Term Insurance

How Does a Term Plan Work?

Who Should Buy a Term Insurance?

Let’s take a look at who should buy term insurance:

• Parents
  Parents always worry about their children’s future. A term plan provides parents with peace of mind. They can rest assured that their child will be taken care of financially even if something were to happen to them. By providing a financial safety net, they never have to worry about their child giving up on their dreams.

• Young Workers
  Young professionals who have few financial liabilities, such as a vehicle loan or a personal loan EMI, can opt for a term plan. They ensure that their parents and loved ones have the financial means required to pay off their debts if anything happens to them. Additionally, they benefit from lower premiums, which can help them in the future.

• Newly-weds
  Couples who recently married can benefit from a term plan. The policy will provide financial support for their spouse when they need it the most. A term plan is a critical part of every good financial plan for young couples who want to enjoy financial independence.

• Working Women
  Young women today are occupying board rooms and managing their finances as well. Many assume the role of the sole breadwinner and support their loved ones financially. With a term plan, these women can secure the financial future of their parents, spouse and children. The payout from such a policy could help take care of any outstanding debts or even help their loved ones meet future financial goals.

• Taxpayers
  Term insurance policies offer certain benefits that allow taxpayers to reduce their tax liability. Premium paid under term insurance policies are eligible for deductions under Section 80C of the Income Tax Act, 1961⁶

• Retirees
  People work their whole lives to enjoy a secure retired life. Having a term insurance plan in your golden years provides financial security to your spouse. If something were to happen to you, the payout from the policy will allow them to maintain their standard of living, even without a steady income.

Why Do I Need Term Insurance?

Despite the many features and benefits of term insurance plans, some people are still not sure how these policies impact them. Here’s a look at three crucial reasons why you need term insurance:

• To Protect Your Family
  Your family depends on you emotionally and financially. You may want to help your parents secure a better retirement or pay for your child’s higher education. The payout from a term plan can help your family achieve their goals even if something were to happen to you.

• To Protect Your Assets
  Many young people today require loans to help them purchase a vehicle or a home. If something were to happen to you while you are repaying a loan, your family may have to deal with your loss, the loss of your income and a new financial burden. If they are unable to repay the loan, they risk losing the asset. The payout from a term plan can help your family deal with debt and protect your assets.

• To Cope with New Lifestyle Risks
  Every day we hear about the rise in lifestyle diseases and the incidence of critical issues such as heart problems and cancer. Your term plan can offer some financial support as you deal with such a diagnosis and come to terms with recovery and recuperation.

Features of Term Insurance
 

• Low Entry Age
  Term plans have a low entry age of just 18. So, you can purchase a policy for yourself or your loved ones on reaching adulthood.

• Long-Term Protection
  Term policies offer whole life coverage, allowing you to provide your family with financial protection for several decades!

• Easy to Buy
  In today’s digital India, you can purchase a term policy online in just a few minutes. You can compare various policy benefits and customise a plan with add-ons based on your unique needs. Once you know which policy you want, you can submit a few document scans and pay the premium.

• Flexible Premium Payment Options
  When you purchase a term policy, you can choose how to pay the premiums. You can opt to pay an annual premium, half-yearly premiums, quarterly premiums or even make monthly payments.

• Adjustable Cover
  With a term insurance plan, you can opt to increase or decrease your sum assured depending on your evolving financial needs.

• Liability Protection
  The payout from a term insurance policy allows your loved ones to better deal with debt liabilities. By purchasing a term plan, you can help your family members pay off existing debts and loans.

Types of Term Plan

Term Insurance Plan Variants
 

At HDFC Life, we offer three variants of our HDFC LIFE Click 2 Protect Life options:

• Basic Life Cover
  Here, you enjoy life protection and get a maturity benefit at the end of the policy tenure. You can choose to enhance your coverage with riders.

