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What are the Different Types of Term Insurance ?
Term insurance plans are often known as the purest form of life insurance that offers individuals and their families comprehensive financial protection against life's uncertainties. These plans are often considered the first step in financial planning.
However, you may be wondering what type of term plan you should purchase. To help you understand this, let us look at the different types of term insurance policies in detail to help you choose a Tata AIA Term Plan best suited for you.
Table of Content
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What is a Term Insurance Plan? -
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Different Types of Term Insurance Policies -
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Benefits of Term Insurance -
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How to Choose Between the Different Types of Term Insurance Plans?
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Factors to Consider Before Purchasing a Term Insurance Policy -
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How to Purchase Term Insurance Online? -
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Frequently Asked Questions (FAQs) About Types of Term Insurance
What is a Term Insurance Plan?
A term insurance policy is an agreement between the life insured and their insurance provider, where in the case of the life insured's untimely demise, a specific sum - known as a 'death benefit' is paid to the insured person's nominee by the insurance company.
However, it should be noted that when a term plan matures, the life insurance coverage on the policy ends with it. In other words, the policyholder does not get their money back if they outlive their term plan. In case of Return of Premium plans, the policyholder will get the premium amount back. A term plan merely offers coverage for the purchased policy tenure regardless of whether it was used or not.
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Different Types of Term Insurance Policies
Term insurance plans are basic plans that make life insurance more affordable, and they are for everybody, be it a salaried employee or a businessperson. They are recommended for people in their 20s and 30s as it provides high coverage and lower premiums for people in their 20s, while people in their 30s receive protection for their growing families and coverage against liabilities and financial uncertainties.
Terms plans are also excellent for people in their 40s and 50s as they provide coverage for responsibilities like children's education while allowing them to plan for retirement. Moreover, there is no one-size-fits-all approach when it comes to term insurance. Therefore, there are different types of term insurance policies that must be considered while planning your finances.
Level Term Plans.
Increasing Term Insurance.
Decreasing Term Insurance.
Term Insurance with Return of Premium.
Convertible Term Plans.
These term plans are divided based on their premium rates, sum assured, and whether or not they provide a maturity benefit to policyholders that survive their term plans. Let us take a closer look at these term’ plans.
Level Term Insurance Plans
Level Term Insurance plans are life insurance policies where the policyholder pays fixed insurance premiums throughout the policy tenure. This is a basic term plan that is referred to in our definition of what a term insurance plan is.
It is also known as a level premium term plan and guarantees a fixed death benefit under its policy terms. They often last from 10 to 30 years and can even be as short as 5 years, depending upon the policyholder's requirements.
Level plans are generally the more cost-effective variant among the types of term insurance policies. As stated, they pay a death benefit to the policy nominee in the event of the policyholder's untimely demise during the policy's tenure.
However, their premium rates will depend on the policy tenure. For example, a 5-year level term plan will be cheaper than a 15-year level term plan as it provides coverage for a short period, while longer policy tenures are more suited for individuals with long-term financial plans.
Increasing Term Insurance
Under an increasing term insurance plan, the sum assured chosen on policy purchase increases yearly by a specified amount or percentage. This type of term insurance plan is designed to consider inflation and other changing circumstances.
This increment for the sum assured is decided on policy purchase and stays the same throughout the policy tenure. The increase could be at a simple rate or a compounded rate for percentage increments. A simple rate is usually the norm.
Some increasing term plans have a maximum limit to the increment in the sum assured, and these increments stop after the maximum limit is reached, even if the policy tenure continues.
Despite the increasing sum assured, the premiums under increasing term plans usually remain the same throughout the policy tenure. The insurance company considers the increase in the sum assured amount while calculating the premiums beforehand, so premiums are uniform.
Generally, the premiums paid in the initial years are higher to compensate for lower premiums when the sum assured increases over time.
Compared to a level term plan or a decreasing term insurance plan, the premiums for an increasing term insurance plan are higher. The sum assured is usually paid as a lump sum. However, some newer increasing term plans offer a lump sum payout of the death benefit, while the rest of the amount is paid annually or monthly for a specific period.
Decreasing Term Insurance
As the name states, a decreasing term plan is where the sum assured amount will decrease by a certain percentage every year. In other words, it is the opposite of an increasing term insurance plan.
Although the death benefit gets reduced each year, the premiums for this term plan stay the same. The insured gets to choose the original sum assured amount, which will decrease every year of the policy tenure - which the insured also chooses.
The premium rates for this plan are also generally lower than other types of term insurance plans and can even be lower than premiums of term plans where the sum assured stays the same.
On maturity, the sum assured is zero, and upon the insured's passing, the nominee gets the applicable sum assured for that year. A decreasing term plan is beneficial if the nominee or the insured's family members are expected to need less financial support as time passes gradually.
