All you need to know about Term Insurance

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What is Term Insurance?

Term Insurance plans are a specific type of Life Insurance cover, wherein the policyholder is protected for a certain period of time. The death benefit which is assured to the nominee by virtue of the policy is granted, if and only if, the policyholder passes away during the term as decided by the terms of the policy. The goal of Term Insurance is, therefore, to secure one’s family’s needs in case of any form of uncertainty and death. In general, Term Insurance plans provide a specific amount of coverage for a pre-decided duration.

Cost of premiums in a Term Insurance policy is low:

When compared to a whole Life Insurance policy, the cost of premiums in most Term Insurance plans is significantly lower. The reason behind the low premiums is as follows: There is no investment component with a true Term Insurance policy. The entire premium goes towards covering the risk of unexpected loss. It follows that if the policyholder survives the terms set by the policy, with most Term Insurance policies, they cannot receive any form of a payout.

So, the risk of loss in Term Insurance is also higher compared to that of a traditional Life Insurance, which comes with a maturity benefit if the policyholder survives the term. The best Term Insurance policies, however, offer long term coverage until the age of 99 for extremely low premiums. However, not all term plans offer a payout if the policyholder survives. There may be some policies that promise to return the premiums once the policyholder survives.

Factors to determine the best Term Insurance plan:

Want to discover the best Insurance plans in the market? Here are some factors to consider when comparing policies offered by Insurance providers.

The reputation of the Insurance company: Is the insurance provider well established with a plethora of happy customers? How long have they been in the business of providing Term Insurance? How is their service regarded by their current customers?
Amount of Cover you need: Tally your liquid assets and long term financial obligations. Subtract the former from the latter and you can gauge the amount of cover you want from a Term Insurance policy. Your age and health are also critical in determining the duration of your policy, the cost of your premiums, and the amount of coverage you can get for the premiums you are paying.
Claim settlement ratio: One way to estimate the trustworthiness of your insurance provider is by checking their claim-settlement ratio. A claim-settlement ratio is an estimate of how often insurance claims are taken care of by the insurance provider. The higher the ratio the better and somewhere above 90% is considered decent.
Terms and Conditions: Always read the fine print of your Term Insurance policy before you decide to invest in it. These terms and conditions usually offer cases in which the term payout is not applicable. Almost all insurance providers do not provide the death benefit cover if the policyholder dies of certain special cases such as self-harm. Knowing the fine print will help you understand the ins and outs of the policy you are considering as a long term investment.

What affects the cost of Term Insurance premiums?

Similar to a Life Insurance, even the best Term Insurance plans discriminate based on age. The older you are, the higher your insurance premiums are likely to be. The risk of health concerns cropping up increases with age, hence the cost of premium increases. Similarly, your medical history is taken into consideration when you are applying for Term Insurance. The heavier your medical history of pre-existing illnesses — whether genetic or habitual — the higher your premiums could go. If you smoke, you may have to pay a lot more for your Term Insurance. Hence, the cheapest premiums are offered to young (starting at 18-years-old) non-smokers.

What is the tax benefit offered?

All Life Insurance policies — including Term Life Insurance — are exempt from taxation up to a maximum of Rs 1.5 lakh as per Section 80C of the Income Tax Act. Additionally, the death benefit or claim amount received by the nominee as well as any bonus received by the policyholder from their policy is also tax-free as per Section 10(10D).

Conclusion

Term Insurance is a smart way to secure the financial well-being of your loved ones in case of uncertain times that may take them away from your protective presence. ICICI Pru’s iProtect Smart is one of the best options available in the market. You can pay affordable premiums monthly, half-yearly or annually, as per your schedule with the ICICI Prudential iProtect Smart Term Plan.

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