What is a Term Insurance Plan?

Term Insurance policies are life Insurance policies where the insurer pays an assured death benefit to named beneficiaries, usually family, at the time of death of the policyholder. This contract is maintained in lieu of a regular premium paid to get coverage for a fixed number of years or term.

There is no savings component or return upon maturity. The insurance cover is valid only upto a fixed 'term' and if the policyholder expires within that term, the beneficiaries receive a death benefit only. If death takes place after the 'term' of the policy has ended, no death benefit can be availed.


At the end of the term, you can choose to renew your term insurance plan and the premium will be adjusted and recalculated, taking in factors of age, health and general lifestyle. A term insurance plan can be a safety net for you and your family in case of an uncertainty.


Term insurance plans offer one of the highest coverage at the lowest premiums amongst all other types of life insurance policies out there. This is because a term life insurance plan is only valid for a restricted time and even on claim, doles out only a single, death benefit. The simplicity of a term insurance plan makes it a popular choice amongst Indians today.


A Term Insurance plan is the simplest and easiest way to ensure that your family's financial needs like monthly expenses and annuities are catered for in case of an eventuality leading to sudden death of the policyholder. A term plan can also take care of future needs like the expense for higher education or marriage of a child.

Calculate
Term Insurance Premium

What are the benefits of a Term Insurance Plan?

While there are various kinds of life insurance policies available, like endowment plans or whole life insurance plans, keeping in mind investment and savings, the main purpose of a life insurance policy should be financial security for family, in case of an untimely death or eventuality.

This is the main feature of a Term Insurance Plan and hence, they're also called Pure Protection Plans. Besides being easy to understand and simple to avail, there are a number of benefits of term life insurance too !

  • Financial security for Family : The returns on a term life insurance policy can help take care of your family's regular expenses. This is especially relevant if you are the sole earning member in your family. A term insurance plan offers a regular payout to family to take care of home and personal expenses in case of untimely death of policyholder. The payout can also be used to fulfill goals of higher education, investments or children's marriage.
  • Safety for loans and other assets: Another benefit of a term insurance plan is that it makes it easier for you to take out a personal, car or home loan. Term insurance plans act as safety for a loan, i.e, in case of an emergency or untimely death, the family can repay the loan using the term insurance death benefit pay-out and rid themselves of any debt. Thus, term life insurance policies can help take care of your debt without burdening your family or affecting their lifestyle.
  • High Cover at a Low Premium Cost : Term life insurance premiums are one of the lowest premiums you will pay ! These are pure protection plans for a restricted term and offer a single return as a death benefit. Thus, there is low risk to the insurer in a term insurance plan as compared to a permanent life insurance policy or endowment plans. This is why term insurance premiums are always low, fixed and affordable.

    Better yet, the benefit of a term insurance policy is that you can get substantially higher coverage at one of the lowest available premium rates! Some term insurance policies offer a Total Return Of Premium (TROP) option with a 105% return upon maturity of policy.
  • Cover Critical Illness Care: Having a term insurance plan can come in handy in the unfortunate event of diagnosis of a critical illness. A benefit of term insurance plan is that it also offers life insurance cover along with protection when a critical illness like cancer or heart problems are first detected.

    The term insurance policy will provide a lump sum amount when an illness pre-specified in the term insurance policy is first diagnosed. Most insurance policies have a standard list of illnesses they cover (heart-attack, cancers, kidney failures, stroke and paralysis, organ transplant etc.) which can vary to some extent. It is prudent to read through the list of illnesses and other policy documents carefully. The critical illness protection is a 'rider' in term insurance plans which can affect the rate of premium.

    Modern lifestyles can lead to habits like alcohol and tobacco use. These habits may prevent you from getting a reasonable health insurance cover and the high premium costs may burn a hole in your pocket. Moreover, if unfortunately a critical or terminal disease like cancer occurs, the cost of healthcare may drain you and your family of your entire savings. Additional riders like an Accelerated Death Benefit Rider on a term insurance plan can prevent such circumstances.
  • Attractive Tax Benefits: Term insurance plan premiums attract tax deductions of upto a maximum limit of ₹1.5 Lakhs per year*. The death benefit received in case of untimely death is also exempted from tax under Sec 10 (10D) of the Income Tax Act, 1961. There are some term insurance policies like TROP term insurance which offer a return at the time of maturity. These maturity benefits also enjoy a tax benefit under Sec 10 (10D) of the IT Act. Also, there are some additional tax benefits which can be availed in case of critical illness riders attached to term insurance policy

Why should I choose a Term Insurance Plan?

Term Insurance plans have multiple benefits as mentioned above. The crux of a term insurance plan lies in providing financial security to your loved ones in case of an unprecedented event. While there are various ways to ensure financial growth via investments, it is also important to create a safety net for uncertain times. Term insurance plans are an easily understandable and accessible medium for minimising financial liabilities on family while also securing your own life.


