KWs: how to buy term insurance policy, steps to buy term insurance policy
Anuradha, a young, dynamic teacher in the school, earned Rs.40,000/- per month. She was a single mom, and her monthly expenses were Rs.25,000 as she was taking care of the family. With the remaining Rs.15,000/-, she tried her best to handle the demands of her kids and save money. After a few years of saving money this way, she realized that the need was rising, but the money was not growing in the same proportion. Anuradha felt that she would barely be able to collect the money for her children’s higher education. She then spoke to her relatives and found out the most affordable solution in the form of term insurance that could secure her children’s future. An amateur in the field of insurance, Anuradha barely knew anything about term insurance. But she explored and found how to buy a term insurance policy.
If, like Anuradha, you are looking for solutions to secure life and plan savings, then know that term insurance is the best and most affordable product.
Let us further explore what is a term insurance policy and other intricate details attached to it.
What is a Term Insurance policy?
A Term Insurance Policy is a life insurance cover available for a specified period or given number of years. The policy offers a death benefit under which if during the policy period the policyholder dies, the beneficiary will be given the sum assured. A term policy is cheaper than any other life insurance cover, which is why people prefer to buy it.
The term insurance policy is available in four types. Let us look at each type in detail to understand whether or not the insurance can meet your purpose of purchase.
- Convertible Term Plan: As the name suggests, the convertible term plan allows the policyholder to convert the plan into any other plan in future. For example, after five years of purchase and paying the regular premium under the term plan, Anuradha wanted to switch to an Endowment plan for better returns. Under the convertible plan, she was allowed to do that.
→ The convertible plan is possible only when the policyholder applies for it.
→ The premium of the convertible plan is determined at the beginning of the policy. Even after the conversion of the plan, the premium will remain the same.
→ The convertible term insurance plan offers tax benefits to the policyholders under section 80 C of the Indian Income Tax Act.
- Increasing Term Plan: Another type of term insurance plan for you to consider is increasing term insurance plan.
→ The premium under the type of the policy increases, but the policyholders can pay a lower premium when they start early in life.
→ This type of policy lasts for a specific period, such as 10,20 and 30 years.
→ If the policyholder dies during the term, the beneficiary will receive the death benefits. However, if the full time is completed and the policyholder survives, there will be no benefits.
→ Increasing the term plan offers you extra protection to take care of the growing future expenses.
- Decreasing Term/Mortgage Term Plan: Decreasing term insurance plans are commonly purchased to use it as mortgage redemption plans.
→ Individuals usually buy the mortgage term plan to pay off debts and loans. When you pay off the debts every year, the outstanding balance of your loan reduces.
→ The decreasing term plan helps you manage your debt expenses that otherwise would have to be taken care of by your family in your absence.
→ The sum assured under the policy is the loan taken and the interest applicable to it.
- Annual Renewable Term Plan: Annual Term Insurance is a policy that assures the buyer of insurability for several years.
→ The annual renewable term plan is to cover the short term insurance needs.
→ Keeping the premium in mind, this is the least expensive life insurance policy. But the premium of the insurance plan rises after every year as you grow old.
→ An annual renewal term plan is kind of a short term plan that can be purchased by those temporarily out of work. Such people know that they will be joining a group life insurance through a future employer soon.
These were the types of term insurance plans. Based on the requirements and future goals, you can buy a term insurance plan.
However, you must know that if the policyholder survives the policy term in a traditional term insurance policy, they do not get any maturity benefit. Addressing the concern faster than ever, the insurance companies came up with the additional condition in the existing Term Plan. The tweak in the cover was named as Term Plan with Return of Premium option. The main features of this type of product was:
- The premium was higher than the traditional term insurance plan.
- All the money you paid as premium for years is given back to the policyholder upon maturity.
If the newly added feature excites you, then towards the next step, let us explore who needs a term insurance plan?
Who needs a Term Insurance Plan?
Looking for life protection and financial security for your family? If yes, then you are eligible for buying a term insurance plan. But, are you sure whether you qualify to buy the policy or not?
If you fit the most according to these factors mentioned below, trust that you need a term insurance plan.
It is advisable to buy a term plan at an early age but if you haven’t purchased it so far, no worries.
You must be thinking why buying at an early age is important? Or must be wondering what is the correct age you can buy term insurance? For that understanding the concept of buying a term plan early in life will help.
Let us understand this with an example.
Asha (30) and Abhishek(40) were siblings. Each individual had their own preference of buying a life insurance policy, but both settled with buying a term insurance policy. Asha purchased the policy for 30 years while Abhishek could take it for only 25 years.
With this aspect, the return under the policy purchased by Asha will be higher as she bought the term pan at a lower age and for a higher term period. On the other hand, Abhishek started with an age gap of 10 years; this is why he could invest less and, hence, have lesser returns.
The point is anyone can buy a term insurance policy, but the ultimate benefit goes to those who start early. How this happens is the next thing to explore.