Term Insurance with Return of Premium
A term insurance plan with a return of premium (ROP) works the same way a normal term plan. The main difference between the two lies in the maturity payout of the TROP.
Under the term plans with Return of Premium (ROP), the insured will be eligible for a return of premium at the end of their policy tenure if they survive the term plan. They will get a return payment of all the premiums they paid for during the policy tenure. This is an assured payment under the plan.
Moreover, if the insured individual passes during the policy tenure, their nominee gets a dual benefit payout of the death benefit and ROP payment. The ROP payout is received as a maturity benefit and is tax-exempt.
Like other term plans, the insured chooses the sum assured amount and policy tenure and pays the premiums accordingly. They also come with additional benefits like disability benefits, accidental death benefits, and protection against critical illnesses.
Convertible Term Insurance
Convertible term insurance plans allow the insured to change a term policy into a life or universal policy without going through the health qualification process again. It is a regular term plan with an added feature of conversion.
In other words, it lets the insured convert a term plan that only covers the insured for a specific number of years into one that covers that individual for life. This conversion is applicable so long the insured continues to pay their insurance premiums.
For example, if the insured individual purchases a term plan of 30 years when they are 40. Given today's life expectancy, they may survive their plan, so they can likely end up without a life cover for the last few years of their life.
With a convertible term plan, they can turn their term life policy into a regular life or an endowment plan where the maturity benefit matches the sum assured. However, it should be noted that types of term insurance policies are not commonly available in the Indian market.
The premiums for these plans are higher as the maturity benefit is equated to the sum assured amount upon conversion of the term plan. Lastly, exercising the conversion benefit of this plan is recommended at a later date when maturity is nearby.
Why Choose Tata AIA Life Insurance Term Plans?
4 Hours
Express Claim settlement##
The Tata AIA Assurance
99.01% Individual Death Claim Settlement Ratio%
72 Lakh+
Families protected so far~~
Affordable Premium
Start with as low as Rs 424/month**
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How to Choose Between the Different Types of Term Insurance Plans?
Each type of term insurance plan has its own set of pros and cons. To help you decide which term plan is the best for you, we have provided a comprehensive table below listing each type of term insurance plan's most prominent benefits and features.
Parameters |
Level Term Plans |
Increasing Term Plan |
Decreasing Term Plan |
Term Plan With ROP |
Convertible Term Plans |
Definition |
A basic term plan |
Term plan where the sum assured increases yearly |
Term plan where the sum assured decreases yearly |
Term plan that offers a return payment of the premiums paid during policy tenure on maturity |
Allows for the conversion of a basic term plan into regular life or endowment plan without the need for a pre-medical check-up |
Sum Assured |
Remains the same. |
Increases by a percentage or amount yearly |
Decreases by a percentage or amount yearly. Reaches zero on maturity |
Remains the same |
Remains the same. |
Premium Rates |
Affordable to Moderate |
Moderate to Expensive |
Affordable |
Expensive |
Expensive |
Maturity Benefit |
None |
None |
None |
Return payment of premiums paid during the policy term to either the insured or their nominee |
Available if the insured opts to convert to an endowment or life plan. Matches the sum assured |
Premiums Returned |
No |
Available if the insured opts for an ROP benefit |
Available if the insured opts for an ROP benefit |
Yes |
Available if the insured opts for an ROP benefit |
Death Benefit |
Yes |
Yes |
Yes |
Yes |
Yes |
Ideal For |
People that have fixed incomes and budgets who want a fixed amount of coverage throughout their policy term |
Young earners with a growing family who want to account for inflation and ensure their family's financial needs are met |
People with financial liabilities that decrease over time, like a loan or mortgage |
People with a steady income who can pay higher premiums in exchange for a refund of the payments on policy maturity |
People are concerned about developing health issues or renewal costs and want to account for other risks and uncertainties |
Factors to Consider Before Purchasing a Term Insurance Policy
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01
Consider Life Stage and Dependents
Each person has their own set of financial responsibilities in life. For example, if they are the sole breadwinner in their family, they may require more life coverage than an unmarried individual with fewer dependents.
This is why age and current financial situations set the groundwork for choosing the right term plan. These two factors affect policy tenure and the amount of life coverage that the insured receives.
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02
Assess Your Current Lifestyle
Candidates need to understand and take stock of current lifestyle needs when buying a term plan online. This includes assessing current spending habits, existing liabilities like loans or debts, and their general standard of living.
Doing so can ensure that family members will not compromise on their living standards, even after the insured passes. Hence, always be realistic when assessing these requirements to get the required life coverage from the right type of term insurance plan.
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03
Analyze Your Income
A common concern among many is deciding on a term insurance amount that will be enough for their family. Candidates can get a more realistic picture of coverage needs by analyzing their current income.
