Term Insurance Definition and Meaning
Term insurance is the simplest type of life insurance that provides a financial protection to your loved ones in your absence. It offers a fixed life cover^ to your family members in case of an unfortunate event during the policy term. This type of insurance provides high life coverage at a relatively affordable premium, which makes it an attractive financial tool for everyone.
COMP/DOC/May/2020/85/3608
What is Term Insurance?
A term insurance plan provides financial protection for a fixed period of time or ‘term’. It offers a lump sum death benefit if the policyholder passes away during the term, ensuring the family’s financial stability. Unlike other policies, it focusses solely on life coverage^, without any investment or savings component. The premiums are typically lower compared to other life insurance products, making it a cost-effective option. Additional riders may be available to enhance coverage.
Our Top Selling Term Plan1
Life cover^ with a range of optional benefits to give complete protection to you and your family.
- Life cover^ at affordable rates
- Lump sum payout on the first diagnosis of any of the 34 Critical Illnesses (optional)2
- Accidental Death Benefit up to ₹ 2 Crore (optional)3
- In-built Terminal Illness Cover - you get the full sum assured if you are diagnosed with a terminal illness4
- In-built Premium Waiver on permanent disability9 due to an accident
- Tax benefits5 up to ₹ 54,600/- under Sections 80C, 80D & 10(10D)
- Choice of 4 payout options - lump sum, regular income, increasing income and lump sum+regular income
- Life Cover^ till the age of 99 years
Who Should Buy a Term Plan?
Here are some individuals who should consider buying a term plan.
Young Professionals:
A term insurance plan offers financial protection early in a career. Premiums are typically lower at a younger age, providing financial stability through cost-effective coverage.Married Couples:
Term insurance ensures financial stability of your spouse and family in case of unforeseen events. A term plan provides a lump sum amount to the nominee that can relieve financial burdens in challenging times.Parents:
For parents, a term insurance plan ensures children’s education and living expenses are covered. It acts as a safeguard, maintaining their standard of living in the policyholder’s absence.Self-employed individuals:
Self-employed individuals benefit from term insurance due to income variability. A term plan provides financial security, ensuring that the burden of repayment of any outstanding loan does not fall on the family members and they remain protected in case of an untimely demise of the insured.Taxpayers:
Term insurance plans offer tax advantages under Sections 80C6 and 10(10D)6 of the Income Tax Act. These benefits make term plans a viable option for efficient tax planning and financial strategy.Non-Residents Indians (NRIs):
NRIs can purchase term insurance in India to protect their loved ones. Term insurance can offer NRIs additional financial protection and safeguard their loved ones financially. NRIs can also claim tax6 benefits on their term plans in India, which enhances their overall financial planning and security.
What are the benefits of Term insurance plans?
Financial security for your family
If you are the primary earner, buying a term plan would take care of the monthly financial needs of your family in your absence.
Secure your Assets
You might have taken a loan like an education loan, home loan, personal loan, or vehicle loan. The repayment of these loans can financially weigh down your family in your absence. The proceeds from your term insurance plan pay off your loans and ensure that the financial burden does not fall upon your family.
Reduce Lifestyle Risks
The probability of developing a lifestyle disease increases with age#. Some term insurance plans offer critical illness protection which not only protects your family in case of uncertain eventualities but also during your lifetime. Critical illness2 benefit provides you financial security against various life-threatening health conditions such as cancer & heart attack.
Protection against unexpected financial needs
Term insurance provides a financial safety net for unexpected events such as accidents, illness, or death. It ensures that beneficiaries have access to necessary funds during difficult times. A term plan offers financial protection by providing a lump sum payout. This can help cover living expenses, loans and other financial obligations in the event of the policyholder's demise.
Affordable premiums
Term insurance provides significant coverage at a cost-effective price. By focussing solely on offering a life cover^, it keeps premiums lower. This makes it an affordable option for individuals seeking robust financial protection. Thus, policyholders can secure their family’s future without impacting their financial stability.
Income Replacement
For the primary earner in a household, income is essential to meet daily expenses and long-term obligations. In the event of an untimely death, term insurance ensures the replacement of lost income. The death benefit provided by term insurance supports the family in maintaining financial stability, covering immediate expenses and securing ongoing financial needs.
Tax Benefits
Term insurance provides tax benefits subject to conditions prescribed under Section 80C6 of the Income Tax Act. The premiums paid for the policy are eligible for deductions, reducing taxable income. Additionally, the death benefit received by the nominee is exempt subject to conditions prescribed under Section 10(10D)6, ensuring the full amount is available for financial needs of the family.
What are the Different Types of Term Insurance Plans available in India?
