A Detailed Guide to Term Life Insurance

21st Dec 2020 | 10 min |

The impact of the coronavirus pandemic has made us realise the importance of being prepared for uncertainties. People are now increasingly looking to buy a good life insurance policy to safeguard their family’s future. Traditionally, a life insurance plan entailed two simple things - optimum life cover for the insured and financial safeguard for the insured’s family. However, the developments and expansion of the life insurance sector have brought in a wide variety of life insurance products. If you want to buy life insurance today, then you can choose from whole life covers, endowment covers, money-back policies, pension cover with monthly income, and so much more.

For a beginner, it is easy to get confused by the aforementioned types and choices among life insurance plans. So, let us explain the simplest, purest form of life insurance cover you can buy to ensure a high coverage at affordable premium rates - the Term Life Insurance plan.

 
What is Term Life Insurance and How does it Work?

A Term Life Insurance plan is the most basic as well as an affordable form of life insurance coverage. It pays out a pre-determined sum of money (called Sum Assured) to surviving family (nominees) of the insured person in case of his/her unfortunate death during the term of the policy .

 

As the name suggests, Term Insurance plans are valid for a specific “term.” The coverage is valid for a pre-determined period of time called policy term. If the policyholder survives the policy term, in most cases, no benefits are paid. However, a variant of the same, called Term Plan with Return of Premium ((popularly called TROP), is also available that pays back the premiums paid to the policyholder on survival till the end of the Policy Term.

 
What are the Different Types of Term Life Insurance?

Term Life Insurance plans in India are available in multiple variants. One can avail a specific type of Term Life cover based on their individual insurance needs: 1. Level Term Plans – a fixed sum assured throughout the policy tenure 2. Increasing Term Plans – the sum assured increases every policy year in tune with the increasing responsibilities 3. Decreasing Term Plans – the sum assured decreases every year to match the decreasing insurance needs, typically purchased to cover outstanding loan liabilities. 4. Term Plans with Return of Premium* – the total value of premiums paid by the policyholder is paid back as a ‘maturity benefit’ in case the insured survives the policy term It is imperative that you go through the offerings of the insurance company and choose the one that best suits the financial needs of your family.

 
Point to Consider While Purchasing Term Life Insurance?

It is essential to go through these questions to make an informed choice:

 

  • How much Cover/ Sum Assured is needed: This is the death benefit that is paid to the beneficiaries after the demise of the insured life. The sum assured should be finalised carefully taking into account the financial needs of the dependents, lifestyle of the family, outstanding liabilities and also accounting for the inflation.
  • Cover duration/ Policy Term: This indicates the number of years for which the insured is covered by the term insurance policy. The tenure should be determined based on expected earning years,age of the dependents, expected duration of financial liabilities, etc.
  • Claim Settlement Ratio: This is one of the most critical determinants of the reliability of the insurance company. Claim Settlement Ratio shows the percentage of claims assessed through methods provided by IRDAI (Insurance Regulatory and Development Authority India) that the insurer has settled against the total claims they received. Look for an insurers with reasonably high claim settlement ratios.
  • Riders: Riders are added benefits with a Term Insurance plan which can be availed on the payment of additional premium. Typical coverages include accidental death benefit, critical illness cover, cancer cover, etc.
 
How much Term Insurance Cover is Ideal?

As a general rule of thumb, a person should buy a Term Life cover that is at least 8 to 10 times their yearly income.
For instance, if an individual earns ₹8 lakhs today, their Term Insurance coverage should be between ₹64 lakhs to ₹80 lakhs.
However, this number should increase in case the insured has liabilities, the burden of which will fall on the family in case of the insured’s demise. In the case of loans and liabilities, the Term Insurance coverage should also include the total outstanding liabilities.
In case the financial dependency on the individual is more, for instance if the individual has dependent parents, spouse and children, the cover amount should be dialled upwards appropriately.

 
How to Buy a Term Plan?

In India, you can buy a Term Insurance policy both through online and offline methods. With the prevalent social distancing norms and emphasis on ‘no-contact’ transactions in the post-COVID world, it is advisable to buy Term Insurance online.

