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Term Insurance

Term Insurance Policy

Last Updated 29th Nov 2021

  • Term insurance policy provides coverage for the specific policy period or term.
  • It is more cost-effective than other life insurance plans.
  • At the demise of the policyholder, the family or loved ones receive the sum assured.
  • The sum assured can be availed in lump sum, monthly payout or can be divided into both.
  • If the policyholder outlives the policy term, the insured amount is not returned.
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What is Term Insurance?

Among the life insurance policies available in the market, term insurance offers maximum coverage in return of minimum premiums. Term insurance means availing a comprehensive life insurance cover by paying premiums for a specified period of time or term. At the sudden demise of the insured due to any unfortunate reason, the family will receive the sum assured as a death benefit. Similar to any other insurance policy, the coverage is valid within the policy period. The insured can extend or renew the policy. However, the rate of premiums will not be the same as the previous policy. The insurer will reset the rate during the renewal. A few companies extend coverage in case any partial or permanent disability causes loss or disruption in income. If you are thinking of opting for term life insurance or if you already have but still there is confusion regarding any aspect, here is a detailed discussion on term insurance for your aid.

Reasons to Buy Term Insurance Plan

You can purchase a term insurance plan either offline or online. Many will advise you to go for the online process. Other than the less time requirement, here is why the online purchase is considered more beneficial.

  • Easy comparison: Comparing plans online is far easier and more convenient than offline. It will require little time and you can gather information easily.
  • Cost-effective: When you purchase an insurance plan online, you will get good deals in the market as the insurance plans available online are cheaper than offline plans.
  • Financial security for the dependent: In your absence, your close ones who are financially dependent on you will face many difficulties. The death benefit received under term insurance can be of great help during the tough times. The amount can provide for the regular expenses of your family or can be used for child education and marriage.
  • Protection of assets: You can take loans against your term insurance for buying assets like home, car or bike. Moreover, the sum assured under term insurance can repay the loan in your absence without creating any financial burden on your loved ones.
  • Maximum protection: In addition to providing death benefits, some term insurance plans cover critical illness. Upon diagnosed with a heart attack or cancer, you can request coverage under your term plan.
  • Basic product with high coverage: Term insurance is considered to be a basic insurance product but it comes with high coverage. Since there are no maturity benefits or other payouts, the plans offer you the maximum coverage when you are in need.

Features of Term Insurance

Below listed are the salient features of term insurance policies.

  • Affordable: The term insurance policy is the most affordable insurance vehicle since it has no additional investment element or maturity benefits. You can get yourself insured at a low premium with term insurance.
  • Easy purchase: Several insurance providers offer term insurance giving you a wide range of options. You can choose a term plan based on your requirement and budget. Purchasing a term insurance policy is as easy as selecting one. The offline method is always there. To make things easier, most insurers have online service as well.
  • Long-term protection: Term insurance plans allow you to select a term up to 50 years of age. Hence, you get long-term protection against the uncertainties of life.
  • Convenient premium payment and payout: You can enjoy great convenience while paying the premiums for your policy as well as while receiving the payout. Most insurers receive payments on a monthly, quarterly and yearly basis. Coming to the payout, you can opt for a monthly payout in addition to the lump sum.
  • Adjustable plans: Your financial condition or requirement may change over time. The term insurance plans can be adjusted in accordance with your finance. You can increase or decrease the sum assured of your existing policy as you see fit.
  • Rebates: Some insurers offer special discounts as rebates. Non-smokers and female insureds get special discounts on the insurance premiums due to low life or health risk.

Types of Term Insurance in India

Multiple insurance providers across the country are providing a wide range of term insurance plans. Below goes the list of term insurance plans for you to choose from.

  • Level term plan: This is the basic term insurance plan in which the sum assured stays the same and the benefit is paid at the demise of the insured. Almost all insurers have the level term plan. The premiums will be pocket friendly if you purchase the insurance at an early age.
  • Standard term plan: A standard term plan covers you against several risks for a specified term. Generally, you will be required to pay yearly premiums under this plan for annual coverage.
  • Term Return of Premium plan: This is becoming one of the most popular choices since the policyholders get back their invested amount at maturity. The policy refunds the premiums you have paid if you survive the policy period.
  • Group term plan: The group term plan, as the name indicates covers all members of a group. This plan is generally offered to companies, organizations, businesses, associations, societies and large families. The group term policies offer the same benefits as individual terms policies. However, in terms of illness group terms provide more coverage than individual terms. The group terms are highly customizable to meet the needs of all group members.
  • Increasing term plan: The coverage of this term plan keeps increasing along with the premium and hence, the name. The key objective of this plan is to help you beat inflation costs due to which the original sum assured can get affected. The coverage under the plans raises at a pre-set rate until the value becomes times over the original value.
  • Decreasing term plan: The decreasing term plan is best for clearing mortgage, debts, and loans. The plan needs to be renewed and the sum assured keeps decreasing at a pre-set rate every year throughout the tenure. At the demise of the policyholder, the sum assured can be used to repay loans and other debts.
  • Convertible term plan: This convertible term plan comes with great flexibility. It allows you to convert your original plan into some other policy later in the policy period. While purchasing your term insurance, you can take this alternative option. Note that only a few insurance companies offer this plan.
  • Single and joint life term plan: The coverage offered under the single and joint life term insurance plan is the same as the standard term insurance plan. However, instead of a single individual, the plan caters to two individuals. This is the best term insurance plan for couples.
  • Online and offline term insurance plan: Needless to say, these two term plans are based on the purchase methods. The offline purchase of term plans is generally done via brokers or agents, while the online purchase is made directly via the websites of the insurers. The online term plans are more cost-effective and come with many discounts as no middle-man is involved in the process.