In India, various term insurance plans cater to different needs. These include basic protection plans, investment-linked options and plans designed for specific groups such as NRIs. Each plan is structured to meet diverse financial goals and requirements.
Basic Term Plan
The Basic Term Plan is the most fundamental form of term insurance, providing pure death benefit protection. It offers high coverage at affordable premiums, without additional investment components. This plan is suitable for individuals seeking straightforward coverage with no add-ons, ensuring financial protection for beneficiaries at a lower cost.
Level Term Insurance
Level Term Insurance provides a fixed sum assured throughout the policy's term. The death benefit remains constant, regardless of the policyholder's age. This type of plan offers consistent and predictable coverage, making it ideal for individuals seeking stable financial protection without fluctuations in coverage amount over time.
Increasing Term Insurance
Increasing Term Insurance features a rising sum assured, with coverage increasing periodically, often by a fixed percentage. This ensures the death benefit adjusts in line with inflation, maintaining its value over time. It is suitable for policyholders who wish to keep pace with the rising cost of living while ensuring adequate protection for beneficiaries.
Decreasing Term Insurance
Decreasing Term Insurance is designed to reduce the sum assured over time, in line with decreasing liabilities such as loans. As the policyholder’s financial obligations decrease, so does the coverage. This plan is ideal for individuals who want life insurance coverage to align with their reducing financial commitments, ensuring cost-effective protection.
Term Insurance with Return of Premium
Term Insurance with Return of Premium (TROP) offers a refund of premiums paid if the policyholder survives the term. This plan combines the benefits of term insurance with an investment element, providing a safety net for policyholders. TROP is suitable for individuals seeking life coverage^ with an assured refund if the policy term ends without a claim.
Convertible Term Insurance
Convertible Term Insurance allows the policyholder to convert the term insurance plan into a permanent life insurance policy, such as endowment policy, at any time during the term. This flexibility enables policyholders to transition to a more comprehensive coverage plan without undergoing a medical examination. It is ideal for individuals seeking adaptable long-term financial protection.
NRI Term Insurance
NRI Term Insurance is designed for Non-Resident Indians (NRIs), providing life insurance coverage in India. The policy terms are similar to standard term insurance plans, but specifically cater to the needs of NRIs working abroad. It offers a cost-effective way to ensure financial protection for family members residing in India.
Group Term Life Insurance Plan
Group Term Life Insurance is typically offered by employers to employees as part of a benefits package. This policy covers a group of individuals under a single contract, usually at a lower premium. It is beneficial for employees seeking basic life coverage^ at affordable rates but may require personal coverage once employment ends.
What are the key features & characteristics of Term Insurance?
When you understand the features of a term plan, you can have a clearer idea of the meaning and benefits of term insurance. Some of the hallmark features of term plans include the following:
Affordability
Term insurance policies are some of the most affordable life insurance products. The premiums you have to pay for term plans are usually much lower than other life insurance policies. You can get life cover^ up to ₹ 1 crore for a monthly premium as low as ₹ 402/-*.
Age of entry
With the minimum eligibility age of 18 years, you can get term plans early in life. Buying a term plan at a young age helps you get sizeable coverage at very reasonable premiums.
Policy Term
The policy term defines the duration for which a term insurance plan remains in force. It typically ranges from 5 to 30 years. The length of the policy term is determined based on factors such as the policyholder's age, financial goals, and the desired coverage period for the beneficiaries.
Maturity Benefit
Standard term insurance policies do not offer maturity benefits. If the policyholder survives the policy term, no payout is made. However, specific variations, such as Term Plan with Return of Premium (TROP), provide a refund of premiums paid if the policyholder survives the entire term.
Flexibility in Premium Payments
You can pay your term plan premiums as per your convenience. Annual, semi-annual, quarterly, or monthly premiums are some of the premium payment frequencies you can choose. Such regular premium payments are ideal for salaried individuals with a stable income.
You can also go for a one-time, lump sum premium payment if you have some surplus funds lying unused. Alternatively, you can go for a limited pay option and pay off your premiums within the initial few policy years. Your life cover^ remains active for the entire term plan tenure.
Thus, if you are self-employed, with variable cash inflows, you can take advantage of such single pay or limited pay options and keep your loved ones financially protected against life’s uncertainties.
Life cover^
A term plan keeps your family secure from financial challenges if an unfortunate event occurs. It provides a life cover^ of your choice at affordable premiums. With this life cover^, your loved ones get an assured sum in case of an unwanted incident during the policy period. The payout can help your family avoid compromising with the lifestyle you want for them in your absence.
Additional add-ons
You can add riders or add-on benefits to your term insurance policy to extend the scope of your base coverage at a nominal cost.
