A term insurance policy is one of the simplest and most affordable ways to protect your family’s financial future. Many people buy it, but not everyone clearly understands how it works.
Knowing the right facts helps you choose the correct plan and avoid common mistakes.
In this article, we explain the key facts related to term insurance in clear and simple language.
1. Term Insurance Is Pure Protection
Term insurance is a pure life cover.
It does not offer maturity benefits like traditional savings plans.
- If the policyholder passes away during the policy term, the nominee receives the sum assured.
- If the policyholder survives the term, no amount is paid.
This makes term insurance affordable and focused only on financial protection.
2. It Is the Most Affordable Life Insurance
Term insurance offers high coverage at a low premium.
For example:
- A ₹1 crore cover can cost as low as ₹500-₹800 per month (depending on age and health).
- Premiums are much lower than endowment or ULIP plans.
This makes it ideal for young professionals and families.
3. Premium Depends on Multiple Factors
Your premium amount is decided based on:
- Age
- Health condition
- Lifestyle habits (smoking, drinking)
- Policy term
- Coverage amount
Buying a policy at a younger age helps you lock in lower premiums for the full term.
4. Policy Term Can Be Chosen as Per Need
You can choose the policy duration based on your responsibilities, such as:
- Until children become financially independent
- Until major loans are repaid
- Until retirement age
Most insurers offer terms from 10 to 40 years.
5. Riders Can Enhance Coverage
Term insurance plans allow optional riders for extra protection, such as:
- Accidental death benefit
- Critical illness rider
- Waiver of premium
- Disability cover
These riders increase protection at a small additional cost.
6. Death Benefit Options Are Flexible
Insurance companies offer different payout options:
- Lump sum payment
- Monthly income
- Combination of lump sum and monthly income
You can choose based on your family’s financial needs.
7. Tax Benefits Are Available
Term insurance offers tax advantages under Indian tax laws:
- Premiums paid qualify for deduction under Section 80C
- Death benefit received is tax-free under Section 10(10D)
This makes it a tax-efficient financial tool.
8. Medical Tests May Be Required
Depending on your age and coverage amount, insurers may ask for medical tests.
This helps in accurate risk assessment and ensures smoother claim settlement later.
9. Claim Settlement Ratio Matters
Always check the insurer’s claim settlement ratio.
A higher ratio indicates better chances of claims being honoured without issues.
10. Term Insurance Is Not an Investment
Many people expect returns from term insurance, which is incorrect.
It is meant only for financial protection, not wealth creation.
For investment goals, options like mutual funds or ULIPs are more suitable.
Conclusion
A term insurance policy is a smart and essential financial tool for anyone with dependents. It offers high coverage at a low cost and ensures your family’s financial stability in your absence. Understanding these key facts helps you choose the right policy and avoid common mistakes.
If you plan carefully and buy early, term insurance can become one of the strongest pillars of your financial planning.