What is Term Insurance?
The reason to get an insurance is to provide you and your family with financial security. You invest in policies that will help you in your time of need. This ‘time of need’ can arise at any time, which is why it is essential to be financially prepared for the eventuality of an emergency.
This is where term insurance comes in. It is necessary to know the finer details of term insurance, term insurance eligibility, and the features of term insurance plans.
Term Insurance Meaning
To understand a term insurance plan policy, you must first define term insurance. Term insurance is said to be the simplest and the purest form of an insurance policy. It means the policy provides coverage or life cover till a specific date or period or until the policyholder's demise.
Like all insurances, a term plan policy is a contract between you, the policyholder, and the company, the assurer. When you avail of a term life insurance, the policy will be in force for a certain period. In case of an unfortunate event, the company will pay the sum assured to your family member or the nominees mentioned in the policy document.
How does term insurance work?
The first step to choosing term insurance is to understand its end goal.
- Life Cover: Before choosing term insurance, you should understand the right amount of coverage you want for your family. You will have to list your expenses, savings, and future goals. Based on this, you can decide on the amount of life coverage you would want your family to receive in case of an unfortunate event. Term insurance as an investment can help you achieve long-term goals that you would like your family to accomplish even in your absence. Considering all such aspects, you will have to decide on the amount.
- Policy term: As this is term insurance, you will have to know the duration of the policy. Pure-term insurance policies usually keep your family's long-term well-being in mind. Hence pure term policies have policy terms that are usually longer, typically 20 years and more. You can consider this to be a long-term investment, that is, till your retirement.
- Policy proposal form: Once you decide on the coverage amount and the policy term, the assurer will ask you to fill out a policy proposal form. This form has your personal, professional as well as health details. You will be asked about your medical history, any current ailments, habits, etc.
- Premium: Once the policy form is filled up, the premium will be calculated. This will be done based on the details you have filled in your proposal form. You can pay this premium amount either monthly, half-yearly or annually. Insurers also tend to provide limited payment options for a full coverage period.
The policy is valid till the completion of the term or in case demise of the policyholder. In the policyholder's unfortunate demise, the family member or nominee will receive the sum assured as a payout. The payout can be received as a lump sum amount, or it can be distributed over the course of time, as decided by the policyholder.
Eligibility for term insurance
The eligibility for a term insurance policy is as follows:
- Age: To avail of term insurance, the policyholder should be a minimum of 18 years. The maximum age limit is 65 years. An individual can buy term insurance for any family member between this age group.
- Citizenship: At the time of purchasing the term insurance, the policyholder should be a citizen of India and be residing in the country.
- Medical Reports: Health is a factor in determining the premium amount. Most insurers ask for some medical tests before approving a policy. Thus, medical reports form one of the main eligibility criteria. To avail of a term policy, you must have the willingness to be present and undergo a medical test.
- Habits: If you have any lifestyle habits like smoking or drinking alcohol, you will be required to declare this in the policy proposal.
- Occupation: Though a policy proposal may not be rejected on the basis of the occupation of the individual, you will be required to mention if you hold a high-risk job.
Benefits of term insurance
There are multiple benefits of term insurance:
Check your premium
You can check your term plan premium online with the latest technology and user-friendly websites and apps. Or, you can check your term policy premium when you apply for the plan.
To understand the policy terms and costs well, you can first check your premium through online facilities provided with term insurance quote calculators. Once you have all the quotes, you can compare and assess which one is better for you. Note that term insurance quote calculators will give a range you can expect the premium to be. Do understand that it is an approximation and not the exact quotes.
Before you check the premium, understand that the actual premium amount depends on various factors such as age, lifestyle, health conditions, income, sum assured, and policy tenure.

Rider options
Once you know what term insurance is and decide to buy one, you can avail of the various add-on riders to your term insurance plan. Such riders help you extend your policy benefits by paying additional premiums and getting even more comprehensive coverage. Once you get diagnosed with a covered critical illness, a lump sum is paid. It's that simple.
Critical illness cover - This rider provides an extra amount if you are diagnosed with a critical illness such as cancer or kidney failure. It is known that critical illness can lead to a continuous fall in health and affect your ability to work and hence affect income. This is where critical illness coverage can help.
Accidental death or disability cover - Depending on the severity of the accident, you may need quite a bit of money to pay for medical expenses and continuing life. You may even have to make up for the loss of income. Accidental death or disability rider provides this facility if you, unfortunately, meet with such a situation. Some term plans also offer riders for accidental dismemberment.
Some of the term plan riders have an in-built premium waiver facility. Under this, your future premiums are waived in the case of a disability, etc., caused by an accident. So, your policy is intact, and coverage is intact even if you are not able to pay premiums.
Assign a nominee
When buying a term insurance plan, do note that you will need to assign a nominee for your policy. Term life insurance aims to provide financial protection for your loved ones in your absence. So assigning a nominee is the most important part when buying a term plan.