Everyone has their own financial obligations that require different portions of their income, and evaluating their income limitations can help them invest better. At Tata AIA, we offer a 'Check Premium' option that allows individuals to estimate their potential premiums.
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04
Add Riders to Your Plan
Riders^ are additional covers provided by insurers to enhance the base coverage of a policy. These covers can be attached to a base policy at purchase or on renewals by paying an extra premium.
Some standard riders offered with term insurance plans are accidental death and permanent disability rider, critical illness rider, and a waiver of premium riders. Hence choosing the right add-ons can help maximize available benefits under a term plan.
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05
Check the Insurer's Claim Settlement Ratio (CSR)
A CSR is the percentage of claims settled out of the total number of claims the insurer receives in a fiscal year. Although this percentage should be the sole deciding factor, it is still worth considering.
Generally, the higher the CSR, the higher the chances of a claim being settled under the insurer. At Tata AIA, we are proud to announce that we have held a 99.01% Individual Death claim settlement ratio1 in FY 2022 - 23.
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How to Purchase Term Insurance Online?
The specifics of the purchase process will vary across online insurers. However, the basic overarching steps that must be followed when buying a term insurance plan online are more or less the same.
First, you will have to visit the insurance provider's official website and navigate to the term plan section of their site. This can be found on the top tab or by using by hovering over the 'Plans' tab to find your desired plan.
Next, you must use their term insurance calculator to estimate your premium rate under the term plan. For example, if you are buying a term plan from Tata AIA, you can use our Tata AIA Term Insurance Calculator to estimate your premiums.
Doing this allows you to get an overview of what your term insurance plan will be like and what customization or add-on options are available under the plan. All of this helps you invest in the right types of term insurance policies.
We also allow you to compare term insurance plans with each other before you purchase a policy so you have a better understanding of policy terms and features.Once you have decided on the term plan you want, you can proceed to buy your term plan online by providing your details on the website. You will receive a call back from an insurance agent that will guide you through the process.
Frequently Asked Questions (FAQs) About Types of Term Insurance
Which is the most common type of term life insurance policy?
Most people tend to buy level term plans as they are affordable and offer a fixed sum assured amount that is a guaranteed* death benefit.
If you are fine with paying a slightly higher premium rate, a term plan with a return of premium benefit is also another popular option.
How many term insurance plans can I purchase?
You can buy more than one term plan, but you also need to know the terms and conditions of each plan very clearly. Most people prefer term insurance plans because they offer more economical premium rates.
One distinct advantage of buying more than one term plan is that buying multiple smaller term plans adding to a big cover is cheaper than buying a single term insurance plan with a high sum assured.
Which type of term insurance plan provides increasing death benefits?
An increasing term plan offers a higher death benefit as the sum assured increases on a set percentage each year.
You can also opt for a term plan with a return of premium benefit if you want one that offers a dual payout of maturity benefit and a death benefit.
How much coverage do I need for my term insurance policy?
This will depend on your current lifestyle, financial obligations, and your number of dependents.
For a more detailed looked into what factors you must consider, you can read the 'Factors to Consider Before Purchasing a Term Insurance Policy' section given above or our blog on How Much Term Insurance Cover Is Needed.
Can the term insurance cover be increased?
Your term insurance coverage can be increased in three main ways:
Through Add-On Riders or Top-Ups: These increase your term policy's base coverage and are not as expensive as opting for a brand-new policy. However, most term plans only allow for the inclusion of add-ons and top-ups during policy purchases.
Upgrading to a Newer Policy: This process requires you to go through the documentation process again and take new medical tests to buy a new term plan. You will also most likely be older, so your upgrade can be more expensive.
Buy An Increasing Term Plan: The two methods mentioned above can get tedious, so if you are unsure of the amount of coverage you require, you can buy a term plan online with increasing life insurance coverage.
For a more in-depth explanation of all three processes, click here.
Which type of term insurance plan is cost-effective?
Basic term insurance plans like level term plans or decreasing term plans are the most affordable types of term plans.
Are riders applicable to the different types of term insurance policies?
Riders^ are optional covers that can be attached to basic term plans on policy purchase or renewal. The type of riders available under each term plan may differ and will depend on your insurance provider.
Always check what riders are available under your term plan with your insurer before policy purchase to avoid any confusion or future issues.
Can I switch between the level term to decreasing term insurance?
This is only possible under a convertible term plan. In other cases, you will either have to opt for one or the other or buy both pans separately.
What are the advantages of purchasing a convertible term insurance policy?
The benefit of convertible term insurance plans is that you do not have to undergo a pre-medical screening process to convert your policy from a term to a life or endowment plan. This is a valuable feature.
How is term insurance with a return of premium different from the other types of term insurance policies?
