What is Term Insurance? – Meaning, Benefits, Basics & Types

What is Term Insurance While our lives have never been stable or predictable, this pandemic has shown us just how uncertain life and death is. People have lost their loved ones everyday as we battle covid19 and the last thing we would like to do is leave our loved ones with financial burdens and incomplete financial dreams.  As a popular saying goes, “You don’t buy life insurance because you are going to die, but because those you love are going to live.” A term insurance plan is the simplest, most perfect way by which you can secure your family’s future. A term insurance policy safeguards your family against an untimely death of the life insured by providing them a lumpsum settlement.  Today we will discuss: 
  • What is term insurance
  • Important Terms Relating to Term Insurance Policies:  
  • What are the benefits of term insurance
  • Which is the best term insurance policy

What is Term Insurance?

Term insurance is a type of life insurance policy which protects the insured for a specified period of time. If the life insured dies during this specific period of time, then a lumpsum death benefit is paid to the nominees.  A pure term insurance policy has no maturity value. So, if the insured does not die within the specified term period, then no cash benefit is paid to the nominees.  Apart from being the simplest, term insurance, is also the cheapest insurance cover. It is often taken on the life of the bread earner of the family.

Important Terms Relating to Term Insurance Policies:  

1. Insured: Insured is the person on whose name the life insurance policy is taken. Also known as policyholder, if the insured dies within the policy term then his nominee is eligible to receive the death benefit.  2. Sum Assured: The value of the policy is known as sum assured. It is the amount receivable by the nominee post the death of the insured within the policy term.  3. Premium: Premium is the amount paid to the insurance company for covering the risk. It can be paid on a monthly, quarterly, half-yearly or annual basis.  4. Nominee: Nominee is the person or persons who will receive the sum assured post the insured’s death. 

What are the Benefits of Term Insurance

Apart from being an important risk management tool for securing your loved ones future, term insurance policy also provides the following benefits 1. Large death benefit against meagre premiums: You can get a 1 crore term insurance cover by only paying a premium of Rs 500 per month!  2. Additional Critical Illness cover:  Apart from death, you can also get a term insurance cover against critical illnesses like cancer, heart ailments and temporary or permanent disabilities due to accidents.  3. Tax Benefits: The premium paid for a term insurance policy can also be claimed as a deduction under section 80c of the Income Tax Act, 1961.  4. Special Discounts: Special premium discount is offered to non-smoking males and female policyholders.  5. Starting Early: Policyholders in their 20s are offered very low premiums and at times term insurance policy is issued even without a medical test.  6. Financial Liabilities: A term insurance policy also takes care of loans and other financial liabilities. 

Which is the Best Term Insurance Policy?

Let us still look at the various types of term insurance plans in India:  1. Convertible Term Insurance Policy: This policy can be converted into a whole life or permanent life cover without fresh medical tests.  2. Increasing Term Insurance Policy: A ‘increasing term’ policy allows you to increase your sum assured at regular intervals. The premiums increase accordingly.  3. Mortgage Term Insurance Policy: This policy is generally issued against home loans as the sum assured keeps on decreasing in line with the reduced home loan.  4. Return on Premium term insurance policy: As the name suggests, the premiums are returned to the policyholder if he does not die within the policy term. A return on premium term insurance policy is more expensive than a traditional term insurance policy While there have been many innovations in term insurance plans but still the best term insurance policy is a pure term insurance policy

Final Thoughts: 

While we work tirelessly for the happiness of our family, it’s really sad to see that in India people still consider term insurance as a waste of money. Their argument being that if they don’t die within the term period, then all the invested premiums go to waste.  But what if you die within 3 years and your family still gets a death claim of crores? Isn’t that the core of all this? Securing your family against uncertainties of life like death!  Remember, insurance should always be kept separate from investments. Insurance is simply a way to cover your risks. That's it! You are not supposed to make money through insurance.  Your goal should be to make money through investments like stocks, mutual funds, etc but not insurance.  To safeguard your family after your death buy a term insurance policy today To safeguard your family when you are alive, invest in productive investment avenues like shares, mutual funds etc by opening a 3-in-1 Samco Demat and trading account.  As they say, “Prepare the umbrella before it rains.”

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