- Is there a benefit of purchasing a term plan when young?
It is always better to start early when you talk about a term plan or any insurance policy. There are several benefits associated with buying the term plan when young, which includes:
→ First, the chances of your term plan proposal getting rejected are meagre because, at an early age, the probability of you being a healthy candidate is higher.
→ Second, it is better to buy the term policy before starting your family as it gives you the assurance that you can take care of your family.
→ Third, you can have funds ready when you have a child or save enough money for your retirement.
→ Fourth, if you are indebted with loans or other borrowings, it is wise to collect money and make arrangements to pay it off with the term insurance plan.
→ Finally, the premiums remain the same when you buy the policy young throughout its tenure.
Without a strategic and disciplined investment in the term or any other type of life insurance policy, savings become a challenge. However, paying off your debts is ultimately freeing your family from financial liabilities, and this is your ultimate goal.
Here is an example to understand that the benefit reaped is higher when you start young for a term plan.
Shreya, born on 19.10.2003, aged 20 years, bought a Life Shield Plan with a sum assured of Rs.1 crore. She will get a cover for 40 years, and the premium payable is Rs.642.30 per month. Ankita Shreya’s cousin, aged 40 years, had to pay a monthly premium of Rs.1081 per month for the cover of Rs.1 crore for 20 years.
For a quick glance, you save premium when you buy young as the premium is low.
|Name||Age||Term of the Plan||Premium per month.|
|Shreya||20||40 years||642.30 per month.|
|Ankita||40||20 years||1081 per month.|
Shreya got the coverage at a lower price for the same sum assured and for the longer duration of term. For different age groups, the premium is different and the term for coverage also varies.
Term Insurance for different age groups
An insurance plan will pay you for different needs at every stage of life. With the growing age, the requirement of the insurance changes and so does the relevance of the term plan. Before buying the term insurance plan for you check this:
|Age band||Life Aspects/
|Life Shield Plan||Digi Shield Plan||Saral Jeevan Bima|
|When in 20’s||→ Education loan
→ New job
|When in 30’s||→ New family
→ New house or car
→ Child’s education
|When in 40’s||→ Home loan
→ Higher education for kids
→ Retirement Planning
|When in 50’s||→ Retirement Planning
→ Child’s marriage
→ Rising health issues
|When in 60’s||→ Unpaid liabilities||Yes|
Here are the details of these three term insurance plans:
When young, individuals hardly understand the dire need for an investment plan. In general, people have the perception that they must enjoy it at an early age. However, the scenario has changed drastically. Life can show us the unexpected in the most escalated manner and this is why term plans have gained relevance.
These are the three plans you can consider:
- ABSLI Life Shield Plan.
- Life Shield Plan is the best term plan option for those who may not be married and have fewer responsibilities of the family. But, if you think deeply, it is the apt time when you should start saving.
- The term plan cover allows you to get your spouse covered if you want.
- The policy comes with the Return of Premium option.
- The Life Shield Plan comes with the inbuilt terminal illness, which implies that the policyholder gets 50% of the sum assured on the death subject to a maximum of Rs.2.5 crore. Apart from this, all the future premiums will be waived off.
- A Waiver of Premium option is provided for the policyholder who is not capable of paying the premium due to critical illness or permanent disability.
- You have 8 plan options to choose from for your different needs. A few options which you may pick at this age are:
→ Level Term Assurance
→ Level Term Assurance with Waiver of Premium
→ Increasing Term Assurance
→ Increasing Term Assurance with Waiver of Premium
→ Decreasing Term Assurance
→ Decreasing Term Assurance with Waiver of Premium
- You also have the provision to get Enhanced Life Stage Protection when you feel more responsible, especially after the arrival of a baby or your marriage.
|Maturity Age||85 years|
|Sum Assured||Rs.25 lakhs to Above and no limit subject to underwriting guidelines.|
- ABSLI DigiShield Plan:
If you want to handle multiple life needs with one insurance plan then ABSLI Digi-Shield is for you. This is a comprehensive plan that comes with 10 buying options to choose from.
- The insurance cover is available for 1 year till 100 years of age for financial support.
- It provides a flexible death benefit that can be availed either as a lump sum or monthly or a combination of both.
- You can get the survival benefit as monthly income after you attain the age of 60 years for a tension-free retired life. But this is applicable only under one plan in which on the maturity of the policy, the insured will get 0.12% of sum assured per month starting from the first policy anniversary.
- There are 10 options to choose from based on your requirements:
→ Level Cover Option
→ Increase Cover Option
→ Sum Assured Reduction Option
→ Whole Life Option (Level Cover)
→ Whole Life Option (Sum Assured Reduction Cover)
→ Income Benefit
→ Level Cover Plus Income Benefit
→ Low Cover Option
→ Level Cover with Survival Benefit
→ Return of Premium
- Enhanced Life Stage Protection option under which the policyholder is allowed to increase the sum assured at stages like marriage and childbirth. For example, on your marriage, you can increase the sum assured by 50% subject to a maximum of Rs.50 lakhs.
