Term insurance is basically a life insurance policy which provides coverage for a certain period of time or years. If the insured passes away during this defined period, then the payable amount is paid to the family member (nominee) of the insured.
Therefore, the main purpose of term plans is to provide life cover to the policyholder and financial support to the family members. It provides specific amount of coverage for a specific period of time. If the insured survives this defined period, then no amount is payable.
Term insurance is less expensive when compared to other life insurance policies.
This is because they do not have any cash value or savings/profit component. There is no survival or maturity benefit once the policy term expires.
Eligibility: The eligibility criteria for term insurance plan varies according to the insurers. The minimum age of entry is 18 years and the maximum age limit is 65 years.
The two ways the individual can take life insurance are:
1. By opting for a pure life cover, also known as term insurance
2. By taking life cover with a savings component built in, also called as endowment insurance
Some of the key features that make term plans indispensable include:
Low premium: When compared to the other life insurance policies, the premium for term insurance is more affordable.
Flexibility: The policyholder can attach riders to the term plan, thereby enhancing the utility of the policy. So, by opting for a critical illness rider or a critical illness plan, he is entitled to receive the sum assured on being diagnosed with the critical illness. This is in addition to the death benefit of an equal amount on death over the term of the policy.
There are other covers to choose from as well, like loss of employment cover, disability cover, waiver of premium cover, among others. The policyholder should select based on his specific needs to make the life cover more suitable.
Tax benefit: It is often argued that if you buy endowment type of insurance, as the premium is more you get more benefit u/s 80C of the Income Tax Act while investing.
Additional Reading: What is term insurance plan in India