Consider these 3 factors -
- The last pandemic outbreak brought the limelight on the fragile mortality of human life.
- Over the last few decades, the inflation rate has skyrocketed
- The recent generations (Gen Y, millennials and Gen X) have grown increasingly finance-savvy and focused on saving and investing finances to safeguard their financial future.
As a combined outcome, we have witnessed an increased interest in life insurance products (term insurance plans, ULIPs, Endowment plans, etc.), mutual funds, stock market investments, and more. Among these, one of the most popular life insurance products is term insurance plans.
These plans have fetched massive popularity owing to their long list of pros led by features like affordability and 0 risk involvement since they are not market-linked products. However, on the flip side, such plans also have a couple of disadvantages.
So, do the cons outweigh the pros, or is it the other way around? Accordingly, should you opt for a term insurance plan at all? If yes, then what are the best term insurance plans available in the market? Here’s a quick look at the term insurance advantages and disadvantages in India -
| Term Insurance Advantages in India | Term Insurance Disadvantages in India |
|---|---|
| ✅ Affordability | ❌ Stringent eligibility criteria |
| ✅ Flexibility | ❌ 0 scope of investment |
| ✅ Multiple claim payout options | |
| ✅ Tax Benefits | |
| ✅ 0 risks involved |
What are Term Insurance Plans in India?
Term insurance plans are a type of life insurance product that comes into play as your financial replacement for your family in the event of your unfortunate passing away. These plans offer extensive coverage at a highly affordable premium. All you need to do is calculate the ideal policy tenure and compute the required cover amount to help financially secure your family’s future. Here’s how you can do that -
- Calculating the ideal term policy tenure: To calculate this, please remember that term insurance plans are meant to be your financial replacements to support your dependents in financially achieving their life stage goals, even in the event of your unfortunate absence. Thus, when choosing the tenure of your term insurance plan, consider these factors -
- Years till your retirement
- Number and age of dependents
This will help you understand the years till which you will require term insurance coverage. Some term insurance policies offer coverage until you are 99 years old. While this might seem to be a comprehensive and wholesome approach (considering it doesn’t require much calculation of the tenure), know this - such whole life insurance plans fetch high premiums since the payout risks are far higher.
Term insurance coverage till you turn 65 to 70 years old should be more than enough because that would be your retirement age, and the chances are high that your dependents will become financially independent by then. After this, you can always utilise the premium for the term insurance policy towards a savings account and/or a real estate/stock market investment.
2. Computing the required term policy cover: After you have decided on the term insurance tenure, you can factor this in along with a few other points to calculate the ideal term insurance policy cover. Remember, term insurance coverage varies from one policyholder to the other since the sum assured is supposed to cater to the customised financial goals and requirements of a family based on your income slab and the financial life stage events of the dependents.
So, we recommend using a free calculator to calculate the ideal term insurance cover by factoring in the policyholder's age, the policy tenure, the number and age of dependents, and the existing financial liabilities.
Now that you know how and why to calculate the ideal policy tenure and term insurance cover amount, let’s check out the advantages and disadvantages of term insurance in India.
What are the Advantages of Term Insurance Plans in India?
- ✅Affordability: Term insurance policies are one of the most pocket-friendly options available across the market. The premiums are considerably low, and you get access to a significant amount meant to act as your financial replacement for your family, which comes into play in case of your unfortunate absence (during the policy tenure).
Say you are a 30-year-old male with an annual income of ₹10 lakhs purchasing a term insurance policy worth ₹1 crore till you are 65 years old. Your premiums can range from ₹12k - ₹16k.
Considering the substantial amount you are offered, the premiums are genuinely affordable. Hence, term insurance plans have the edge over other life insurance policy products.
2. ✅Flexibility: It’s a common misconception that term insurance policies are not flexible. Well, that’s true, but only if you don’t know about the optimum term insurance riders you should avail of or the best term insurance plans you should purchase.
If you consider a vanilla term insurance plan, the insurer doesn’t usually offer a lot of scope for customisation or mid-policy term alterations to the plan cover amount. On the other hand, a family’s financial goals can undergo unplanned changes and hence require a higher/lower cover amount, etc.