There are various reasons which can be catered for by a term insurance plan. Let's explore the reasons for choosing a term insurance plan :

  • Simplicity : Term insurance Plans are popular because of their simple nature and great return. There is definitely less jargon to deal with as there are no complex clauses explaining risks or dividends ! Since term insurance policies are Pure Protection policies, their main purpose is to take care of a family's financial needs in case of an untimely demise.

    Other life insurance policies or endowment plans are Cash-Value policies which require careful analysis of how a portion of the premium is to be divided for a risk cover and the rest is invested to generate an earning. This can be overwhelming for many laymen who do not understand the workings of the market.

    The Term Insurance Plan on the other hand is quick and simple to understand . A term insurance plan benefits the family in case of the policyholder's untimely death. There is a single death benefit paid out to the nominee selected at the time of purchasing policy. There is no other savings component or maturity benefit.

    Renewing a term policy is a simple affair where the premium is usually recalculated and adjusted at the end of term. The term policy is convertible into an endowment policy at renewal too. Opting out or cancelling of a term policy is also an easy affair as the policy cover ceases if you stop paying the premium. There is no return as there is no saving component and the policy is simply cancelled.
  • Low and Fixed Premium: Term insurance policies are a steady and reliable option for those on a budget. The low premiums can ensure financial protection in an emergency which doesn't burn a hole in your pocket. Term insurance premiums are low because the term insurance cover is offered for a restricted period of time. Most of the time, people outlive their policies which translates into no payout from the insurer and sometimes, a return of the premium charged (in case of TROP plans) to the policyholder. It's a win-win!

    The premium decided at the time of purchase of policy remains unchanged throughout the term of the policy, i.e, the premium is fixed for a term insurance policy. This is a major advantage of term insurance premiums as you are safe from annual premium hikes and your loved ones are protected by a safe and cost-effective insurance policy.

    For Example :

    Mr Sushil, a 30 year old working professional can get a level term insurance policy for 20 years with a sum assured of ₹10Lakh at a premium rate of ₹3000 paid annually.

    If Mr Sushil purchases an endowment policy with the same sum assured without profits but with the same death benefit as in term insurance, his annual premium will be over ₹30,000.

    If Mr Sushil purchases an endowment policy with profits for the same death benefit, his annual premium will be over ₹50,000 per year.

    Thus, term insurance plans offer a steady, standard financial protection for a fixed term at a low price.
  • Rider Benefits : Term Insurance plans offer additional options or rider benefits in case of contingencies like an accident or a critical illness. There are majorly 6 types of riders offered with term insurance plans.

    • Accidental Death Benefit Rider: This is a benefit offered wherein if the person passes away due to an accident, an additional sum is paid to beneficiary, which is over and above the assured sum received as death benefit. In case of normal death, only the assured sum is paid out to the beneficiary.
    • Accidental Disability Rider : This rider comes into effect only in case the person is disabled due to an accident. A certain percentage of assured sum is paid as regular income by the insurer to the beneficiary for a specified amount of time. The disability must have occurred in an accident for this rider to become effective.
    • Accelerated Death Benefit : If unfortunately, the policyholder suffers from a terminal illness wherein money is needed to take care of medical expenses, a lump-sum amount is paid out in advance for medical care.
    • Critical Illness Benefit : If a person is critically ill, it can affect their income and the family's overall finances. This rider assures a lump-sum payout in advance when a critical illness , as listed in the policy is first diagnosed.
    • Waiver of Premium Benefit :This rider ensures that your term policy remains active even if you are unable to pay future premiums due to loss of income or disability.All future premiums are waived off if this rider is in place.
    • Income Benefit :This is an additional benefit wherein the family receives an extra income over and above the assured sum for a specified number of years. It ensures a regular source of income for some time, in case of untimely death.
  • Online Facilities : You can buy term insurance policy either Offline or Online. The benefits of term insurance plans available online are plenty. You can make a more informed decision by first comparing the various term insurance plans offered by the companies (level term, group term , TROP term, standard term etc.). Then choose an increasing, decreasing or convertible plan type to supplement your life insurance goals. And finally , you can compare the various premium rates offered by all major insurance providers. While purchasing a term insurance policy online, you can even avail discounts and bonuses, which are not available in an offline transaction.
    Online purchase of a term insurance policy removes the middleman or 'agent' fee along with offering a higher sum assured than offline branches. Also, in many cases, medical tests are not required to purchase an online policy for a sum assured under ₹50 Lakhs. Online policy purchases are more transparent, convenient and reliable.
  • Good investment for individuals starting a business : Although term insurance plans are not usually considered for investment growths, there are certain benefits like tax exemptions under sec 80C and 10(10D) of the Income Tax Act, which make term insurance plans a steady investment.
    For individuals who are young and venturing into business or a Startup, buying a term insurance policy is a better investment than buying a cash-value policy with high premiums. This can help save insurance cost spent on cash value policies and you can use the capital for business development.

FAQs about Term Insurance Benefits :

Term insurance policies are a corpus you maintain to help your family maintain expenses in case of an untimely death. However, there is no 'magic number' for the right cover amount for you.

