Question 1

Why Do You Need Term Insurance?

Accepted Answer

You need term insurance if you are the primary breadwinner and have financial dependents. Your untimely demise can jeopardise your family's future if you don't have adequate life cover. Term insurance ensures that your family can maintain their current lifestyle, meet living expenses, pay outstanding loans and pursue other goals despite your absence.

Question 2

What is the Difference Between Term Insurance and Other Life Insurance Plans?

Accepted Answer

While other life insurance plans like endowment and money-back offer maturity benefits, term insurance is a pure protection plan. It only pays the sum assured if you pass away during the term and provides no maturity value.

Question 3

How Much Cover Do You Need?

Accepted Answer

Your term insurance cover should be enough to pay off debts, maintain your family's living standards and meet financial goals in your absence. You should have coverage of at least 10 to 15 times your annual income. However, your specific situation should guide the cover amount.

Question 4

What Factors Decide the Premiums?

Accepted Answer

Premiums depend on the insured person's age, policy term, sum assured, lifestyle habits and health condition. The premium increases with age and sum assured, while longer terms have lower premiums. Smokers pay higher premiums than non-smokers due to increased health risks. Pre-existing diseases or poor health also raise premiums.

Question 5

Can You Change the Sum Assured Later?

Accepted Answer

Most insurers allow you to increase or decrease the sum assured after a few policy years, subject to updated financial situations and income proofs. Premiums are adjusted accordingly. However, each company has specific norms, so check policy terms.

Question 6

What is the Ideal Policy Term?

Accepted Answer

Choose the maximum tenure you can afford until age 60 or 70. Longer terms mean lower premiums. They also provide extended protection, so your nominee gets adequate time to be self-reliant in case of early demise.

Question 7

Are Term Plans Tax-Exempt?

Accepted Answer

Yes, term insurance premiums up to Rs 1.5 lakh per year qualify for tax benefits under Section 80C. The death benefit is also tax-free under Section 10 (10D).

Question 8

Can NRIs and Smokers Buy Term Plans?

Accepted Answer

Yes, most insurers offer term plans specifically for NRIs and smokers. However, premiums are higher.

Question 9

What Events Are Covered for Death Benefit Payout?

Accepted Answer

The nominee receives the death benefit for natural or accidental during the term period (unless expressly excluded in the policy). This includes death outside India as well.

Question 10

Can You Get Monthly Income On Term Plans?

Accepted Answer

Yes, some term plans offer the option to receive the death benefit as a lump sum or monthly payments for income replacement. You can also choose to increase payouts to beat inflation.

Question 11

What are Riders & How Do They Help?

Accepted Answer

Riders come with extra premiums for additional coverage, such as critical illness and disability, expanding the scope of protection. The premium waiver rider pays premiums on disability, while critical illness riders offer lump sum payouts for listed illnesses.

Question 12

What if You Survive the Entire Policy Term?

Accepted Answer

As term insurance offers life cover only, the policy terminates if you survive the tenure. However, plans like ROP (Return of Premium) may return all/partial premiums paid upon maturity. You can also renew the policy for continued protection as per applicable norms.

Question 13

What documents are required to buy a term insurance plan?

Accepted Answer

The critical documents required are identity proof, address proof, a recent photograph, income proof documents, and medical reports, if applicable. The insurer may request additional documents based on the sum assured and your specific case.

Question 14

Is there any limit on the maximum sum assured one can opt for?

Accepted Answer

Most insurers offer a sum assured of up to Rs. 5 crore and can go even higher. However, the insurer may have internal limits on the maximum amount based on income and other eligibility criteria.

Question 15

Can a term insurance plan be assigned or transferred?

Accepted Answer

Yes, term plans allow the assignment or transfer of the policy as per Section 38 of the Insurance Act, 1938, as amended from time to time. This facilitates the planning of one's estate and legacy.

Question 16

What is the claim settlement ratio for term plans?

Accepted Answer

Term insurance plans generally have very high settlement ratios - often 95% or more. This means that of all the claims received by the insurer, 95% or more are settled with the payment released to the nominee/beneficiary.

Question 17

Can I Buy Term Insurance Online?

Accepted Answer

Yes, most insurers offer the convenience of purchasing term insurance online. This process is quick, allows you to compare different plans, and often comes with lower premiums due to reduced administrative costs. Online applications usually require filling out a form, uploading documents, and sometimes completing a medical test.

Question 18

What is a Free Look Period?

Accepted Answer

The free look period is a specified timeframe, typically 15 to 30 days, during which you can review the policy terms and cancel the policy if you are unsatisfied. If you cancel within this period, you receive a refund of the premium paid, minus administrative charges.

Question 19

What Happens if I Miss a Premium Payment?

Accepted Answer

Most policies offer a grace period, typically 30 days, during which you can pay without losing coverage. However, if the premium is not paid within the grace period, the policy may lapse, and coverage will be terminated.

Question 20

How Does Increasing Term Insurance Work?

Accepted Answer

Increasing term insurance allows the sum assured to increase at a predetermined rate, usually annually, to keep pace with inflation. This type of policy helps ensure that the coverage remains adequate over time without requiring a new policy.

Question 21

What is Decreasing Term Insurance?

Accepted Answer

Decreasing term insurance has a sum assured that decreases over the policy term, often in line with the decreasing balance of a mortgage or loan. This type of policy is helpful for those who want coverage that corresponds with their outstanding financial liabilities.

Question 22

Can I Cancel My Term Insurance Policy?

Accepted Answer

Yes, you can cancel your term insurance policy at any time. However, if you cancel the policy after the free look period, you may not receive a refund of the premiums paid. It’s essential to understand the policy’s cancellation terms before purchasing.

Question 23

What is a Joint Term Insurance Policy?

Accepted Answer

A joint-term insurance policy covers two individuals, usually spouses, under a single policy. It provides a death benefit on the first or, in some cases, the second death. This type of policy can be cost-effective and convenient for couples.

Question 24

How Does a Term Insurance Policy Benefit Young Policyholders?

Accepted Answer

Young policyholders benefit from lower premiums due to their age and better health. Additionally, locking in a term insurance policy early ensures long-term coverage at an affordable rate, providing financial security for future dependents.

Question 25

What is Term Insurance with Return of Premium (ROP)?

Accepted Answer

Term insurance with Return of Premium (ROP) offers a maturity benefit: the premiums paid will be returned if the policyholder survives the term. While these policies have higher premiums than standard term insurance, they provide a savings component.

Question 26

How Does Term Insurance Help in Estate Planning?

Accepted Answer

Term insurance can be integral to estate planning by ensuring liquidity to cover estate taxes, debts, and other expenses. The death benefit provides immediate funds to beneficiaries, ensuring the estate can be settled without selling off assets.

Question 27

What is the Role of an Insurance Agent in Buying Term Insurance?

Accepted Answer

An insurance agent can help you understand different term insurance policies, compare plans, and choose the one that best meets your needs. They can provide personalised advice based on your financial situation and assist with the application process.

Question 28

How Does Term Insurance Benefit Self-Employed Individuals?

Accepted Answer

For self-employed individuals, term insurance provides a crucial safety net, ensuring their families are protected against income loss in case of death. It helps cover personal and business debts and provides funds to sustain the family’s standard of living.

FAQs on Term Insurance: All You Need To Know

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Fequently Asked Questions (FAQs) on Term Insurance