What is Term Insurance Term Plan Meaning & Benefits

Term insurance provides financial security for your family, ensures their standard of living in your absence, offers affordable premiums, and covers outstanding loans or debts. Its main benefit is the provision of a lump sum payout to nominees in case of the insured's untimely demise, enabling them to manage expenses and liabilities without financial hardship. This makes it one of the best term insurance plans for long-term financial protection.

What is Term Insurance?

If you’re wondering what is term insurance, it is one of the simplest and most cost-effective life insurance options that provides pure risk cover. The reason to get an insurance policy 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 a term life policy comes in. It is necessary to know the finer details of term insurance, term insurance eligibility, and the features of different types of term insurance plans.

Term Insurance Meaning

To understand a term plan policy, you must first define term insurance. A term life insurance policy is said to be the simplest and the purest form of an insurance plan. It means the policy provides life cover till a specific date or period or until the policyholder's demise.
Like all insurances, a term plan is a contract between you, the policyholder, and the company, the assurer. When you avail of 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 best term insurance plans is to understand their end goal.
Life Cover: Before choosing a term life policy, 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 term insurance application or 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 of the policyholder's demise. In the unfortunate event of death, 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 time, as decided by the policyholder.

Eligibility for Term Insurance

The eligibility for a term life policy is as follows:

• Age: To avail of term insurance plan, the policyholder should be a minimum of 18 years. The maximum age limit is 65 years. An individual can buy a term plan for any family member between this age group.
• Citizenship: At the time of purchasing the best term life 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 be willing to 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 proposal may not be rejected based on occupation, 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 insurance premium online with the latest technology and user-friendly websites and apps. Or, you can check your term plan 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 calculators. Once you have all the quotes, you can compare and assess which one is better for you. Note that term insurance calculators will give a range you can expect the premium to be. It is an approximation, not the exact quote.
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 understand what is term life insurance and decide to buy one, you can avail of 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.
Critical illness cover – This rider provides an extra amount if you are diagnosed with a critical illness such as cancer or kidney failure. A serious illness can affect your health, ability to work, and income. This is where critical illness coverage in term life insurance becomes valuable.
Accidental death or disability cover – Depending on the severity of the accident, you may need significant funds for medical expenses and living costs. This rider in a term plan offers financial protection in such cases. Some term insurance policies also cover accidental dismemberment.
Some term plan riders have an in-built premium waiver facility. Under this, your future premiums are waived if you become disabled due to an accident. Your coverage continues even without further premium payments.

Assign a Nominee

Apply Online

Buying a term insurance plan online often comes with lower premiums as insurers save on operational costs. It also gives you time to review all term insurance details before making a decision.

Documents Required for Term Insurance

When applying for a term plan, you must provide the following documents:

1. Proof of identity – To prevent identity theft. Acceptable documents include:

• PAN Card
• Voter ID Card
• Passport
• Aadhaar Card

2. Proof of age – Minimum age to buy a term insurance policy is 18. Documents include:

• PAN Card
• Aadhaar Card
• Birth Certificate
• School Leaving Certificate

3. Proof of address – Ensures proper communication and fraud prevention. Update your insurer if you move. Examples:

• Passport
• Aadhaar Card
• Rent Agreement
• Utility Bill
• Telephone Bill

4. Income proof – Confirms your ability to pay term plan premiums. Examples: Salary Slips, ITR, Form 16.

Features of Term Insurance

Term insurance plans are affordable, straightforward, and can even include a return of premium. Key features include:

• Larger life cover – Available up to age 99 for whole-life coverage.
• Enhanced cover – Add riders such as critical illness cover, accidental death benefit, and premium waivers.
• Tax benefits – Premiums qualify for deductions under Section 80C.
• Multiple payout options – Lump sum, fixed payouts, staggered payouts, or increasing monthly payouts.
• Premium waiver – Keeps the term insurance policy active if you can’t pay due to disability.

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:

1. 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.

2. 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.

Example:

Let’s assume you have taken term insurance of ₹50 lakhs and want to increase it to ₹1 crore after 20 years. You have decided to increase the coverage by 5% every year.

• 5% of ₹50 lakhs = ₹2.5 lakhs
• To reach ₹1 crore from ₹50 lakhs, you will increase your term cover by ₹2.5 lakhs for the next 20 years.

3. 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.

4. Term Plan with 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.
Frequently Asked Questions about Term Insurance

1. What is term insurance and how does it work?

Term insurance is a type of life insurance that provides coverage for a fixed period. If the policyholder passes away during this term, the insurer pays a lump sum amount (sum assured) to the nominee. If the policyholder survives the term, there is generally no payout unless you have a plan with a return of premium option.

2. Is term insurance good or bad?

Term insurance is considered a good choice if your primary goal is to secure your family’s financial future at an affordable premium. It offers high coverage at a low cost, making it a cost-effective option for pure life protection. However, it does not build cash value like some other insurance products.

3. Do I get money back in term insurance?

In standard term insurance plans, there is no payout if you survive the policy term. However, with a Term Plan with Return of Premium (TROP), you get back all the premiums paid at the end of the term, making it a more savings-oriented option.

4. What is a disadvantage of term insurance?

The main drawback is that it doesn’t offer any maturity benefit in pure term plans. If you outlive the policy term, you won’t receive any money unless you’ve chosen a return of premium plan.

5. Who is eligible for term insurance?

Generally, any individual aged 18 or above can buy a term insurance policy, with the maximum entry age usually around 65 years. Eligibility may also depend on medical tests, income proof, and other criteria set by the insurer.

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

Your premium amount is influenced by factors such as your age, gender, medical history, lifestyle habits (like smoking or drinking), occupation, location, and the chosen sum assured and policy tenure.

7. Can I buy term insurance for my spouse?

Yes. Many insurers offer joint term insurance plans that cover both you and your spouse under a single policy, often at a lower combined premium than two separate plans.

8. Does term insurance expire?

Yes. Term insurance is valid only for the duration of the policy term you choose. Once this period ends, the coverage stops unless you renew or buy a new policy.

9. What is a term insurance rider?

A rider is an optional add-on to your base term insurance plan that enhances its coverage. Examples include critical illness cover, accidental death benefit, premium waiver, and disability cover. Riders usually require an additional premium.