What Is Term Insurance?
Term insurance pays a death benefit to one’s assigned family member if one dies during the term of their policy. A term insurance is a type of insurance an individual can opt for a certain time period.
Term insurances are provided by most insurance providers in India for terms like 10 years, 15 years, 20 years, etc. Some of the types of term insurances are, for example, regular term insurance plans, group term insurance plans, convertible term insurance plans, Term return of premium plan, joint term plan, decreasing and increasing term plan, etc.
How Does Term Insurance Work?
An individual can apply for a term insurance and this insurance works in the event of an unlikely death. A term insurance only comes into force (or effect) when the policyholder dies during the tenure of the policy term. The policyholder’s nominee/s (family) will get the insurance amount.
- An individual buys a term insurance and makes payments(premium) every month/quarter/year etc. Consequently, the premium can be paid in one lump sum amount as well.
- The individual does not receive any maturity benefits. Thus, a term insurance can be redeemed only if the policyholder passes away during the policy tenure.
- These Insurance plans are pure protection plans. No frills attached.
Term Insurance Benefits
- Term insurance policies are convertible to permanent life insurance policies. A policy is convertible irrespective of the health of the policyholder.
- Term insurances have the lowest policy cost and the premiums are low as well. Thus, the payment plan is flexible for the policyholder.
- Term insurance holders get tax exemptions for premiums under Section 80C of the Income Tax Act. Any benefits from the policy get tax exemption under Section 10(10D) of the Income Tax Act.
- Some term insurance plans do offer survival benefits such as refund of premiums, etc.
Note: Non-smokers and tobacco consumers will have to pay a lesser premium than smokers and tobacco consumers.