Factors that Impact Term Insurance Premium

The insurer sets the premium of the insurance policies based on various factors. The following may impact premiums of the term life insurance plans.

  • Age: Age of the policyholder and the premium of the policy are interrelated. The younger the policyholder is at the time of purchase, the lesser the amount of premium will be as young individuals have a low risk of life-threatening disease.
  • Gender: It is believed that women have a longer lifespan than men. In that case, the women will be paying premiums for a longer period and longer tenure means a lower premium.
  • Profession: The profession of the policyholders plays a crucial role in deciding the premium. If an individual is engaged in a high-risk profession, he or she will have more life risks than others. Hence, the insurer will charge higher premiums.
  • Individual health: If an individual has obesity, high blood pressure or any such health issues will have high life risks. Hence, they will be required to pay a higher premium than individuals with no health issues.
  • Medical history: The insurance providers consider the medical history of the applicant while calculating the premium. If any member of your family has any condition that you can inherit, you may be considered to have high life risk and hence, will be charged higher premiums.
  • Smoking and drinking habits: Regular smoking and drinking habits may increase health issues. The insurers offer special discounts to those who have no drinking or smoking habits and will charge more from those who indulge in such habits regularly.

How to choose Best Term Insurance?

To find the best term insurance plan you must compare all the insurance plans available in the market. Use the following parameters to compare the plans and select the best.

  • Claim settlement ratio: Claim settlement ratio indicates the reliability to settle claims. It is a ratio of the number of claims an insurer has settled against the number of claims they have received. Hence, an insurer with a high claim settlement ratio will be a better option.
  • Solvency ratio: Much like the claim settlement ratio, solvency ratio indicates the trustworthiness of an insurer. It indicates whether the insurer is financially capable of settling claims or not. Ensure the insurer you are opting for has a solvency ratio of more than 1.5.
  • Critical illness cover: Critical illness cover provides coverage for specific medical conditions. It provides financial assistance for treating heart attack, cancer or any critical surgery. For maximum coverage, make sure that your insurer offers this cover.
  • Premium: Compare the premium quotes of the various insurance providers as well as the premium for online and offline purchase. Select the one that fits your budget.
  • Availability of covers: Insurance policies come with various covers such as enhanced cover, riders cover and so on to extend the coverage. Go for an insurer that offers such covers.

Benefits of Term Insurance Policy

The term insurance can act as the supporting system for your loved ones when you are not around. With term insurance, you and your loved ones can avail the following benefits.

  • Death benefits: At the sudden demise of the policyholder, the insurance plan provides the sum assured to the family of the policyholder. It supports the financial dependents of the policyholder either by giving the total sum assured in a lump sum or with regular payouts.
  • Protection against critical illness: The term insurance plans provide financial assistance during critical illness. If you are diagnosed with any critical illness or require any critical surgery, this investment can be of great aid. You can continue your treatment without having to worry much about the expenses.
  • Collateral for loans: You can take a loan showing your term insurance as collateral. The interest rate for loans taken against term insurance will be lower than standard loans. Moreover, the sum assured can be used to repay the EMIs even in your absence.
  • Support in case of disability: If you suffer any partial or permanent disability and lose your source of income due to the disability, a term insurance plan will provide financial support. Some term plans even pay off the premiums in case of permanent disability.
  • Tax benefits: Term insurance plan features plenty of tax benefits. You can enjoy tax exemption on the paid premiums under section 80C of the Indian Income Tax Act. In addition, section 10 (10D) offers tax benefits for the term insurance plans.
  • Riders benefit: Riders benefits are like additional benefits that allow policyholders to enhance the coverage of a basic term insurance plan. Here are some of the rider benefits that are offered by the insurers.
    • Premium waiver
    • Accidental death benefit
    • Income benefit

    It will bring down the cost of the plan to a certain amount. Moreover, you may get additional discounts.