You can reach an approximate value for the right term insurance cover amount with a little exercise :

  • 1. Sit down and calculate your personal and family expenses along with your future plans and insurance needs.

    EXAMPLE YOUR FIGURES
    A Age 35
    B Numbers of dependents 3
    C Annual income ₹ 12 lakh
    D Household expenses(annual) ₹ 6 lakh
    E Less:Expenses on insured person* ₹ 1.2 lakh
    F Number of years family will need funds(60-A) 25
    G CORPUS NEEDED TO COVER REGULAR LIVING EXPENSES (D-E) x F ₹ 1.2 crore
    ADD OUTSTANDING LOANS TO THIS FIGURE
    H Home loan ₹ 50 lakh
    I Car loan ₹ 7 lakh
    J CORPUS NEEDED TO PAY OFF LOANS (H+I) ₹ 57 lakh
    ADD THE AMOUNT YOU NEED FOR FIGURE BIG-TICKET EXPENSES
    K Children's education ₹ 20 lakh
    L Children's marriage ₹ 15 lakh
    M Retirement/Contingency needs of spouse over time ₹ 7 lakh
    N CORPUS NEEDED TO MEET LONG-TERM GOALS (K+L+M) ₹ 45 lakh
    REDUCE THE TOTAL FIGURE BY THE EXISTING INSURANCE COVER AND ASSESTS
    O Existing assest** ₹ 23 lakh
    P Existing life cover ₹ 2 lakh
    Q Total ₹ 25 lakh
    INSURANCE COVER NEEDED (G+J+N)-Q ₹ 1.97 crore
  • 2. Calculate your dependent family's monthly expenses and multiply it by 150 (to factor in inflation).
  • 3. Add your personal financial liabilities like home or car loans, credit card debt etc.
  • 4. Subtract your liquid assets like FDs, Mutual Funds, Bonds etc.
  • 5. Add expenses planned for future milestones, up to 15 years, like your child's education and marriage.
  • 6. Add the retirement amount you would like to leave behind for your spouse.
Total Insurance Cover That You Would Need
Monthly Expenses× 150 times
Expenses/ Investments Examples
Liabilities (+) Home Loan, Personal loan, Credit Card
Liquid Assets (-) Fixed Deposits, Stocks and Mutual
Future Expenses (+) Children’s education, Children’s Marriage
Retirement Corpus for Spouse (+) Retirement Corpus

There are various human life value calculators available online to help determine the right cover amount for you. Although these are rudimentary calculations without an exact science, this exercise can help you visualize the big picture of your financial aspirations.

The sooner you invest, lower the payout and higher the returns !

Insurance, of any kind, should be a priority right from the start of your career. The sooner you get into the habit of prioritizing your finances, the better your returns on investments. Similarly, term life insurance policies should be purchased when you are a young, healthy individual. This ensures that you get a low premium because age is on your side and you also help financially secure your dependent family, like your ageing parents.

As you expand your family with spouse and children, a term insurance plan is a smart investment to help protect your family's future expenses in case you're not around. If you're close to retirement and your children are financially secure, you can look into other cash value instruments instead of a term insurance plan to help build a better corpus.
Choosing the right tenure of your term insurance plan is very important. Your policy term should not expire before your retirement, i.e, you should have a cover till the time you intend to work, which could be up to 60-65 years. There are also policy covers which last almost a lifetime, i.e, offer cover upto 90 years of age. However, such a policy will have a substantially high premium which isn't feasible.

If you buy a policy at age 30 with a tenure of 20 years, your policy term will come to an end when you are merely 50 years old. So, with a number of years to go before retirement, you will be left financially vulnerable. Even if you set out to purchase a new policy, the premiums will be very high , factoring in your age and in case you have a pre-existing health issue, it might drive the cost up further !

Thus, it is recommended to have a term policy with a term as long as it takes you to build enough assets or financial worth to take care of your family. Thus, in case of a health condition or untimely demise, your family is financially secure with a substitute income. If you choose a policy with a long term cover , like 80-90 years, the premium cost will be substantially high.

Here are a few key differences between a Term Insurance Plan and a Life Insurance Policy :

Term Insurance Plan Life Insurance Plan
Death benefit Only,i.e, sum assured paid to beneficiary upon death of policyholder.
No Survival Benefits
Death + Savings Component (return on policy if policyholder survives after completion of policy tenure)
Low, Affordable Premium Amount High Premium Amount
No Maturity Benefit Maturity Benefit on completion of duration of policy.
Flexibility in Cancellation of policy with no financial loss. Low Flexibility. If the policy is cancelled before tenure, you forfeit maturity benefit leading to financial loss.
Total Return On Premium (TROP) option available No return on premium
Pure Protection or Life Cover Life Cover + Investment options
For example: Endowment Plans, or Unit Linked Insurance Plans (ULIP) etc.

Disclaimer:
The article is meant to be general and informative in nature and should not be construed as solicitation material. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a sale.

*Tax benefits are as per the Income Tax Act, 1961, and are subject to any amendments made thereto from time to time’

Get Quote