• Life Cover and Critical Illness Cover
  With this plan variant, you get the added benefit of critical illness cover along with life cover. The sum assured amount is split between life cover and critical illness cover. On the diagnosis of a covered critical illness, you receive the critical illness cover and all future premiums are waived off. There’s also a return of premium maturity benefit.

• Life Cover and Regular Income
  If you want life cover and additional financial support, this is the variant for you. The plan offers monthly income after you turn 60 in addition to a lump-sum payout on maturity.

How Much Term Insurance Cover Do You Need?

Understanding the ideal sum assured amount can seem difficult. Most experts advise term insurance policyholders to opt for a sum assured that is at least 10 times their annual income. If you have the means to, you should pick anywhere between 15 to 20 times your annual income to account for inflation. Over and above this amount, you need to consider your financial liabilities – outstanding loan amounts and other EMIs. Assume you earn INR 12 lakhs every year and have INR 45 lakhs left on your home loan payments. You should opt for a minimum sum assured of (12,00,000 x 10) + 45,00,000 = INR 1,20,00,000 + 45,00,000 = INR 1,65,00,000.

When Should I Buy a Term Insurance Plan?

The ideal time to buy a term plan is right away. Young individuals who enjoy good health can get higher sum assured amounts at lower premiums since they pose very little risk. As you get older, you may face health issues that could increase your premium or reduce the maximum sum assured you can get.

What Are the Payout Options in Term Life Insurance?

1. One-Time Lump-Sum Payout
If you opt for this, your nominee will receive the entire sum due to them in a single payment. For example, if your sum assured is INR 2 crore, your nominee will receive the entire amount once their claim is accepted.

2. One-Time Lump-Sum Payment with Fixed Monthly Payouts
You may not want your nominee to receive the entire amount at once. You can opt for this option that provides a portion of the sum assured as a lump-sum payout immediately. The rest of the money is provided in monthly instalments over a few years. You can decide how long you want the monthly payments to continue when you purchase the policy. The sum assured amounts get divided equally depending on what you choose.

3. One-Time Lump-Sum Payment with Increasing Monthly Payouts
You can choose for your nominee to receive a lump-sum payout of the sum assured along with increasing monthly instalments for a specified period. The monthly sums increase every year for a specified term as decided by the policyholder when purchasing the plan. 

Why Buying Term Insurance is a Must During COVID-19 Pandemic?

• Terms plans are the most basic life insurance product available in the market. They provide life cover at affordable premiums. They are ideal for individuals who have certain financial obligations and do not wish to leave their family members with any kind of debt if something were to happen to them. During the COVID-19 pandemic, it became more crucial than ever to purchase a term insurance policy.
• Many individuals succumbed to the disease after long stays in the hospital. This left their families with broken hearts and mounting hospital bills that they might not have been able to afford. The payout from a term insurance policy could help these individuals pay off outstanding medical expenses and other debts.
  
• A term plan can provide your loved ones with financial stability during an incredibly difficult time.

What is a Term Insurance Rider?

A term insurance rider is an add-on that provides enhanced benefits over and above life insurance. For example, you can opt for an accidental death rider or a disability rider which offers an additional payout in case the policyholder passes away in an accident or if they become disabled. Most insurers provide a critical illness rider as well. With this add-on, you receive a lump-sum payout on the diagnosis of a covered critical illness. The most popular term insurance rider is the premium waiver rider, which waives off future premiums in case the policyholder receives a critical illness diagnosis or other eventualities outlined by the plan.

How Long Should the Term Insurance Policy Period Be?

When you purchase a term plan, you can opt for tenure as short as five years or get coverage for the rest of your life. Ideally, you should choose a plan that terminates just before you retire. Term insurance payouts help you meet financial liabilities, most of which you would have completed by the time you retire. If you’d like to continue to enjoy life coverage, you can convert the term policy into a full-life plan before the policy tenure ends.

How to select the Best Term Insurance Plan? 