  • Higher sum assured: The sum assured provided on online purchase is generally higher than the sum assured offered on offline purchase.
  • Easy access to policy: You can get easy access to your policy online. You can log into the website of your insurer and view any details you want within a few minutes.

Government Related Term Plans in India

The Government of India offers some term insurance schemes for its citizens. The sovereign backup makes the government insurance schemes the most secure options. Here are three government-operated term insurance plans that can be your options.

  • Pradahan Mantri Jeevan Joyti Bima Yojana: This scheme is available for those between the age of 18 years to 50 years. Having a bank account giving permission for auto-debit and Aadhaar number is essential. This cover is worth ₹ 2 Lakh and the term is for one year. The plan is renewable.
  • Pradhan Mantri Suraksha Bima Yojana: Individuals ageing from 18 years to 70 years are eligible for this scheme. Applicants must hold a bank account permitting auto-debit and a valid Aadhaar number. The scheme provides coverage worth ₹ 2 Lakh in case of demise and ₹ 1 Lakh in case of disability.
  • Aam Admi Bima Yojana: This scheme serves those belonging to the lower-income group. This has been designed for those with no regular income. The age criterion ranges from 18 years to 59 years.

How does a Term Plan Work?

The functioning of the term insurance plans is easy to understand. You purchase a term insurance plan of your preference and pay the premiums. The insurer pays the sum insured to the beneficiary at the demise of the policyholder or in case of specific medical emergencies. The term plans generate only the invested amount.

Suppose, the sum assured is ₹ 50 Lakh. You can opt to receive the payout in any of the following three ways.

  • In lump sum: The total sum is paid in a lump sum. Hence, you get ₹ 50 Lakh in a lump sum.
  • Monthly payout: The sum is paid at regular intervals. Hence, ₹ 50 Lakh get divided into regular payouts.
  • Lump sum and regular payout: First half of the sum assured is given in a lump sum and the second half in regular payouts. Hence, you will receive ₹ 25 Lakh in lump sum and the rest ₹ 25 Lakh will be divided into regular payouts.

Procedure of Term Insurance Claim

Below set out are the steps of the term insurance claim process.

Contact the insurer

The first step of making a claim is to contact the insurer. You can contact your insurer in any of the three ways.

  • Visit the office or website of your insurer.
  • Call their toll free number.
  • Sent mail to the official mail address.

File the claim

  • Collect the claim form.
  • Submit the duly signed form coupled with all required documents.

Claim verification and approval

  • The insurer verifies the claim and the submitted documents.
  • Upon successful verification, the sum insured is disbursed.

Note that the document requirement is different in case of natural death and accidental death. While making a claim, go through the document requirement of your insurer and submit each document. In case the nominee under the policy passes away, the legal heir of the policyholder receives the benefits.

Steps to Find the Right Term Plan Online

Finding the most suitable plan among a wide range of options may seem to be a tough job. To make things little easy for you, here are three steps that will guide you to the right term plan online.

  • Set the insurance amount: The most important step for purchasing an insurance policy is to determine the insurance amount. Find out the coverage amount of the term plans and see which one fits your requirements. The insurance coverage should be 15 times over the annual income of an individual. You can use the online term insurance premium calculator to compute the premium amount.
  • Compare the options: Not all term insurance plans offer the same benefits. Hence, you should compare all your options and then decide which one offers more than the others. Comparing plans online is easy and requires little time.
  • Opt for the riders benefits: The term insurance policies tag along many additional covers or rider benefits. You can opt for any rider cover to extend the coverage. Adding rider benefits to the basic plan adds to the premium as well. However, this will shield you against many unpredictable incidents.

How Long Must be the Term of the Term Plan?

The term of any policy is set based on the norms of the policy provider and the will of the policyholder. Hence, you can opt for a short term policy or a long term policy. However, the coverage under the short term policies is limited to a short period of time. To keep you protected for a longer period, opt for a long term plan.


Which is better: term life or whole life insurance?

Term life insurance is more affordable than whole life insurance. However, whole life insurance offers both death benefit and maturity benefit. On the contrary, term insurance offers only death benefit.

What does term insurance mean?

Term insurance means purchasing an insurance that provides coverage for the selected policy period or term.

Which death is not covered in term insurance?

Death caused by any natural calamities is not covered under term insurance.

What happens to term life insurance if you don't die?

If you outlive the policy term, the policy expires on the pre decided date and no benefits are generated.

Do you get money back at the end of term life insurance?

If you survive the policy tenure, you will not get back your insurance money. A few insurers may provide the return premium benefit.

Can you cash out a term life insurance policy?

No, you can not cash out a term life insurance policy.

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