Term plans with a return of premium benefit offer a dual payment of a death benefit and a maturity benefit in the event of the policyholder's death. This unique feature is not available under other types of term insurance policies.
This maturity benefit is a return payment of all premium payments paid during the policy tenure. This payment is tax-exempt and is paid to the policyholder if they survive the term plan or to the nominee with the death benefit.
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Disclaimers
The complete name of Tata AIA Sampoorna Raksha Supreme is Tata AIA Life Insurance Sampoorna Raksha Supreme (UIN:110N160V03) - A Non-Linked Non-Participating Individual Life Insurance Plan
Tata AIA SRS Vitality Protect is a term solution which includes Tata AIA Life Insurance Sampoorna Raksha Supreme, a non-linked, non-participating, individual life insurance plan (UIN: 110N160V03) and Tata AIA Vitality Protect, a non-linked, non-participating, individual health rider (UIN: 110B046V01). Tata AIA Life Insurance Sampoorna Raksha Supreme is also available individually for sale.
*Applicable for specific plan options. Please refer brochure for additional details.
~Applicable for specific plan options. Please refer brochure for additional details.
$Under Life Plus Option, an amount equal to the 105% of the Total Premiums Paid (excluding loading for modal premiums) shall be payable at the end of the Policy Term, provided the life assured survives till maturity and the policy is not terminated earlier.
^Riders are not mandatory and are 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/Intermediary/ branch.
Tata AIA Life Insurance Non-Linked Comprehensive Protection Rider (UIN:110B033V02 or any other later version) - A Non-Linked, Non- Participating Individual Health Rider, Tata AIA Life Insurance Non-Linked Comprehensive Health Rider (UIN: 110B031V02 or any other later version) - A Non-Linked, Non- Participating Individual Health Rider, Tata AIA Vitality Protect (A Non-Linked, Non- Participating Individual Health rider (UIN:110B046V01), Tata AIA Vitality Health (A Non-Linked, Non- Participating Individual Health rider (UIN:110B045V01) are available under this plan
**Illustrated Premium is the monthly premium excluding taxes for 20 yr. old female, Standard Life, Non-Smoker for 1 Cr. Sum Assured with Policy Term of 20 yrs. (Regular Pay) under Life Option. Please refer Benefit Illustration for more details. Premium is subject to applicable taxes, cesses & levies which will be entirely borne/ paid by the Policyholder, in addition to the payment of such Premium. Tata AIA Life shall have the right to claim, deduct, adjust, recover the amount of any applicable tax or imposition, levied by any statutory or administrative body, from the benefits payable under the Policy. Kindly refer the sales illustration for the exact premium.
#Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment 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.
+Tax benefits of up to ₹46,800 u/s 80C is calculated at highest tax slab rate of 31.20% (including cess excluding surcharge) on life insurance premium paid of ₹1,50,000. Tax benefits under the policy are subject to conditions laid under Section 80C, 80D,10(10D), 115BAC and other applicable provisions of the Income Tax Act,1961. Good and Service tax and Cess, if any will be charged extra as per prevailing rates. The Tax-Free income is subject to conditions specified under section 10(10D) and other applicable provisions of the Income Tax Act,1961. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for details, before acting on above.
##Applicable to only non-early claims with more than 3 years of policy duration, non-investigation cases, up to Sum Assured of Rs. 50 Lakh. Applicable for branch walk in. Time limit to submit claim to Tata AIA Life Insurance is 2 pm on working days. Subject to submission of complete documents. Not applicable for ULIP policies and open title claims.
%Individual Death Claim Settlement Ratio is 99.01% for FY 2022 - 23 as per the latest annual audited figures.
~~72,34,092 families protected till Mar’23.
Tata AIA Vitality - A Wellness Program that offers you an upfront discount at policy inception. You can also earn premium discount / cover booster (as applicable) for subsequent years on policy anniversary basis your Vitality Status (tracked on Vitality app). Please refer rider brochures for additional details on health and wellness benefits.
Vitality is a trademark licensed to Tata AIA Life by Amplify Health Assets PTE. Limited, a joint venture between Vitality Group International, INC. and AIA Company Limited. The assessment under the wellness program shall not be considered as a medical advice or a substitute to a consultation/treatment by a professional medical practitioner.
This product is underwritten by Tata AIA Life Insurance Company Ltd.
The plan is not a guaranteed issuance plan and it will be subject to company’s underwriting and acceptance.
Insurance cover is available under this product.
For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale. The precise terms and condition of this plan are specified in the Policy Contract.
Buying a Life Insurance Policy is a long-term commitment. An early termination of the Policy usually involves high costs and the Surrender Value payable may be less than the all the Premiums Paid.
In case of non-standard lives and on submission of non-standard age proof, extra premiums will be charged as per our underwriting guidelines.
L&C/Advt/2023/Aug/2763
