Understanding the concept of Term Life Insurance
Term life insurance or Term insurance has become the most famous life insurance policy in the recent years due to the coverage offered under the term insurance and the premium associated with it. Originally there were only money back policies and savings products offered by the life insurance companies in India, but in 2009 the first term insurance product was introduced by Aegon Religare Life Insurance Company. After few years with the entry of other private players in the market the popularity of the term insurance has increased many folds due to the innovative methods adopted by the life insurance companies.
Term insurance has been the best tool to spread insurance awareness in the Indian market. In the beginning only the offline term insurance was available that too with the medical tests but later with the advent of technology and online sales, term insurance is now offered up to a certain limit with tele medicals where the insurance companies take health related declaration from the customer through phone. Due to the increase awareness among the general public in India, term insurance has become the synonym for life insurance.
What is term insurance?
Term insurance is a contract or agreement between the Life insurance Company and the customer in which the life insurance company agrees to pay a definite agreed amount in the event of the death of the policyholder in return for a nominal premium from the customer. The Pure term insurance is a policy where the claim amount is payable to the nominee in case the policyholder expires during the policy period. The concept of term insurance is to provide financial security to the family in case the policyholder meets with any unfortunate event during the policy period in return for a nominal premium.
Since the pure term insurance policy doesn’t provide any returns to the policyholder the premiums associated with it are quite low as the mortality rate is manageable. There is a mindset block among Indians that the money paid for a term insurance policy will not be returned if the policyholder survives the policy term and therefore the money paid is simply paid to the insurance company. But the common man here needs to understand that the money is paid for life coverage and the same is provided by the insurance company.
This mentality among the people has lead to the introduction of Money back term insurance policies by the life insurance companies in India. The money back term insurance policies utilise a component of the premium for life coverage and the remaining component is utilised for investing the amount so that if the policyholder survives at the end of the policy period, the entire premiums paid by the policyholder will be returned to the policyholder and in case if the policyholder expires during the policy period, the sum assured mentioned in the policy agreement will be paid to the nominee.
For instance if the pure term insurance premium costs Rs.5000 per annum for a sum assured of Rs.30Lacs for a 26 year old person, the money back term insurance premium would be around Rs.10000 for the same terms and conditions. In the money back term insurance plans customer is paying extra money only to get it back if he/she survives the policy period.
Most of the educated people have understood this logic and are opting pure term insurance over the money back term insurance policies since the premium involved in the pure term policies is less and high coverage can be obtained from the pure term insurance policies. Most of the financial planners in our country suggest including a pure term insurance policy while making financial decisions and invest the remaining amount elsewhere for greater returns.
Term insurance premium calculator:
Term insurance premium can calculated from the online portal where we have a team of dedicated agents to help you with your life insurance requirements. The term insurance premium is calculated based on the age of the customer; Sum assured opted, Gender and Food habits. Let us understand each of it clearly:
- Age: Term insurance premium is based mainly on the age of the customer. Lower the age of the proposer, lower would be the term insurance premium. This is due to the increase in mortality rate with increase in age of the people. The chance of death at 50 years is high compared to chances of death at 25 years of age. This is due to the diseases at the old age which increases the chances of death. It is advisable to take a term insurance policy at a very young age to reduce the premium amount payable during the policy period.
- Sum Assured: Sum assured is the maximum liability of the insurance company in case of the death of the policyholder. The sum assured selected by the proposer decides the premium under the life insurance policy. Higher the sum assured, higher would be the premium to be paid under the term insurance policy. As a thumb rule one can take sum assured up to 25 times his/her annual salary and anything above this needs to be justified. Sum assured has to be selected carefully by the proposer at the time of policy purchase as the interim sum assured enhancement might not be available with the insurance company.
- Gender: Term insurance premium changes with the gender of the proposer as well. This is due the loss ratio experienced by the insurance companies. The premium for Male proposer of same age and same sum assured would be higher than that of the Female proposer due to the mortality rate being high in Male population in comparison to the female population.
- Life Style: The lifestyle of a person decides the life insurance premium to be paid. Life style includes Smoking and drinking habits, indulging in hazardous works etc. For instance the life insurance premium of an avid smoker and drinker would be high compared to that of a teetotaller or occasional smoker and drinker. This is due to the increase in the risk of death due to the diseases and illness that can be caused by drinking and smoking. Life insurance companies reward those who don’t smoke and drink with less premium and penalise those who drink and smoke heavily. People engaged in hazardous activities may be charged heavily due to the increased risk of death associated with those jobs.
Best term insurance quotes:
The best term insurance quotes should be well balanced in all aspects such as the Premium, Coverage, Add-ons or Riders and Claim settlement ratio. The best term insurance quote can be obtained from the online portal online portal which provides the term insurance quotes from the top life insurance companies in India. Let us understand each and every aspect which should be considered while taking the term life insurance policy:
- Premium: The premium for a best term insurance quote should be at par when compared to that of the other life insurance companies. The premium for term insurance is quite less when compared to the other forms of life insurance policies as in term insurance there is no savings component involved.
- Coverage and Riders: The coverage offered under the term insurance policy would be the death benefit in case the policyholder expires during the policy period. But few of the insurance companies offer extra coverage in the form of add-ons or riders without charging any extra premium from the customer such as Waiver of premium rider which means that in case of disability of the policyholder or diagnosis with critical illness, the future premiums under the term insurance policy are waived off by the insurance company. The best life insurance quote is the one which offers the extra coverage without charging any extra premium.
- Claim Settlement Ratio: One more important thing to check before purchasing the term insurance plan is the claim settlement ratio of the insurance company. Higher the claim settlement ratio, higher would be the chances of your claim getting settled. Claim settlement ratio between 95-99% would be the safe bet while taking the other factors into consideration.
Section 80 C of the Income tax allows tax exemption up to Rs.1.5Lacs per annum on your term insurance premium paid. The exemption can be availed for the premium paid on you, spouse and children. Tax exemption can also be claimed for the Critical illness add-on premium paid under your life insurance policy. Under Section 10(10D) of the Income tax act, the premium paid for the critical illness rider can be claimed for tax exemption.
The Government of India has been encouraging people to purchase a life insurance policy to provide financial stability to their families in the event of sudden demise of the policyholder. To encourage more and more people into buying the life insurance policies, the tax exemption for the life insurance premium is also provided under the Income tax act.
For best term life insurance quotes please visit Life Insurance where we have a dedicated team of agents to assist you with your life insurance requirements.