What is the Importance of Term Life Insurance Policies in India?

Whether you are born in the 80s, 90s, or 2000s, the last decade has witnessed a solid spike in interest towards financial channels. However, based on the subject's age in discussion, there was a variation in the financial product that he/she was interested in. Basically, the older the subject, the lower the risk absorption potential, and hence, there was a steady leaning towards non-market linked savings products. On the other hand, Gen Z had unwaveringly grown savvy about the stock market-based and return-oriented products. 

However, of late, irrespective of one’s age, people have opted for an affordable option for securing one’s family’s financial future in anticipation of something unexpectedly unfortunate happening to the breadwinners. The popular product in this vertical is term insurance plans. Its affordable premiums ensure that the policyholder has the perfect bandwidth to take up a separate financial product for investment and returns while still enjoying a pure financial protection product (read: "term insurance policies"). 

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What are Term Life Insurance Policies in India?

Term insurance gives you peace of mind by replacing your income if something happens to you unexpectedly. If you pass away, your family gets a lump sum payout that helps keep them financially secure. This payout can cover everything from daily expenses to big financial goals, even without the primary earner.

The amount your family receives depends on the policy and the premiums you’ve paid. This money can go toward funding your children’s education, handling major life expenses, or even purchasing assets. For young individuals with dependents, term insurance is a smart way to protect your loved ones if something happens to you.

Choosing the right term insurance plan is a big decision, so picking one that fits your needs is important. Term insurance is flexible and designed to ensure both you and your family stay financially stable. Finding the best plan for you is essential.

What is the Importance of Term Life Insurance Policies in India?

Imagine you're a 45-year-old man and the sole breadwinner in your family. You have a 42-year-old spouse, a 10-year-old child, and elderly parents. Now, if something were to happen to you—say, you pass away or are bedridden after an accident—how would your family manage daily expenses, loans, education costs, medical bills, and more without a steady income?

This is where term insurance comes in. It’s an affordable way to protect your family's financial future if you're no longer around. The payout from your policy can help cover various expenses and ensure your family continues to meet their goals, even without the primary earner.

While this is the main reason many people buy term insurance, let’s take a closer look at some of the other top benefits of these plans.

1. Ample of coverage as sum assured: Term insurance providers set strict eligibility criteria for buying a plan. They assess factors like your age, income bracket, employment status, existing financial obligations, current insurance coverage, education level, gender, habits (like smoking), lifestyle, and any pre-existing medical conditions.

While these criteria may seem tough, they make sense. After all, term insurance offers a substantial sum assured, often running into crores, designed to replace your income.

The good news? These stringent requirements help keep premiums low. This is a big plus since term insurance is a long-term financial commitment. Lower premiums make it easier to manage your finances without adding unnecessary stress.

2. Lock-in premiums at your purchase age: Remember how we mentioned that term insurance premiums are pretty affordable? Well, that’s not the only advantage. There’s another great perk—term insurance has a unique feature you won’t find in other life or health insurance plans. The premium amount gets locked in based on your age at the time of purchase, and it stays fixed.

Here’s an example to understand this -  

If your premiums went up every year, you'd end up paying a lot more over time. However, since your premiums are locked in based on your age when you buy the policy, you save a significant amount on total premiums throughout the policy term. 

3. Return of Premium (ROP) option: With term insurance, your beneficiaries typically receive the coverage amount if something happens to you. But if you choose the Return of Premium (ROP) option, you'll get all your premiums back—minus the GST—if you outlive the policy.

Keep in mind, though, that this extra feature usually comes with higher premiums than a standard plan. The rider is not actually recommended, considering that at maturity, the accrued premium under the influence of inflation would ultimately be nominal.

On the other hand, if you actually invest the same amount for your base premium, you can get easy access to a larger sum assured when the plan is claimed anytime in the next 30-40 years. 

4. Multiple options across death benefit payout: When you buy a term insurance plan, the insurer gives you two options for how you'd like the payout to be handled -

• Staggered - When the policyholder passes away, the beneficiaries receive the death benefits in instalments based on the schedule set by the insured. This approach helps the family manage their monthly expenses more easily.
• Lump sum - When the policyholder passes away, the full coverage amount is paid out in a lump sum. The family can then decide how to divide and use the money for their future needs. This works well for families who are confident in managing their finances. However, it’s a good idea to have full access to the payout, just in case you're unsure about how your insurer will handle things.

