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Short-Term Life Insurance

TeamAckoDec 20, 2024

When it comes to life insurance, many people think of long-term commitments requiring regular premium payments. However, not everyone needs or can afford such commitments. Short-term life insurance is a viable option for those who need temporary coverage. This comprehensive guide will discuss everything you need to know about short-term life insurance in India.

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Contents

What is short-term life insurance?
Features and benefits of short-term life insurance
Factors to consider when buying Short-term Life Insurance
How to Buy Short-Term Life Insurance in India
- Online purchase
- Offline purchase
Documents Required to Buy Short-term Insurance Policy
When to get a short-term insurance policy?
Why choose short-term life insurance?
Frequently Asked Questions (FAQs)

What is short-term life insurance?

As the name suggests, short-term life insurance provides coverage for a limited period. Typically, the coverage period ranges from one to 10 years. Unlike long-term life insurance, short-term life insurance does not accumulate cash value or have a savings component. It is a pure protection plan that pays a death benefit to the nominees if the insured member passes away during the coverage period.

Features and benefits of short-term life insurance

Here are the features and benefits of short-term life insurance.

Low Premium: One of the top benefits of buying a Short-Term Policy is that you can avail of it at a lower premium. Since it has no investment component attached, the policies are comparatively available at lower premiums. However, the premium will depend on the policy period and the sum assured.
Add-on Covers: You can choose to supplement your policy with add-on covers. Common add-ons include permanent disability, critical illness, and accidental death. For some additional premiums, you can get the following coverages:
Critical Illness Riders: You receive a lump-sum amount upon the detection of critical diseases covered under the plan.
Permanent Disability Riders: These offer a fixed amount if the insured is permanently disabled due to an accident.
Accidental Death Benefit Riders: In case of untimely death due to an accident, extra payouts, alongside the basic policy death benefit, are provided to your beneficiaries.
Tax Benefit: Under Section 80C, Income Tax Act, 1961, premiums paid towards a short-term life insurance policy are qualified for deduction from your taxable income. Moreover, the death benefits paid to the policyholder's beneficiary will not be taxable under Section 10(10D) of the Income Tax Act 1961.

Note: Tax benefits on Life Insurance plans are available under the Old Tax Regime. However, if you opt for the New Tax Regime to pay income tax, any payouts above Rs. 5 lakhs will be taxable for policies purchased after April 2023.

Surrender benefit: If you surrender the policy before the maturity period, you can avail of the surrender benefit for a short-term life insurance policy.

Factors to consider when buying Short-term Life Insurance

Here are some factors that you should consider when buying a short-term life insurance policy for yourself or your loved ones.

Policy term

Decide your preferred period for which you want to take insurance and choose the plan accordingly, whether long-term or short-term. If you want a policy below five years, go for a short-term policy.

Coverage amount

How much coverage do you need? If you need small or medium coverage for a short duration, go for a short-term policy. The premium will be lower and serve you well in the short term.

Frequency of premium payment

How often are you comfortable paying the premium, and for how long? It will decide the policy you take up. If you want to pay low premiums for a short period, go for a short-term policy.

Life stage and dependents

Evaluate your life stage when planning to buy Life Insurance. Your age, financial situation, marital status, etc., form the basis for choosing the policy duration, the amount of life coverage, and, therefore, the policy itself. If you are your family's sole provider, they may depend on you.

Consider your lifestyle

Your lifestyle dramatically affects your choice of insurance. Your spending habits and standard of living determine the extent of your future expenses. If you can make this assessment correctly, you can effectively secure your family's future. When you have a clear lifestyle picture, you can financially safeguard your loved ones more efficiently.

Income

It is essential to consider your income while opting for a policy. It would be best if you were aware of all your financial commitments and your various sources of income. Opting for a massive policy amount does not make sense if you cannot pay high premiums. If you do not calculate this correctly, you may end up with small insurance coverage or with high premiums to pay that you cannot afford.