To ensure you make the right choice, you should:

• Look at the Claim-Settlement Ratio
  An insurance company’s claim settlement ratio tells you how likely they are to settle your nominee’s claim. You can check a company’s claim settlement ratio online. HDFC Life has a Claim Settlement Ratio (CSR) of 98.01 %⁵.

• Understand the Customer Experience
  Ask people you trust about their experience with the insurance company you prefer. You can also check online reviews from customers to understand whether individuals enjoy a pleasant experience with the company or not. Remember, your term plan could continue for the rest of your life, so you need to build a lasting relationship with the company.

• Check the Solvency Ratio
  The solvency ratio refers to a company’s ability to financially fulfil the insurance obligations. The IRDAI mandates that all insurance companies should have a ratio of at least 1.5. You can check the solvency ratio of companies online.

• Consider the Benefits
  Not all plans are equal. You should look for policies that offer higher benefits than others. Try and find policies that offer maturity benefits as well as flexible payment and payout options.

• Choose Riders
  Term plans offer more than just life cover. You can opt for riders that provide coverage for critical illnesses and accidental disability as well. The payouts from these add-ons can go a long way in offering financial stability to you and your loved ones at a difficult time.

• Find Flexible Payout Options
  When you purchase a term policy, you often have specific financial goals in mind. Most term insurance plans offer lump-sum payouts to nominees. Often, these individuals get overwhelmed by the large sum and do not know how to manage it. You should consider policies that offer monthly payouts instead. Your nominee will be better equipped to deal with smaller amounts every month that can help them with immediate financial needs.

• Research Online Availability
  Before you make a decision, you must check whether your insurer is available to you online and offline. Most companies today have 24x7 chat features on their website so you can get quick answers to your queries. You should also look for companies that offer online filing of claims for quick processing.

How to Buy Term Insurance?

Purchasing insurance is a quick and easy process. Let’s see how you can get the cover you need:

• Estimate Your Sum Assured
  Consider your current financial position. Do you have any financial liabilities or dependents? If something were to happen to you within the next 20 or 30 years, how much would they need to enjoy their standard of living? Understand what kind of sum assured you want and look for plans that offer what you need.

• Enhance Your Cover
  If you’d like to boost your cover, you can choose to pay for riders to enhance your sum assured amount. Once you know exactly what you want, you can get online quotes and compare plans.

• Fill Up the Application Form
  Select the term insurance plan you want to purchase and fill up the online application form. You have to provide details about your age, medical history and lifestyle habits. You have to upload a few documents for verification.

• Pay the Premium and Rest Easy
  Submit the application and pay the premium amount to enjoy life cover and peace of mind.

How Does a Term Plan Secure Your Family’s Future?

Term policies are the most affordable type of life insurance plan. They offer life coverage in exchange for minimal premium amounts that you can choose to pay monthly, quarterly or annually. Depending on your needs, you can add riders like critical illness or accidental death or disability to your policy. By doing this, you can enhance the financial payout that your family receives in case anything happens to you, the policyholder. In the unfortunate event of the demise of the policyholder, the nominee receives the sum assured, which they can use to clear outstanding debts or take care of day-to-day expenses. As the policyholder, you can decide how you want your family to receive the payout – either as a single lump-sum or with monthly installments that can help them deal with long-term EMIs or even inflation. With a term plan, you ensure that your family doesn’t have to struggle financially if they were to suddenly lose you and everything you contribute to their lives.

Term Insurance Benefits

• Affordable Premiums for High Life Cover
  Term plans are popular since they offer high sum assured amounts at affordable premiums. The payout from a term insurance plan can help replace several years of lost income.

• Critical Illness Cover
  Term plans today offer more than just life cover. Insurance companies also provide payouts if the insured gets diagnosed with a covered critical illness. Most often, critical illness cover is an optional rider. The payout received can be used to deal with treatment costs or replace lost income.