Various types of riders are available with term plans, such as:
- Critical Illness7 Rider
- Accidental Death8 Cover
- Waiver of Premium Benefit in case of a permanent disability9
Premium waiver
This benefit waives off all your future premiums in the case of a disability9 caused by an accident. Hence, even if you fail to pay the premiums due to any income loss from a disability, you will still be able to keep your family’s future secure.
Get all these features and secure yourself and your family with ICICI Pru iProtect Smart, which ensures a safety net for your family in your absence.
How Term Insurance Works?
Term insurance offers a crucial safety net by providing a life cover^ to the policyholder. It provides a payout to the beneficiaries in the event of an untimely incident during the policy term.
The policyholder pays a premium to the insurance company, which can be made monthly, half yearly, yearly or as a single payment. When determining the sum assured and premium, term insurance companies consider several factors, including age, health history, lifestyle, profession and gender. These factors help them evaluate the degree of risk associated with insuring the policyholder. It also determines the cost of the coverage.
In the unfortunate event of the policyholder's death, the nominee is required to submit a claim form along with necessary documents, such as a death certificate, to the insurance company. Upon verification, the company disburses the sum assured according to the chosen method of payment, which may include a lump sum, regular income payments or a combination of both. This financial support can offer peace of mind and stability to the loved ones during a challenging time.
What Factors Need to be Considered While Buying a Term Insurance Plan?
Claim Settlement Ratio
The claim settlement ratio indicates the percentage of claims successfully settled by an insurer compared to the total number of claims. A higher ratio reflects the insurer's ability to honour claims efficiently. It is a critical factor when assessing the reliability of an insurer in fulfilling policyholder claims.
Add-on Benefits & Riders
Add-on benefits or riders enhance the coverage of a term insurance plan. These options provide flexibility and can be selected to address specific needs, offering additional protection in various circumstances.
Payout Options
Payout options for term insurance plans vary between lump sum or periodic instalments. Insurers may offer flexibility to choose between a one-time payment or monthly payouts. The selection of the payout option should be based on the family’s financial needs and objectives, ensuring sufficient support for future expenses.
Insurance Coverage
The insurance coverage^, or sum assured, under a term plan should be sufficient to meet the family’s financial requirements. This includes replacing lost income, covering outstanding liabilities, and fulfiling future financial goals. Adequate coverage ensures the financial security of dependents in the policyholder’s absence.
Types of Term Insurance
There are many types of term insurance plans that you can consider depending on your financial needs. Below are some of them:
Level Term Insurance
A level term insurance plan offers a fixed life cover^ (sum assured) throughout the policy tenure. There is no change in the life cover^ irrespective of the tenure. As a result, premiums of the plan also remains constant.
Increasing Term Insurance
In an increasing term insurance plan, the life cover^ of the policy gradually increases over the years. These plans usually have slightly higher premiums. These plans also help you combat inflation and ensure that your life cover grows to deal with the rising prices.
Decreasing Term Insurance
In a decreasing term insurance plan, the life cover^ decreases over the years. If you have a lot of financial obligations, such as outstanding loans, financial responsibility of your children and more but you expect these to decline over time, a decreasing term insurance plan can be ideal for you.
It is important to note that while the life cover^ of these plan decreases, the premiums remain constant throughout the policy term.
Term Insurance with Return of Premium (TROP)
A term insurance plan with a return of premium, refunds all the premiums paid towards the plan on maturity. If the policy matures and you have outlived the term then the plan returns the premiums paid to help you cover the cost of insurance.
Convertible Term Insurance
A convertible term insurance plan offers the option to convert the policy into another type of term insurance, such as an endowment plan or a whole life insurance policy. This plan can be converted at a later stage during the policy term. This type of insurance can be ideal to accommodate your evolving needs over time.
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How Much Term Insurance Coverage Do I Need?
You can get a simple, quick and clear answer to this question by calculating your Human Life Value or HLV. HLV is an easy-to-use numeric method of calculating the amount of Life Cover^ that you may need. The basic thumb rule that can be used to find out your HLV is as follows:
Age In Years |
Income multiple |
|---|---|
18-35 |
25 times of your annual income |
36-45 |
20 times of your annual income |
46-50 |
15 times of your annual income |
51-60 |
10 times of your annual income |
For example, if a 32-year-old man has an annual income of 
5 lakh, the ideal Life Cover^ for him would be 25 x 5 lakh = 1.25 crore.
Points to note while calculating your term insurance cover:
When determining the appropriate term insurance cover, several factors must be considered such as monthly expenses, liabilities, financial goals and policy tenure. These factors can help you select the right term insurance coverage so that your family is protected in case of any unfortunate event.
