What is a term insurance policy?

A term insurance policy pays out a large sum of money in the event the policyholder passes away. The money is paid out to the nominees and usually, the payout is only made in the event of death. Unlike regular life insurance policies (endowments and ULIPs), term insurance policies don’t offer any additional return. So you can only use it for risk protection and not to generate investment returns.

Key benefits of having a term plan

1. Low premiums: When compared to endowment policies you will see that term insurance products sell for a fraction of the premiums. This is partly due to the fact that term insurance products don’t offer an additional return on maturity, and also because the fee structure is much more simplified.

2. Your premiums won’t increase with time: Once you buy a policy and lock in your premiums, you’ll have to keep paying the same sum until the policy expires. So you won’t have to deal with any nasty surprises.

3. Pretty much guaranteed claim payouts: After 3 years, the insurer cannot reject the claim for any reason. Which means once you buy a policy and hold it for 3 years, you will almost certainly get the claim paid out.

4. Tax benefits: You can also claim deductions under Section 80C if you are buying a term insurance plan. There’s also the fact that the cover paid out to the nominees in the case of the policyholder’s death is also tax-free.

Key benefits of having a term plan

Although a term insurance plan provides a payout only upon the policyholder's death, you can enhance its coverage by including riders for added protection. Here are some key riders to consider when purchasing a term insurance policy:

1. Critical Illness Rider: In the event of a serious illness diagnosis, you’d want your insurance plan to provide a lump-sum payment to manage financial responsibilities. An effective critical illness rider should deliver broad coverage, short waiting periods, and instant payouts upon diagnosis confirmation.

2. Increasing cover: Certain insurance plans increase your coverage to account for inflation, ensuring sufficient protection regardless of external economic changes. While we recommend considering inflation when initially selecting a policy, this feature remains a valuable addition.

3. Top-Up: After selecting a coverage amount, adjusting it later is often limited, but certain policies include a rider that allows you to increase your coverage by a specific amount. This is a valuable feature for individuals whose financial circumstances may significantly change over time.

4. Terminal Illness: Certain insurance plans provide the insured amount during your lifetime if diagnosed with a terminal illness. This valuable feature supports pursuing medical treatments that could offer a chance for a better future.

5. Waiver of premiums: If you’re unable to pay premiums due to a critical illness or disability, you should have the ability to pause payments while keeping your term plan active. This feature is known as the premium waiver benefit.