Present liabilities

Your current financial obligations and liabilities are essential factors in determining your term insurance. If you have loans to be paid in the long term and your policy cannot cover them, it can be financially stressful for your loved ones. Therefore, it is necessary to consider your debts while deciding on the policy.

The Claim Settlement Ratio is the percentage of claims settled by an insurer versus the total number of claims received in a financial year. It gives you an idea about the insurer's capacity and objective to abide by its end of the insurance agreement. Deciding on an insurer and policy that will benefit you and your family the most is helpful.

How to Buy Short-Term Life Insurance in India

Here are ways in which you can buy life insurance in India.

Online purchase

Navigate to the webpage of an insurer of your choice. Register or log in to your account. Compare the different short-term policies on offer. Choose the one that suits your requirements and proceed to click on buy. Fill out the necessary details in the insurance form and make the payment. Your purchase is complete, and you will receive your policy details by email.

Offline purchase

Visit the insurer's office and talk to an insurance advisor. If you already know one, you can ask them to meet you. Tell them about your requirements and that you wish to buy a short-term insurance policy. After careful consideration, finalise the policy. Please give them the forms with complete details and signatures and make the payment. Your policy documents will be sent to you by email or postal service.

Documents Required to Buy Short-term Insurance Policy

You may need the following documents to buy short-term insurance in India.

Identity Proof - PAN card, Adhar card, Voter ID, Passport
Age Proof - Birth Certificate, Passport, Adhar Card
Income Proof - Salary slip, CA certificate, Bank statement, Income Tax returns, Form 16.
Residence Proof - Ration card, Driving licence, Adhar card, Passport, Passbook, Utility bills
Self-declaration form
Duly filled application form

Note: The documents mentioned above are indicative and may differ from the ones your insurer may request.

Also, Read: Documents required for passport

When to get a short-term insurance policy?

It would help if you considered buying a short-term insurance policy in the following events:

Significant changes in your lifestyle or physical health
Exposure to risk or any danger
Processing long-term life insurance policy
As a protection against short-term liabilities
Salaried people looking for work
An unpaid debt matching the short-term policy duration
Short period left in retirement, and you need to secure yourself financially for the transition
You are above 60 years of age, and your previous life insurance is about to lapse
A committed financial expenditure is coming up soon, like your child's advanced education or wedding

Remember that a short-term policy cannot meet your family's day-to-day expenses but is only covered in an emergency. It can be used only as supplementary financial protection and not as the sole source of income.

Why choose short-term life insurance?

Short-term life insurance is an ideal choice for those who need temporary coverage. It is especially useful for individuals who have short-term financial obligations or liabilities to protect their families against in case of their sudden demise.

For example, if you have a home loan or a car loan, you can opt for short-term life insurance to ensure that your family is not burdened with the repayment in case of your untimely death.

Short-term life insurance is also more affordable than long-term life insurance. The coverage period is shorter, and the premiums are lower, making it an attractive option for those on a tight budget.

Frequently Asked Questions (FAQs)

Below are the answers to the given questions regarding the Short term in Life Insurance.

Which types of life insurance policies are primarily available in India?

The life insurance policies available in India are Retirement Plans, Term Insurance, Group life insurance, Child Insurance Plans, Money-Back policy, Whole life insurance, Term insurance with return of premium, Unit Linked Insurance Plans and Endowment plans.

Can I invest in a long-term insurance plan in the future?

Yes, it is entirely your choice to buy long-term insurance in the present or the future. Once you have taken a short-term policy, continuing with the same type is not mandatory.

Is short-term insurance more suitable for retirement planning?

A specific policy duration does not cater to retirement needs. If you are young, you may go for a long term insurance plan. However, if you are closer to retirement, it may be more appropriate for you to buy a short-term insurance policy.

Is it possible to purchase many different life policies at once?

You can choose to buy multiple life insurance policies for comprehensive coverage. This helps you build a versatile investment and insurance portfolio.

What’s the maximum coverage I can get for an Accidental Death Benefit rider?

As per the IRDAI, you can purchase an Accidental Death Benefit Rider with coverage up to three times (3x) the base sum assured of your life insurance policy.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.