What is a Term Life Insurance Plan?
Term insurance is one kind of life insurance that insures the policyholder for a term or a specific number of years. It pays financial compensation to the nominee in case of the insured’s untimely death within the policy duration. A term life insurance plan offers higher life cover at less expensive premiums. These fixed premiums can be paid at recurring intervals for the whole policy duration or for a specified tenure. Some plans also offer a single premium payment option, where the entire premium is paid upfront. The amount of the premium differs based on the mode of the premium payment plan chosen by the buyer.
Key Features of Term Life Insurance
- Fixed Policy Term – It is available for cover for a definite time, typically ranging from 5 to 40 years, or until a specific age, such as 60, 70, or 99 years.
- Low-Cost Premiums – The premiums are lower than those of whole life insurance, therefore becoming economical.
- High Sum Assured – It offers high coverage at an economical cost.
- Pure Protection Plan – No investment feature; it provides protection only.
- Flexible Premium Payment Plan – Choose a premium payment plan that is either yearly, half-yearly, quarterly, or monthly. Some plans also offer a limited pay option, where premiums are paid for a shorter duration while coverage continues.
How Does a Term Life Insurance Plan Work?
- Select the Coverage Amount: Choose a sum assured that covers your family’s financial requirements, debts, and future expenses.
- Choose the Policy Term: Select a coverage period according to your age, financial obligations, and retirement goals.
- Pay the Premiums: Pay premiums at regular intervals as opted to maintain the policy in force.
- Claim Process: When the insured individual dies within the policy period, the nominee must submit a claim request with the required documents. The insurer will verify the claim and pay the death benefit if approved. Some policies allow the nominee to choose between a lump sum, staggered payouts, or monthly income options.
Term Life Insurance vs. Whole Life Insurance
| Feature | Term Life Insurance | Whole Life Insurance |
| Coverage Duration | Fixed term (e.g., 20 years) | Lifetime coverage |
| Premiums | Low | Higher |
| Maturity Benefit | No (except for return-of-premium plans, which come with higher premiums) | Yes |
| Investment Component | No | Yes |
| Best For | Pure protection | Savings & Protection |
Things to Consider Before Buying a Term Life Insurance Plan
Buy Only If You Need It
The main purpose of buying a term life insurance plan is to ensure the financial safety of your dependents or to protect them from any large loan/liability you may have.
Choose the Right Sum Assured
If you are certain you need to buy term insurance for your family’s financial security, it is important that you buy a policy with the right sum assured.
Use the HLV Calculator
After you answer a few basic questions, a Human Life Value (HLV) Calculator will provide an estimate of the coverage amount that may be suitable for your family. However, you should also consider inflation, future financial goals, and lifestyle needs when finalising the sum assured.
Know Your Payment Commitment
The next thing you must keep in mind is that you will have to keep paying the policy premiums for a long duration. Limited pay options are also available, where premiums are paid for a shorter period while coverage continues.
These are some of the things that you should remember when buying a term life insurance plan to safeguard your loved ones from the financial impact of any untoward situation. Compare premiums and other parameters before making a decision.