Apply online
Insurers tend to offer higher discounts when you buy a policy online as their costs reduce. They pass on the benefits in terms of cheaper premiums when you buy a policy online. Buying online will also mean you have the necessary time to review all policy documents and information.
Document required for term insurance
Once you decide on buying a term plan, you will need to furnish the following documents:
1. Proof of identity
The purpose of proof of identity to be submitted as an important document is to ensure that there is no identity theft and that you are who you claim to be. Proof of identity in the form of these documents can be submitted:
- PAN Card
- Voter ID Card
- Passport
- Aadhar Card
2. Proof of age
The minimum age to avail of a term plan is 18. Also, the insurer will need you to submit proof of age at the time of calculation of proof of age. You can submit the following documents:
- PAN Card
- Aadhar Card
- Birth Certificate
- School Leaving Certificate
3. Proof of address
Proof of address needs to be submitted to ensure that insurance fraud does not occur. You will need to submit your current and permanent proof of address. You will receive the policy document at this address. If you are moving to a new place or city, updating the address with your policy provider is better. You can submit the following:
- Passport
- Aadhar Card
- Rent Agreement, if you live on rent
- Utility Bill.
- Telephone Bill
4. Income proof
The proof of income determines if you can pay the premium for your term policy. Documents like Salary Slips, Income tax returns, Form 16, etc., can be submitted.
Features of Term Insurance
As the simplest form of insurance, term insurances provide coverage for a set number of years. It is said to be affordable, easy to buy and some term plans also offer return of premium under certain conditions.
Hence, while choosing a term insurance plan, it is necessary to understand its features to know what makes it a viable option for you and your family:
Larger life cover
One can purchase a term life cover up to the age of 99, i.e., whole life or full life. This gives you maximum time coverage.
Enhanced cover
Riders add and enhance the protection offered by your term insurance policy. Riders can include critical illness coverage, accidental death benefit, permanent disability waiver, and terminal illness benefits.
Innovative features
Tax Benefits
The premium you pay for a term plan can be used for claiming a deduction under Section 80C of the Income Tax Act under the old income tax regime. So, you can claim a deduction of Rs 1.5 lakh on your annual income for the premium you pay for your policy in each financial year. Check with your insurer and tax advisor to confirm.
Multiple Payout Options
Payout and maturity benefits depend on the type of term insurance policy selected. Pure-term insurance plans typically do not have any maturity benefits. In case the policyholder passes away, his family receives a death benefit. For ULIPs, when the policy matures, the policyholder receives the maturity payout. Return of premium policies offers the entire premium paid, back upon maturity of the policy.
Most insurance policies offer multiple payout options
- Lump sum Payout: The policyholder or nominee will receive the entire payout amount in one go, and the policy ceases to be in effect.
- Fixed amount Payout: Under this type of payout, the family or the policyholder will receive the majority of the payout, say about 60%, in one go. The remaining amount will be disbursed as a fixed monthly income.
- Staggering Payouts: When you opt for a staggering payout, you or your family will receive a steady monthly income. This amount will be spread over a few years or a defined term.
- Increasing monthly Payout: If you choose to receive your payout monthly, you will receive a stipulated amount every month. Let’s say you have chosen to receive Rs 10,000 per month for 15 years. With the rise in inflation and the cost of living, this amount may not be able to meet rising expenses. At times like these, the increasing payout method comes in handy.
While choosing the increasing monthly payout option, you can increase your payout gradually every year. So you can choose to receive Rs 10,000 in year 1 and increase it to Rs 20,000 in year 2 and so on, until the completion of the tenure.
Premium waiver
While paying the premium is necessary to keep term insurance active, an optional rider known as a premium waiver can be chosen. This benefit comes into play if the insured person becomes physically disabled and is unable to pay the premium. It allows the policy to be active despite non-payment of premium, providing financial stability to the family members in the future.
Types of Term Insurance Plans
Term life insurance offers your family and dependents a big financial safety umbrella. Here are the various types of term insurance plans:
- Level term plan – This type of term plan is the most simple and basic plan available. In this variant, the sum assured remains constant throughout the policy term. The policyholder does not change the amount, and upon his passing, the death benefit is given to the nominees or beneficiaries.
- Increasing term plan – When you choose this type of term plan, you will choose to increase the sum assured periodically. This rate of increase will be pre-decided when you buy term insurance. So, let’s assume you have taken term insurance of Rs 50 lakhs and want to increase it to Rs 1 Crore, after 20 years. You have decided to increase the coverage by 5% every year.
So, 5% of Rs 50 lakhs= Rs 2.5 lakhs
To reach Rs 1 Cr from Rs 50 lakhs, you will increase your term cover by Rs 2.5 lakhs for the next 20 years. - Decreasing term plan - Here, the life cover continues to decline with time. It works on the assumption that as the policyholder ages, his liability and expenses may also come down.
- Term Plan With the return of premium - Under this special term plan, all your premiums paid are returned at the expiry of the policy term if the policyholder survives.