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What is Term Insurance? Definition & Meaning

What is Term Insurance
August 16, 2022

What is Term Insurance?

Term insurance is a life insurance product, which offers financial coverage to the policyholder for a specific time period. In case of death of the insured individual during the policy term, the death benefit is paid by the company to the beneficiary. One should know importance of term insurance key features and why you should opt for it before buying term insurance.

The purpose of taking life insurance is to provide life cover to the policyholder and financial security to his family.

There are two ways the individual can take life insurance:

  1. By opting for a pure life cover, also known as term insurance

  2. By taking life cover with a savings component built-in,also called endowment insurance

Why Term Insurance is better?

Term plans provide pure life cover. This means there is no savings / profits component. They are basic plans which make life insurance more affordable vis-à-vis other options. It is possible for the policyholder to opt for a larger life cover at a lower premium when compared to a similar endowment plan.

Some of the key features that make term plans indispensable include

  1. Larger life cover

    Since term life insurance plans are more affordable it is possible for an individual to opt for a higher life cover for the same premium as an endowment plan. For e.g. a 30-year old can get a term plan with a cover of Rs 1 crore for a 30-year term by paying a premium.

    The Rs 1 crore endowment plan will most likely out of bounds for most 30-year olds. However, taking a term plan for a similar cover is relatively more feasible.

  2. Riders

    The policyholder can attach riders to the term plan, thereby enhancing the utility of the policy. So by opting for a critical illness rider or a critical illness plan, for instance, he is entitled to receive the sum assured on being diagnosed with the critical illness. This is in addition to the death benefit of an equal amount on death over the term of the policy. There are other riders to choose from like - loss of employment cover, disability cover, waiver of premium cover, among others. The policyholder should select riders based on his specific needs to make the life cover more suitable and meaningful.

  3. Enhanced cover

    Certain insurance companies offer the flexibility to enhance the life cover during critical stages of the policyholder's life. For instance, the policyholder may be permitted to enhance life cover by 50% at the time of marriage and by 25% at the time of turning a parent. This makes it possible for him to start with a modest cover and then enhance it as responsibilities increase as also the ability to pay higher premium.

  4. Innovative features

    While insurance companies have been quick to innovate in general, they have been most innovative with regards to what is term plans. For instance, companies have been quick and proactive in cutting premium rates even offering extra discounts to certain categories like non-smokers, for instance. Buying term plans is now quite convenient thanks to the internet. It is possible for a healthy individual, as defined by the insurer, to buy a term plan over the internet without taking a medical test.

  5. Tax Benefits

    Buying term insurance can also bring with it a host of tax benefits. As per section 10 (10D) of the Income Tax Act*, the sum assured that a policyholder receives after the maturity of the plan is tax-free; this also applies when the person insured surrenders their policy or loses their life. Furthermore, the bonuses that are received with this amount are also exempt from tax, under section 10 (10D).

  6. Multiple Payout Options

    When you sign up for a policy, you are required to pay a fixed amount to the chosen insurance provider to receive benefits. You can choose monthly, quarterly or annual payouts, as per your convenience. What this ensures is the death benefit to the beneficiary, in case of the demise of the policyholder. It could either be given out as a lump sum payout or in a staggered manner, which is equal to the sum assured.

  7. Premium waiver

    As the term suggests, premium waiver refers to a benefit wherein any future premiums are waived off, in case of special circumstances. For instance, this applies in cases where the insured policyholder is a victim of permanent disability due to an accident. This is applicable only if all the previous premiums have been paid.

Who should buy Term Insurance plans?

Term insurance plans are for everybody. They provide life cover at affordable premiums for everyone, be it a business person or a salaried employee. They are an excellent hedge against the uncertainties of life at any age. For those in their 20s, it is a prudent move to start with a plan that gives high cover for a low premium, while for those in their 30s with growing families and increasing liabilities, it is a good protection from financial uncertainties. For those in their late 40s and 50s too, term insurance can give adequate coverage for responsibilities like children's education and weddings, while allowing them to plan for their retirement.

Why Buy Term Insurance Online Why Buy Term Insurance Online

Why buy HDFC LIFE Click 2 Protect Life?

If you look around, there are several insurance companies that offer a range of plans, but it is always a good idea to go for a brand that is trustworthy and offers credibility. That’s exactly where HDFC Life Click 2 Protect life steps in. Whether policyholders choose to receive coverage for their entire lifetime, or are looking to lean on a safety net in their retirement years, post 60 years—it’s absolutely their call!

There are 3 plan options available:

  • Life Protect:

    This option provides protection to your family by offering a lump sum amount to the members, in case of your death.
  • Life & CI Rebalance:

    This plan attempts to strike a balance between
    Death and Critical Illness benefit. The critical illness cover increases every year, while the life cover reduces. As part of this plan, future premiums are done away with, in case you are diagnosed with any specified critical illnesses
  • Income Plus:

    Under this policy, the life assured doesn't have to worry, because they covered for the entire policy term. They can also get a lump sum payout on maturity, with regular income, post the age of 60.

And if you thought that was all, wait to hear more. HDFC Life Click 2 Protect Life has a 98.01% claim settlement ratio**, and an additional sum is paid out, case of accidental death. There are other benefits, including waiver in premium, in case of critical illness. 

Opting for add-on riders is also a good option to provide an added layer of protection. These additional income benefits are applicable in case of total permanent disability after an accident or even in case of critical illness.

FAQ’s about Term Insurance

1. Who is eligible for term insurance?

In most cases, any person who is 18 or above can get a term insurance policy, while the maximum age limit goes up to 65 years. Please check with your chosen insurance provider, if there are any criteria to fulfill.

2. What are the factors that affect the term insurance premium?

Before your premium is decided, your insurance provider will evaluate certain factors like your age, gender, medical history, location, occupation, lifestyle, and more.

3. Can I buy term insurance for a spouse?

Yes, that option is available if you want to go for it. There are joint-term insurance plans that provide coverage to both you and your spouse, as part of the same policy.

4. How much term insurance do I need?

As per the best practice, the sum assured should always be a minimum of 10 times your annual income; if you choose a higher range, that’s even better. While this is the norm, make your own judgment, based on your individual needs and preferences.

5. What are the minimum and the maximum age to buy a term insurance policy?

You can buy a term insurance policy from the age of 18 to 65 years. But there are exceptions too-certain insurance companies that offer plans to older people too.

6. What is a term insurance rider?

The rider is a benefit that a policyholder can opt for over and above their chosen policy. These provide added assurance in case of accidents, permanent disability, or even critical illnesses.

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* Subject to conditions specified u/s 10(10D) of the Income tax Act, 1961.

** Individual death claim settlement ratio by number of policies as per audited annual statistics for FY 2021-22.
Source - https://www.hdfclife.com/claims

HDFC Life Click 2 Protect Life (UIN: 101N139V04) is a non linked, non-participating, individual, pure risk premium/savings life insurance plan. Life Insurance Coverage is available in this product.