Term insurance provides a death benefit for a specific period, say 10, 20, or 30 years. As per the policy terms and conditions, the insurer pays the sum assured on the death of the policyholder if the event occurs within the selected policy term of the term insurance policy. With respect to a standard term insurance plan, the cover ceases to exist if the policyholder survives the specified policy term.
Unlike savings-combined life insurance policies, a term insurance plan provides pure risk cover. In other words, it replaces your income in case of your demise, enabling your family to continue your financial obligations and fund your long-term financial goals.
Now that you have an idea about what term insurance is, let us take a look at the working mechanism of the term insurance policy, beginning with the application to the claim settlement to assist you in making an informed decision.
Select the sum assured, term of the policy, and frequency of the premium payment. You share the personal and financial details, including age, health profile, occupation, income, and lifestyle, including habits such as tobacco and alcohol consumption. You may also select additional benefits, also called riders, at this point, subject to the availability and the terms and conditions of the insurer.
The insurance company considers your application and assesses the risk as per your profile. Based on the proposal you submit, the insurer may ask you to go through a medical examination or share the medical reports.
The insurer evaluates the risk on the basis of your proposal and decides whether to approve the application or not. The age, sum assured, health profile of the applicant, and other relevant aspects of the proposal impact the evaluation of risk and the premium amount.
If your proposal is approved by the insurer and once you meet the requirements set forth by the insurer, the company issues you the policy document, which contains the relevant details of the insurance coverage, including the sum assured, term of the policy, premium amount, premium payment term, benefits, exclusions and other applicable terms and conditions.
Your life cover is effective throughout the policy term as long as you continue to pay the premium amount as specified by the policy.
Upon your demise during the policy term, your nominee can claim the death benefit under the term insurance policy by submitting a death claim to the insurer. The insurance company examines the claim and the documents produced by the nominee as per the terms and conditions of the insurance policy and applicable laws. If the claim is approved, the insurer pays out the sum assured to your nominee.
The nominee can use the proceeds from the term insurance to meet your financial commitments, including reimbursement of any liability you may have, and fund your children’s education and other needs. Similarly, individuals living abroad may consider options such as Term Insurance for NRI in Saudi Arabia to secure financial protection for their families in India, subject to the insurer’s applicable terms and eligibility requirements.
Under the term insurance plan, the cover ceases to exist once the policy term is over, and the insurer pays no maturity proceeds if you survive the policy term. However, there are term insurance products with a return of premium option, which means that the insurer returns the aggregate amount of the premium you have paid on the expiry of the policy term, subject to the terms and conditions of the insurance policy. The return of premium option has a higher premium amount as compared to the standard term insurance plan.
Here are the key features of a term life insurance plan:
One of the major benefits of term insurance is its affordability. Since it provides pure risk cover, term insurance is highly affordable compared to other savings-combined life insurance policies.
Term insurance provides coverage for a specific period, which can range from 10 years to 30 years. You can select the policy term based on your financial obligations and the financial needs of your family.
Term insurance offers a high sum assured to the nominees in case of the demise of the policyholder. The death benefit would enable the family to meet their financial commitments.
A standard term insurance plan does not provide any maturity benefits. The term insurance plan ceases on the expiry of the policy term, unless it is a return of premium plan.
Before purchasing a term insurance policy, you need to thoroughly examine the insurance policy document and understand the sum assured, policy term, premium payment term, exclusions, riders, and other applicable terms and conditions. In addition, while filling out the proposal form, you must give correct and true information about your health, occupation, and lifestyle. This information is a crucial part of the underwriting process and claim settlement process.
If you are an Indian citizen living or working abroad, you may also explore Term Insurance for NRIs based on your eligibility and the insurer’s applicable terms and conditions. In addition, you should select the sum assured on the basis of the financial needs of your family and not on the basis of affordability.
With the purchase of a term insurance plan, you can provide financial protection to your family in case of your untimely demise. You pay the premium amount and secure life cover, subject to which your nominee can receive the sum assured upon your demise. Being highly affordable and offering a substantial sum assured, term insurance is an integral part of financial planning. However, before purchasing the insurance policy, you must compare the available term insurance products and examine the terms, conditions, benefits, exclusions, and other relevant details of the term life insurance policy.
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