Get the Tata Capital App to apply for Loans & manage your account. Download Now


Equipment Finance

Avail Digital Equipment Loans
up to Rs. 1 Crore

  • Attractive ROIs
  • Customizable Loan tenure

Equipment Leasing

Avail Leasing solutions
for all asset classes

  • Up to 100% financing
  • No additional collateral required

Tata Capital > Blog > Insurance > Navigating the World of Term Insurance: Meaning & Essential Information


Navigating the World of Term Insurance: Meaning & Essential Information

Navigating the World of Term Insurance: Meaning & Essential Information

Protecting loved ones financially from unforeseen circumstances that the world may throw at them is what everyone wishes for. If you are wondering how to accomplish this and provide the financial support your family needs in your absence, term insurance might be the right solution for you.

This blog will help you navigate the world of term insurance with ease. We begin by answering the fundamental question "What is term insurance?" and explore further to understand how it works, the various types and benefits of terms insurance, and guide you on selecting the right policy. Join us to learn everything you need to know about term insurance.

What is term insurance?

Term insurance is an insurance product that offers financial support to those who are dependent on you in the case of your untimely demise. This type of insurance is valid for a pre-decided period or term, and a lump sum is paid to the beneficiaries upon your death.

How does term insurance work?

Let’s understand the meaning of term insurance in terms of how it works. When you purchase term insurance, you enter into an agreement with the insurance provider that mentions your insurance's tenure, cover, premium, and beneficiaries.

If your death occurs during the tenure of your term insurance, the beneficiaries can make a claim and receive the insured amount.

In most traditional term insurances, you do not receive maturity benefits if you survive the tenure and your insurance matures. However, there are exceptions to this, as we shall see further in this blog.

Types of term insurance

Now that you know what is term insurance, let’s explore various types of term insurance policies available in the market.

1. Level Term Plan

In this plan, your insured amount remains the same throughout the tenure and offers purely life protection.

2. The Return of Premium (TROP) Plan

The TROP plan is an exception to traditional term insurance as it provides maturity benefits if the insurer survives the policy term.

3. Increasing and Decreasing Term Insurance

In increasing and decreasing term insurance, the insured amount increases or decreases upon reaching specific life goals.

4. Convertible Term Plan

Upon reaching maturity, this plan allows you to convert your term insurance into other insurance products, such as endowment or full life plans.

Benefits of term insurance

After exploring what is term insurance, the next step is to answer why term insurance. To answer this question, we must look at the various benefits you can anticipate when purchasing a term insurance policy.

1. Affordability

A key feature that makes term insurance policies attractive is their affordability. They provide maximum financial benefits at minimal costs compared to other insurance products.

2. Tax Benefits

Term insurance comes with numerous tax benefits. You can claim benefits under various provisions of the Income Tax Act, including sections 80C, 80D, and 10(10D).

3. Riders

Term insurance policies are very flexible, as they let you customise your policy to meet all your needs. The provision for such customisations is made through riders or add-ons, which you can use to enhance the benefits of your term insurance. Some riders to look out for include critical and terminal illness cover, accident cover, disability premium waivers, and total and permanent disability coverage.

4. Financial Security

Term insurance can offer you much-needed financial security. While traditional term insurance does not offer maturity or conversion benefits, opting for TROP, convertible, or increasing plans can further boost the benefits of purchasing term insurance and guarantee financial security.

Selecting the right term insurance

Now that we've answered the question ‘What is term insurance?’, we must learn how to select the correct term insurance. These are some aspects to ensure that your insurance choice meets your needs.

1. Understand your coverage requirements

As the term insurance definition suggests, the prime objective of purchasing term insurance is to meet the financial requirements of those dependent on you in the case of your demise. To do this, you have the estimated expenses they will have to incur, liabilities they have to pay off, such as car and vehicle loans and meaningful life goals they will have to spend for. It is also essential to consider inflation and your assets when estimating coverage requirements.

2. Consider term insurance tenure

You can determine the tenure of your insurance policy based on factors such as your age, current assets, and financial obligations. Remember that a very short term may cost you less in premium but might not cover a suitable duration. Similarly, too long a tenure might cost you significantly. Ideally, the tenure should coincide with when your dependents need additional financial support in case of your death. After which, your assets should be sufficient to sustain them financially.

3. Evaluate the insurance provider

Term insurances are long-term commitments that make it essential to find a trustworthy insurance provider. You may look into solvency and settlement ratios to evaluate your insurance provider. The solvency ratio indicates the insurer's ability to pay for an insurance claim. The settlement ratio shows the number of claims settled against the number of claims filed.

4. Select the suitable riders

You can customise your term insurance policy to meet your specific needs by selecting riders or add-ons to supplement the primary terms of your policy. Some riders to consider are -

  • Accident Cover
  • Critical Illness Cover and premium waiver
  • Disability premium waiver

5. Consider the premium cost

Some factors that affect the premium cost of your term insurance include age, occupation, health condition, coverage and tenure of the policy, and selected riders. Don't delay purchasing term insurance to ensure your insurance premium is affordable. The younger you are, the cheaper the premium is. Also, pay attention to selecting the right coverage, tenure, and riders based on your needs.

Final thoughts

A reliable insurer provides a good term insurance policy. It must have broad coverage, provide plenty of riders, and be flexible to your needs. Your search for the perfect term insurance provider need not go further than Tata Capital. At Tata Capital, we provide term insurance policies with affordable premiums, exceptional riders, and tax benefits.

To learn more and buy your term insurance plan, visit Tata Capital's website today!

Leave a Reply

Your email address will not be published. Required fields are marked *