What Are the Terms and Conditions of Term Insurance?

Term insurance may appear straightforward, but how well it works depends entirely on its terms and conditions. These rules determine who can buy the policy, how long the cover lasts, how premiums must be paid, and what happens if payments are missed.

They also specify situations where a claim may be rejected and outline the exact process your family must follow to receive the payout. Since these conditions are legally binding, they are detailed in the policy wording document.

This article breaks down those terms clearly, so you know exactly what you are buying and how your policy works at claim time.

What Are the Terms and Conditions of Term Insurance?

1. Policy Term

The policy term is the duration for which your life insurance cover stays active, commonly 20, 30, or 40 years. It should align with how long your family depends on your income and financial responsibilities.

2. Contestability period

As per IRDAI rules, a life insurance policy cannot be contested after three years from the policy issuance, risk start, revival, or rider start date, whichever is later. This makes accurate disclosures especially important in the first three years.

The sum assured is the payout your nominee receives if you pass away during the policy term. It should be sufficient to cover loans, daily expenses, and long-term goals like your children’s education.

3. Premium Payment Term

The premium payment term refers to how long you need to pay premiums to keep the policy active. There are three common options:

• Regular Pay: Premiums are paid throughout the policy term.
• Limited Pay: Premiums are paid for a shorter period, while coverage continues longer.
• Single Pay: The entire premium is paid up front.

After choosing the payment term, you can usually select how often you pay premiums, such as monthly, quarterly, half-yearly, or annually. Payment frequencies other than annual typically cost about 2 to 5 percent more due to administrative expenses.

Note: The premium payment term is usually fixed at purchase, but the payment frequency can usually be changed at renewal for added flexibility.

4. Maturity, Payout, Grace Period, and Revival Conditions

Term insurance is a pure protection plan, so there is usually no payout if you survive the policy term. Some insurers offer a Return of Premium (ROP) option, but it costs significantly more and generally offers poor value. In most cases, a basic term plan combined with separate investments works better.

If the policyholder passes away during the policy term, the sum assured is paid to the nominee. This payout can be structured in different ways, based on the option chosen at purchase:

• Lump sum payout (recommended): The entire sum assured is paid at once.
• Income payout: The sum assured is paid as regular income over a fixed period.
• Combination payout: Part of the amount is paid upfront, with the rest paid as income.

Payout options are usually chosen at purchase, though some plans allow limited flexibility at claim time. Premiums must be paid on time, with a 15–30 day grace period. If unpaid, the policy lapses but can usually be revived within five years, subject to overdue payments and sometimes fresh medical checks.

5. Policy Lapse and Revival

If premiums are not paid within the 15–30 day grace period, the policy lapses and coverage stops. Most insurers allow revival within a few years, subject to payment of overdue premiums, interest, and sometimes fresh medical checks.

6. Entry Age and Policy Term Restrictions

Most insurers allow term insurance purchases between ages 18 and 65, with maturity ages typically capped at 85 years. Some whole life term plans extend coverage up to 99 years.

Choose a policy term that matches how long your dependents rely on your income and how long your major liabilities, such as home loans, remain outstanding.

7. Free Look Period

Every term insurance policy includes a 30-day free look period to review the terms. If unsatisfied, you can cancel the policy for a refund after applicable deductions or request changes before making a final decision.

8. Claim Payout Clauses

Insurers require documents such as the death certificate, nominee identity proof, and medical records. Additional documents may be required depending on the case.

9. Riders and Add-on Conditions

Riders are optional benefits such as critical illness, waiver of premium, or accidental disability. Each rider has separate eligibility rules, exclusions, and waiting periods, and they should be reviewed independently.

10. Termination of Policy

A term insurance policy ends when the policy term is completed, a valid death claim is paid, or the policy lapses and is not revived. No payout is made unless a Return of Premium option was chosen.

Policy Exclusions in Term Insurance to Watch Out For

Exclusions are situations where the insurer may not pay the claim, even if the policyholder dies during the policy term. Common exclusions include:

1. Suicide within the first 12 months of policy commencement or revival. Policies may refund premiums paid in these cases, but the death benefit may not be paid.
2. Deaths during illegal activities, such as criminal acts or while evading law enforcement, in which the insured person is involved.
3. Nondisclosure or misrepresentation of medical history or lifestyle habits, such as smoking or drinking.
4. Deaths related to substance abuse, depending on how the policy defines it.

Why Choose Ditto for Term Insurance?

At Ditto, we’ve assisted over 8,00,000 customers with choosing the right insurance policy. Why customers like Aaron below love us:

• No Spam & No Salesmen
• Rated 4.9/5 on Google Reviews by 15,000+ happy customers
• Backed by Zerodha
• 100% Free Consultation

You can book a FREE consultation. Slots are running out, so make sure you book a call now.

Ditto’s Tips for Reviewing Policy Documents

Many buyers assume term insurance offers maturity benefits, even though standard plans do not pay anything unless a Return of Premium option is chosen. Others reduce coverage to save on premiums, which can leave their family financially exposed. Failing to disclose medical conditions or lifestyle habits honestly, or skipping the policy wording altogether, often leads to problems at claim time.

To avoid these mistakes, read the policy wording carefully rather than relying on brochures. Pay close attention to exclusions, definitions, and claim requirements, especially around health and lifestyle details. Also, understand how claims are filed and compare plans beyond premiums by looking at rider terms and claim support.