FAQs about term insurance: What do you need to know?

Term insurance is a kind of life insurance policy that provides coverage at a fixed rate of payment for a specific amount of time, known as the relevant term. After the period expires, coverage at the prior premium rate is no longer assured, and the customer must either forego coverage or seek further coverage with different payments or conditions. If the insured dies during the term, the death benefit is paid to the designated beneficiary. Term insurance is important because it provides a large coverage amount for a modest payment, making it one of the most simple and cost-effective solutions to secure financial stability for one’s family in the event of an early death.

FAQs about term insurance policies

What is term insurance?

Term insurance is a simple type of life insurance that provides coverage for a specific period or term. Term insurance is bought by a policyholder when he or she chooses a term during which the policy is valid, for instance, 10 years, 20 years, or 30 years. If the insured individual dies during this time, the insurer pays a specific amount of money to the nominee as a death benefit. This type of insurance is purely for protection; it has no element of investment; thus, it is cheap for those who want huge sums of money in case of an accident.

Why should I buy term insurance?

Similar to health insurance, term insurance is very important to provide financial security to the family in your absence especially if you are the sole earner of the family. It is an insurance that can ensure that debts are paid, future education costs are met, and in case of loss of income, the family’s quality of life is not affected. Purchasing the best term insurance plan that is available in the market would help your family to be financially secure in case of any adversity.

Key features of the best term insurance plan

The ideal term insurance plan provides a large amount of coverage for a relatively small premium, making it affordable to most families. Some of the things to look for include –

Extensive coverage options – It offers additional benefits like critical illness riders and disability coverage.

Flexibility in premium payments – Single, limited, or regular terms for payment.

High sum assured – This is a large enough sum to cater for all the future needs of the beneficiary effectively. 

How much term insurance coverage do I need?

The extent of coverage that you require from a term insurance policy depends on your current earnings, obligations, and commitments. The rule of thumb is to have coverage that is 10-15 times your annual income. This estimation should also include future requirements such as inflation, children’s education, debt and other financial obligations.

What is the right age to buy term insurance?

The best age to buy a term insurance policy is as early as possible in life. Term insurance is cheaper when one is young and in good health to pay the premiums. It also helps you lock in a lower premium for the term of your policy, which gives you long-term protection.

How long should my term insurance coverage last?

Your term insurance coverage must ideally run until the time you expect to have some more liabilities. This is usually up to the retirement age or when the dependents are capable of fending for themselves. This duration makes sure that your financial obligations are met without having to pay more than what you need to in premiums.

What are the tax benefits associated with term insurance?

The premiums paid towards term insurance are eligible for tax deductions under Section 80 C. In addition, the amount paid to the nominee after the death of the policyholder is exempt from tax under Section 10(10D), which makes term insurance not only feasible but also tax-beneficial.

What are the common riders to add to a term insurance plan?

Riders can be attached to your term insurance policy to increase the coverage. Common riders include 

Accidental death benefit rider – Pays an additional amount to the nominee in the event of an accidental death.

Critical illness rider – Pays a cash benefit upon diagnosis of any of the specified critical illnesses.

Disability rider – Pays out a fixed amount of money if the policyholder becomes disabled due to an accident.

What happens if I survive the policy term?

If you outlive the policy term, the term insurance ends, and no amount is paid as it is purely a risk cover. Some plans have a feature of return of premium where the paid premiums are refunded if the policyholder survives the policy period.

How to convert a term plan to a whole life policy?

Some of the insurers permit policyholders to switch over from a term plan to a whole life or endowment plan. It can be helpful if your financial position and objectives evolve, and you need extended protection without passing a medical exam.

What are the factors affecting the premiums of term insurance?

The following factors may affect the premium rates of term insurance –

Age: Younger applicants pay less premium.

Health condition: Individuals with better health status get better interest rates.

Smoking status: Non-smokers can pay lower premiums.

Policy term and sum assured: The premium rises with longer terms and higher assured sums.

Added riders: The inclusion of riders leads to an increase in the premium paid due to the additional protection offered.

How to choose the right term insurance policy?

Before choosing a term insurance policy, consider the following questions – 

Claim settlement ratio: When the ratio is high, it means that the company is reliable and pays out claims as soon as possible.

Insurer’s reputation: Select an experienced insurer with good financial standing.

Customer support: Effective customer support makes the claim process more seamless.

Why is medical examination essential for insurance plans?

The majority of the term insurance policies demand a medical examination to evaluate the risks and decide the premium. It assists the insurers in giving the best rates depending on the status of the health of the person.

What is the impact of smoking on premiums?

Smokers are categorised as high risk because they are more likely to be affected by health complications and thus are required to pay more in premiums than non-smokers.

What is the importance of the claim settlement ratio?

The claim settlement ratio is one of the most important factors that determine the credibility of an insurer. It shows that how many of the claims have been paid by the insurer; a higher figure shows better reliability and service in honouring the claims.

The importance of availing of term insurance

Securing a term insurance policy is a step towards ensuring that your loved ones are financially secure in your absence. With affordable rates and extensive coverage, term insurance provides mental peace and stability. Given the uncertainty of life, it is best to buy term insurance as soon as possible. Delays might result in higher rates and possible health-related exclusions. Prioritise your family’s future by purchasing a term insurance policy today, ensuring that they have the financial help they need during tough times.

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