Catering to such possibilities of changing financial goals, term insurance providers offer a diverse set of riders that include -
- Waiver of Premium
- Critical Illness Rider
- Terminal Illness Rider
- Accidental Death Benefit
- Increasing/ Decreasing Cover
- Life Stage Benefits
- Accidental Total and Permanent Disability Rider
These term insurance add-ons (some are also available as in-built features depending on the term insurance policy you purchase) give you extensive bandwidth to customise your policy to align with your evolving financial goals.
3.✅Multiple claim payout options - Term insurance plans involve a substantial amount. Since this amount is meant to cater to your short—and long-term goals, the insurer offers you options regarding how you want to receive the payouts—as a lump sum or over instalments. A policyholder has to make this choice during the purchase of the policy.
4. ✅Tax Benefits - Premiums to be paid towards a term insurance policy bear tax benefits under Section 80C and 10(10D) of the Income Tax Act up to ₹1.5 lakhs.
5. ✅0 risks involved: Term insurance policies are one of the few types of life insurance policies that are not market-linked. While term insurance plans don’t have an investment or return component associated with such policies, this also indicates that these policies are unaffected/indifferent towards market fluctuations. There are 0 risks associated with this type of life insurance policy.
What are the Disadvantages of Term Insurance Plans in India?
- ❌Stringent eligibility criteria: Term insurance plans have a long list of pros and involve a substantial cover amount against affordable premiums. Understandably, term insurance providers are pretty stringent when setting and meeting the required eligibility criteria for a term insurance plan.
Thus, when purchasing a term insurance plan, expect a long list of eligibility factors - occupation, age, habits, lifestyle, health condition, educational qualification, and more. Additionally, these eligibility factors have a significant influence in deciding:
- Whether you can opt for a term insurance or not, and
- What would be the assigned term insurance coverage?
2. ❌0 scope of investment: If you want to invest your corpus and get returns, let’s be straight - this isn’t the one for you. However, this may or may not be a cons of term insurance plans based on your financial moves and goals - experts usually recommend keeping your savings and investment components apart.
Plus, since term insurance plans are not involved in any investment intent or returns, there are 0 risks involved. What you save towards is what your beneficiary gets in case you pass away or are left permanently and totally disabled during the policy tenure.
Considering the pointers above, you can understand why term insurance remains a consistent favourite among financial products for those seeking to shield their family’s future financial goals.
Now, coming to what are the best-term insurance policies available in India, you need to remember that there are two sides to deciding this -
- The insurer angle: Let’s be clear: when you are dealing with any life insurance plan, a substantial amount is involved. Needless to say, you need an insurer who offers hassle-free disbursal services. The last thing you want is for your beneficiary to undergo issues when trying to access the sum assured left as a financial replacement for you.
To ensure this, choose a term insurance provider that has a -
- Claim Settlement Ratio of 97% and above
- Amount Settlement Ratio of 90% and above
- Complaint volume that is as low as possible
2. The plan angle: To decide this, you have to factor in -
- The coverage bandwidth must cater to your ideal term insurance sum assured (you can determine this using a free calculator).
- The policy must offer a variety of riders, including Critical Illness Rider, Terminal Illness perk (either as an in-built feature or as an add-on), Waiver of Premium, Increasing/Decreasing Cover Benefits, Life Stage Benefits, and Accidental Death Benefit.
- The premiums must be affordable (you can compare the various term insurance policies using free tools).
Based on this, here is a quick look at the top 5 term insurance plans available in India.
What are the Best Term Insurance Plans in India?
| Best Term Insurance Plans | Best Features | Drawbacks |
|---|---|---|
| Max Life Smart Secure Plus |
|
NONE |
| Tata Sampoorna Raksha Supreme |
|
NONE |
| HDFC Click 2 Protect Super |
|
Expensive as compared to other plans in its category |
| ICICI iProtect Smart |
|
Insurer could do a better job at improving its overall operational efficiency |
| Bajaj Allianz Life eTouch |
|
No Critical Illness Benefit |
Conclusion
Like any financial product, term insurance plans have advantages and disadvantages. However, in the case of term insurance plans, its pros outweigh its cons by a significant margin. This has given way to the increasing popularity of term insurance policies. All you need to be careful about is your choice of insurer, the best possible term insurance plan, and the most suitable term insurance riders that would customise the policy to cater to your tailored financial requirements.