Life is unpredictable, and we never know what might happen next. Therefore, it’s essential to be prepared for the worst. Buying term insurance is one of the most crucial decisions you can make to secure your family’s future. However, there are several doubts and questions that come to mind when you think of term insurance. In this article, we will answer all your Term Insurance FAQs, so you can make an informed decision.
Term Insurance FAQs
1. What is term insurance?
Term insurance is a type of life insurance that provides coverage for a specific period, usually ranging from 5 to 30 years. If the policyholder dies within this period, the insurance company pays the death benefit to the nominee. However, if the policyholder survives the policy period, the policy terminates, and there is no payout.
2. How does term insurance work?
When you buy a term insurance policy, you pay a premium to the insurance company for the policy’s duration. If the policyholder dies during the policy term, the insurance company pays the death benefit to the nominee. The death benefit is a lump sum amount that is tax-free. However, if the policyholder survives the policy term, the policy terminates, and there is no payout.
3. What are the benefits of term insurance?
Term insurance has several benefits, including:
- Affordable premiums –
Compared to other life insurance policies, term insurance premiums are relatively lower, making it affordable for everyone.
- High coverage –
Term insurance offers a high coverage amount, which can be customized as per your requirements.
- Tax benefits –
The premiums paid towards term insurance are tax-deductible under Section 80C of the Income Tax Act. Moreover, the death benefit received by the nominee is tax-free under Section 10(10D) of the Income Tax Act.
- Flexibility –
Term insurance policies are flexible and can be customized as per your changing needs.
4. What are the different types of term insurance policies?
There are several types of term insurance policies, including:
- Level term insurance – In level term insurance, the premium and coverage amount remain the same throughout the policy term.
- Increasing term insurance – In increasing term insurance, the coverage amount increases every year, but the premium remains the same.
- Decreasing term insurance – In decreasing term insurance, the coverage amount decreases every year, but the premium remains the same.
- Convertible term insurance – In convertible term insurance, you can convert your policy into a permanent life insurance policy.
5. What is the minimum and maximum age to buy term plan?
The minimum age to buy term plan is 18 years, and the maximum age can vary from insurer to insurer. However, most insurance companies offer term insurance up to the age of 65 or 70 years.
6. How much coverage should I buy?
The coverage amount depends on several factors, including your age, income, liabilities, and dependents. As a rule of thumb, the coverage amount should be at least ten times your annual income. However, it would be best to consult a financial advisor to determine the appropriate coverage amount.
7. How long should the policy term be?
The policy term should depend on your financial goals, liabilities, and dependents. As a rule of thumb, the policy term should cover your working years, which is usually 25-30 years. However, if you have dependents or liabilities, you should consider buying a longer policy term.
8. What happens if I miss paying the premium?
If you miss paying the premium, the policy will lapse, and you will lose the coverage. However, most insurers provide a grace period of 15-30 days to pay the premium without any penalty. If you fail to pay the premium within the grace period, the policy will lapse, and you will have to pay a penalty to revive the policy.
9. Can I add riders to my term insurance policy?
Yes, you can add riders to your term insurance policy to enhance the coverage. Some common riders include:
- Accidental death benefit rider – This rider provides an additional death benefit if the policyholder dies due to an accident.
- Critical illness rider – This rider provides a lump sum amount if the policyholder is diagnosed with a critical illness.
- Disability rider – This rider provides a regular income if the policyholder becomes disabled due to an accident or illness.
10. Can I surrender my term insurance policy?
Yes, you can surrender your term insurance policy before the policy term ends. However, surrendering the policy before the term ends may lead to a loss of premium paid. Moreover, the surrender value is usually a small percentage of the total premium paid.
11. Can I buy term insurance online?
Yes, most insurance companies offer term insurance online. Buying term insurance online is convenient and hassle-free. Moreover, online term insurance policies are usually cheaper than offline policies. You can use term insurance calculator to know the premium for selected sum assured.
Term insurance is an essential investment that provides financial security to your family in case of an unfortunate event. In this article, we have answered all your Term Insurance – FAQs to help you make an informed decision. Remember to choose a policy that suits your financial goals, liabilities, and dependents. Stay secure, stay protected!