- With ABSLI DigiShield Plan, you get the benefit of Accelerated Critical Illness Benefit in which the sum assured will be paid on the first diagnosis of any critical illness.
- ABSLI Saral Jeevan Bima
Saral Jeevan Bima from ABSLI is a traditional life insurance plan. This is a non-linked, non participating life insurance policy that provides you a lump sum amount to ensure family’s financial security when you die.
- It is a simple and affordable plan to meet financial goals.
- You have the option to pay a premium throughout the policy term or just once.
- The buyers have the option to extend the insurance coverage with accidental death benefit rider on payment of additional premium.
- With Saral Jeevan Bima, the policyholder gets death benefits that are directly proportional to payment type, that is, limited pay or regular pay.
- The buyers do not get any maturity benefit under this plan.
|Entry Age||18 to 65 years|
|Maturity Age||70 years|
|Sum Assured||Rs.5 lakhs to Rs.25 lakhs.|
|Waiting Period||45 days waiting period for the risk to commence.|
|Grace Period||15 days from the first unpaid premium.|
Out of the three plans explained, you can buy any considering the payouts and your financial goals.
Apart from the basic cover, you have the option to expand the scope of cover with the additional riders. These additional covers come at an extra cost hence,it is not necessary to buy all but you can pick the ones that suit your requirements. Some of the additional riders that you can buy are:
- ABSLI Accidental Death Benefit Rider Plus: For a wider coverage under your current term plan, you can buy an accidental death benefit rider at a nominal cost. The cover provides you additional protection for accidents that can lead to death and leave the dependents in the family clueless to handle the situation.
- ABSLI Critical Illness Rider: Critical Illnesses are no more enmeshed with the age factor. Changing lifestyle and food habits have contributed to a dramatic increase in occurrence of critical illnesses in young as well as old age people. With this critical illness rider, you get the benefit of lump sum amount upon the diagnosis of any 4 specified critical illnesses.
- ABSLI Surgical Care Rider: Surgeries are inevitable when you get old. If you have a history of disease in the family, it is better to have a surgical care rider to take care of your surgical expenses.
- ABSLI Accidental Death and Disability Rider: With this rider cover, you get protection for accidental death or disability at a low cost premium.
- ABSLI Hospital Care Rider: When you grow old, illnesses are unavoidable. To prevent unnecessary expenses tax the savings of your family in hospital care, buy this rider. It gives you daily cash benefit, lump sum recuperating benefit upon hospitalization, and additional ICU benefit.
- ABSLI Waiver of Premium Rider: This additional rider cover saves you from paying future premiums in case of permanent disability, death or any of the four specified major illnesses.
If you are interested in buying a term insurance policy here are the quick steps for you to consider.
Steps to buy Term Life Insurance.
Step1: Identify your financial goals and aspirations.
Step2: Click on the tab that reads ‘Term Insurance’.
Step3: Out of the three product types, buy any of the three based on your requirements.
Step4: As soon as you select the product type, click on ‘Get Quote’.
Step5: Enter all the details like your name, DOB, and contact information. After mentioning the details, you can further select the additional covers (riders) you want. Make sure all the information you indicate is true, failing to which the proposal can be rejected.
Step6: Select the premium paying term and payment type. Here you can choose to pay the premium annually or monthly or half-yearly.
Step7: Pay the premium and buy the policy.
Buying the policy is an easy process but before the final purchase, there are a few things you must consider.
Factors to consider before buying a Term Insurance Policy.
Some of the factors that you may consider before buying the policy are:
- Evaluate your premium paying capacity which lets you choose how much premium you can pay for a policy term.
- Examine financial goals for which you would want to buy the term insurance policy.
- Consider your liabilities and how much premium money you can put aside to buy the term plan.
- Monitor the income levels that indicate whether or not you can pay a premium for the complete policy term.
- Know the insurer’s solvency ratio as it indicates the claim paying capacity of your insurer.
- Spot what is the claim settlement ratio of the company as it exhibits the robust and quicker approach of the company towards serving its customers.
Term insurance is the most affordable type of life cover which should be preferred by buyers of young age. Before buying the policy they must evaluate their financial needs with their premium paying capacity. Investing in a term insurance policy is the most affordable way to create financial security for your loved ones. Not just one but every person earning in the family should consider purchasing it from an early age. For more details on how to buy term life insurance, visit here.
Under this option, on survival of Life Insured till the policy anniversary falling after the attained age of 60 years, a Survival Benefit equal to 0.12% of Sum Assured, will be paid every month till the end of the Policy Term. In the unfortunate event of the death of the Life Insured during the Policy Term, the nominee will be paid an absolute amount in lump-sum. The absolute amount is the Sum Assured less the Survival Benefit already paid.