-centre/insurance-basics-financial-advice/what-is-term-insurance
- https://www.tataaia.com/life-insurance-plans/term-insurance.html
- https://www.policybazaar.com/term-insurance/articles/what-is-term-insurance/