• Disability Support
  Accidents can lead to dire consequences such as permanent disability. The insured may require some time to adjust to their life and figure out if they can still earn a steady income. With a disability rider on your term insurance policy, you won’t have to worry. The rider will take care of all future premiums so you can continue to financially protect your loved ones without any worries.

• Enhanced Financial Security
  Term plans offer additional financial protection with riders like accidental death. If the insured meets with a fatal accident, their nominee receives the sum assured amount and an additional payout from the rider. The idea is to offer the family additional financial support when they need it most.

• Tax Savings
  Term insurance policies are a popular tax-planning financial tool. The premiums you pay are deductible from your taxable income. You can claim deduction under Section 80C⁶ of the Income Tax Act, 1961up to INR 1, 50,000 per year against premiums paid towards term insurance policies. Additionally, the payouts received by you or your nominee are exempt u/s 10(10D) ⁷ of the Income tax Act, 1961

• Flexible Payout Options
  In the unfortunate event that your nominee has to file a claim, you can choose how they should receive the payout. If the idea is that your term insurance sum assured will help replace your income, you can opt for monthly payouts. In case you want your nominee to receive the entire amount together, you can choose for them to get a lump-sum payout.

• Maturity Benefits
  Return of premium term plans offer basic maturity benefits. If you outlive the policy tenure, you will receive a payout or series of payments that equal at least the total premiums paid over the years.

Which Factors Affect Term Insurance Premiums?

Your term insurance premium depends on several factors, including:

• Age
  Young and healthy individuals are considered low risk, so they enjoy lower premiums than those who are older and may have health concerns.

• Gender
  Studies show that women, on average, live longer than men. So, insurance companies often provide women with favourable premium rates, since they may pay for longer.

• Health and Medical History
  When you purchase a term plan, you have to answer questions about your medical history and provide details about your family members. Health issues such as heart attacks or kidney failure may be passed on from parents to children. If you or your family members have a history of certain health conditions, your premium could increase.

• Lifestyle Habits
  Individuals who often partake in adventure sports, drink alcohol and smoke or consume tobacco in other forms regularly are considered high risk. So, insurance companies charge them a higher premium. You must honestly disclose these details while applying for term insurance to avoid your nominee’s claim getting rejected later.

• Profession
  Certain individuals have jobs that place them in risky situations every day. People like sailors and pilots or those who work with hazardous materials may have to pay higher premiums than their friends with less dangerous jobs.

• Policy Tenure and Sum Assured
  The sum assured and policy tenure directly impact your premiums as well. A higher sum assured will mean a higher premium.

Why Choose HDFC Life’s Top-Selling
Click 2 Protect Life?

• Claim Settlement Ratio
  At HDFC Life, we pride ourselves on our claim settlement ratio of 98.01 % ⁵. If you purchase our term plan, you can rest assured that your nominee will receive the payout once they raise a valid claim^##.

• Solvency Ratio
  The solvency ratio lets you know whether your chosen insurance provider can settle the claim financially. As per IRDAI guidelines, life insurance companies must maintain a solvency ratio of 1.5. From January to March 2022, HDFC Life’s solvency ratio was 1.9^#

• Critical Illness Benefit
  You can opt for life and critical illness cover with our Click 2 Protect Life term policy. You can enhance your cover with the critical illness plus rider. With these enhancements, you will receive a payout on the diagnosis of a covered critical illness. The amount enables you to recover lost income or pay for treatments. Additionally, future premiums get waived off.

• Accidental Death Benefit
  In case the insured meets with a fatal accident, the nominee can receive an additional benefit, equal to the sum assured amount, as an accidental death benefit.

Key Takeaways

Term Insurance offers you:

• A low entry age of just 18
• Premium payment and benefit payout flexibility
• Long-term protection for life
• Quick and secure purchases online
• High life cover with affordable premiums
• Enhanced coverage with accidental disability and critical illness add-ons
• Tax savings
• Maturity benefits
• Three plan options
• Opportunity to secure your family’s financial future