 
Following is a step-by-step Term Insurance buying guide:
  • Ascertain your life insurance need/ Sum Assured required using Human Life Value calculators readily available on most life insurers’ webpages.
  • Find a term insurance plan that suits your requirements best – budget as well as coverage. Don’t forget to check out their claim settlement ratio.
  • Read the product brochure / sample policy document carefully before buying. Understand the inclusions and exclusions of the policy, the extent of coverage and other details.
  • Term plans can be purchased from the websites of most life insurers. So, visit the website, go to the relevant product page and provide the necessary details in the buying link for premium quotation followed by application and pay the premium amount. By purchasing a term plan online, you can avail the benefit of choosing from multiple premium options.
  • In the buying journey, you would be able to select the type of coverage, the riders, premium payment method, benefit payout method etc. to tailor the plan as per your specific needs.
  • The application process would typically ask a set of questions regarding your health, past medical history, occupation and income range. This could be followed up by a telephonic conversation with underwriters who could ask additional questions on the above. In some cases, you may be required to undergo medical tests. The same can be scheduled during the buying journey.
  • Upload all the necessary documentation, typically, age, address and income proof.
  • The insurance company will go through the information provided and the documents submitted. On approval, the Term Insurance policy will come into force and the policy document shared with you.
 
Term Insurance Plan from Tata AIA

Tata AIA Life Insurance is one of the leading names in the life insurance segment in India. Along with the trustworthiness of the TATA brand, Tata AIA offers:

  • 99.06% Claim Settlement Ratio
  • Life Cover up to 100 years
  • Return of Premium option
  • Tax benefits as per applicable Income Tax Laws
  • Lower premium prices for female policyholders
  • Flexible premium payment options – Limited, Regular and Lump sum
  • Attractive riders to choose from
 
Following are the Term Insurance Plans offered by Tata AIA:
 
1. Tata AIA Life Insurance Maha Raksha Supreme (UIN: 110N102V03)

One of the umbrella protection plans from Tata AIA, Maha Raksha Supreme plan offers varied choices to offer an all-round coverage for the family:

  • Inbuilt Payout Accelerator which pays 50% of the Basic Sum Assured if the policyholder is diagnosed with a Terminal Illness
  • Life Stage Plus benefit to increase coverage over and above Basic Sum Assured chosen at future milestones in life. The Life Stage Plus Option can be selected only at inception of the Policy.
 
2. Tata AIA Life Insurance Sampoorna Raksha (UIN: 110N129V05)

A pure Term Life Insurance plan, Sampoorna Raksha by Tata AIA offers the perfect combination of extended life cover and affordable premiums.

 
3. Tata AIA Life Insurance Sampoorna Raksha+ (UIN:110N130V05)

An attractive Term Insurance plan from Tata AIA, Sampoorna Raksha+ offers: • Return of Premium if the policyholder survives the policy term • Two death benefit payout options – Sum Assured on Death (Lump sum) or Sum Assured on Death (Lumpsum) plus Regular Monthly Income (up to 10 years)

 
4. Tata AIA Life Insurance iRaksha TROP (UIN: 110N106V02)

A pure Term Insurance plan from Tata AIA Life, iRaksha TROP offers the dual benefits of Return of Premium and optimum financial protection

 

Summing Up

One always strives to secure the lives of their near and dear ones, and a Term Life Insurance plan is the perfect way to do that. To buy the best Term Insurance policy, it is crucial to know what term insurance is and the benefits it offers, along with the various features and inclusions that should match one’s financial needs. Therefore, before buying a Term Insurance plan, assess the specific insurance requirements, , look at the Term Insurance benefits and inclusions, and finally choose the suitable plan.

Need help in choosing the right plan?
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Disclaimer
  • Individual death claim settlement for FY 2019-20 as per audited financial statements.

  • Rider is not mandatory and is available for a nominal extra cost. For more details on benefits, premiums and exclusions under the Rider, please contact Tata AIA Life's Insurance Advisor/ branch.

  • Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfillment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implication mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.

  • Return of Premium feature is available in Tata AIA Life Insurance Sampoorna Raksha+ and Tata AIA Life Insurance iRaksha TROP plans, where Total of all the premiums received, excluding any extra premium, any rider premium and taxes and excluding loading for modal premiums (if any), will be returned on survival till maturity.

  • Insurance cover is available under the products.

  • The products are underwritten by Tata AIA Life Insurance Company Limited. The plans are not guaranteed issuance plan and it will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read Sales Brochure carefully before concluding a sale.