(Please note: Some insurers even offer a mix of both options—where part of the cover is paid out as a lump sum, and the rest is given in instalments.)

5. Flexible premium payments: Term insurance plans are flexible products designed to meet different financial needs and goals. That's why insurers offer various ways to pay your premiums.

• Limited - You can choose to pay your premiums in fixed intervals, usually over a period shorter than the full term of the plan. Insurers offer options like 5, 7, 10, 12, or 15 years for repayment. This flexibility allows you to pay at a pace that works for you, helping you stay financially stable while still covering your insurance.
• Regular - You can choose to pay premiums monthly, quarterly, or annually throughout the entire duration of your plan. For example, if your plan lasts 40 years, you'll keep paying your premiums every month, quarter, or year for the full 40 years.
• Single - You can make one big upfront payment for the entire plan. However, this can be very costly and might limit your ability to add term insurance riders.

6. Affordable term insurance riders offering wholesome customisation: Vanilla term insurance policies are a solid foundation, but you can always customise them to get the most out of your coverage. The key is choosing the right riders. Here are some of the most popular ones to consider.

• Terminal Illness Rider  - If you're diagnosed with a terminal illness and your doctor provides a written statement that you have only a few months to live, this rider will let your insurer pay out a large sum that you can use however you like. The catch is, in India, many doctors are reluctant to make such a declaration, which means you might not be able to fully take advantage of this rider. (P.S. In most cases, the terminal illness perk is an in-built feature in base term insurance plans, not a rider.)
• Lifestage Benefits - Let's say you originally planned for just one child, but now you're expecting another. That means you'll need more coverage once the new baby arrives. This rider is great for situations like that—it lets you increase your coverage when major life changes happen. While most term insurers are pretty rigid about changing your plan, this rider gives you the flexibility to boost your coverage during key life events.
• Decreasing Cover - This rider can make sense if you're concerned that your dependents might become financially independent sooner than expected. Since a larger coverage means higher premiums, you might prefer to save on premiums and invest that money elsewhere. However, reducing your coverage means you really need to be sure that your family won't ever need that extra protection. It’s a big decision, so make sure you're confident in your choice.
• Increasing Cover - This rider can be useful if you feel the initial coverage amount doesn't quite meet your needs. For example, if you have more dependents or their financial needs change over time, this rider lets you gradually increase your coverage. However, be aware that plans with this feature tend to be pricier than standard ones. Our advice? It's better to consult an expert when deciding your coverage amount and skip this rider if possible.
• Accidental Death Benefit - This rider is perfect if you travel often or work in a risky environment prone to accidents. It pays out a significant amount on top of your base coverage if the policyholder dies in an accident. 
• Waiver of Premium - We highly recommend this rider because it ensures you don't have to pay premiums if you are diagnosed with a critical illness or a total and permanent disability; this helps manage financial obligations at a time when you might not be able to work. This way, your family remains financially protected, even if you're left unable to earn and pay the premiums.
• Critical Illness Rider - This add-on gives you a lump sum if you're diagnosed with a critical illness. You can use the payout however you choose. In our view, this rider is something everyone should consider. 

7. Tax benefits 

How to Choose the Best Term Life Insurance Policies in India?

STEP 1: Decide upon the best sum assured for yourself

• Consider Your Life Stage and Dependents
• Analyse Your Income (consider inflation, take a look at your existing financial liabilities, and assess your current lifestyle)

STEP 2: Seek out the best term life insurance provider

• Claim Settlement Ratio  (CSR) of 97 or above
• Amount Settlement Ratio (ASR) of 90 or above 
• Low Complaint Volume of at least below 20

STEP 3: Feature/ benefit to increase/decrease the cover amount

STEP 4: Look into the available term insurance riders available. As mentioned earlier, term insurance plans are highly customisable thanks to various add-ons. 

What are the Best Term Life Insurance Policies in India?

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