Monthly expenses
Monthly expenses are an essential factor in calculating term insurance coverage^. These expenses include daily household expenses, education fees and healthcare. It is important to consider inflation, as expenses tend to increase over time. This ensures that coverage remains sufficient for ongoing financial needs.
Current Liabilities
Outstanding liabilities, such as home loans, personal loans, credit card loans and educational debts, should be factored into the term insurance cover. These liabilities, if unpaid, could create financial burdens for the family. Adequate coverage ensures that these obligations are settled, preventing additional financial strain on the family.
Financial Goals
Financial goals, such as funding education or retirement, must be incorporated into the term insurance coverage. These objectives are crucial to ensuring that the family’s future milestones are met, even in the absence of the policyholder. Coverage should be sufficient to secure these goals without compromise.
Policy tenure
The policy tenure plays a significant role in determining the right level of coverage. The duration should align with the period during which the family requires financial protection. Factors such as children’s education, retirement age, and long-term liabilities should be considered when selecting the appropriate policy tenure.
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Human Life Value Calculator
We have made a simple, free online calculator to help you understand how much your life insurance cover should be to keep you and your family secure
✅ Who is eligible for term insurance?
Term insurance eligibility can differ for each plan and insurer. All insurance providers offer plans with unique terms and conditions. However, as per the general norms, the minimum age limit for buying a term insurance plan is 18 years. Likewise, the maximum age limit for buying a term insurance plan is 65 years. So, make sure that you fall under this age group if you wish to buy a term plan.
✅ What are the factors that affect the Term Insurance premium?
The insurance company considers a lot of factors before deciding your premium. The main ones are - age, gender, personal and family’s medical history, geographical location, occupation, BMI index, and lifestyle.
✅ What is a term insurance rider?
“Riders” are add-on benefits or amendments attached to your basic term insurance plan. These can be purchased at a nominal rate. They allow the policyholder to customise the plan according to their needs. ICICI Prudential offers these riders - Waiver of Premium, Critical Illness7, Accident Death8, and Permanent9 or Partial Disability.
✅ What is a terminal illness benefit$?
Terminal Illness$ benefit pays out a lump sum amount to the policyholder if they are diagnosed with an end-stage illness and are expected to die within 12 months. This additional benefit provides cover for an unforeseen disease which is not curable.
✅ Does term insurance covers death outside India?
Yes, deaths outside India are covered in term insurance plans, provided the insurance company is informed about the accident well in time, along with the required details. However, the company may reject the claim if the death occurs due to travelling to unsafe countries. Talk to your policymaker for finer details.
✅ Can I buy term insurance for a spouse?
Yes, you can buy a term insurance plan for your spouse. In fact, joint term insurance plans are quite popular for the many benefits that they offer. These plans cover you and your spouse under a single policy. Buying a joint term plan for yourself and your spouse can be a simple, hassle-free, and cost-effective way to buy term insurance.
✅ Who is eligible for term insurance?
Term insurance eligibility can differ for each plan and insurer. All insurance providers offer plans with unique terms and conditions. However, as per the general norms, the minimum age limit for buying a term insurance plan is 18 years. Likewise, the maximum age limit for buying a term insurance plan is 65 years. So, make sure that you fall under this age group if you wish to buy a term plan.
✅ What are the factors that affect the Term Insurance premium?
The insurance company considers a lot of factors before deciding your premium. The main ones are - age, gender, personal and family’s medical history, geographical location, occupation, BMI index, and lifestyle.
✅ What is a term insurance rider?
“Riders” are add-on benefits or amendments attached to your basic term insurance plan. These can be purchased at a nominal rate. They allow the policyholder to customise the plan according to their needs. ICICI Prudential offers these riders - Waiver of Premium, Critical Illness7, Accident Death8, and Permanent9 or Partial Disability.
✅ What is a terminal illness benefit$?
Terminal Illness$ benefit pays out a lump sum amount to the policyholder if they are diagnosed with an end-stage illness and are expected to die within 12 months. This additional benefit provides cover for an unforeseen disease which is not curable.
✅ Does term insurance covers death outside India?
Yes, deaths outside India are covered in term insurance plans, provided the insurance company is informed about the accident well in time, along with the required details. However, the company may reject the claim if the death occurs due to travelling to unsafe countries. Talk to your policymaker for finer details.
✅ Can I buy term insurance for a spouse?
Yes, you can buy a term insurance plan for your spouse. In fact, joint term insurance plans are quite popular for the many benefits that they offer. These plans cover you and your spouse under a single policy. Buying a joint term plan for yourself and your spouse can be a simple, hassle-free, and cost-effective way to buy term insurance.
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