Most Commonly Asked Questions about Term Insurance Answered

Term plans are a highly economical form of insurance. This is a life product that offers pure protection, designed to create security against unanticipated adverse circumstances. Here are few common clarifications on this type of policy.

The Indian Insurance Quiz

Here’s a simple quiz to check your basic knowledge of what a life insurance company in India offers the consumer:

1. How to Select the Policy Tenure?

The ideal policy should cover you and your family up till retirement; and can extend to a few years after that. Remember, the aim of a term plan is to cover against risk of income loss . So, a term beyond retirement might be a financial burden because you still need to pay the premiums. Also, take into account that higher terms attract higher premiums.

2. What happens if you terminate your policy before the end of its tenure?

This refers to the coverage that you might require. Here are a few factors to consider while making the decision :
Number of dependants
Current and future lifestyle choices
Education expenses of children
Investment plans and other requirements
Affordability quotient
In a term plan, the sum assured can usually be calculated using a simple formula:
Optimum Minimum Sum Assured = Total Annual Income x 10 + Outstanding Debt

3. Where can I Find the Claim Ratio of an Insurance Company?

In India, the Insurance Regulatory and Development Authority (IRDA) publishes an annual report. This gives a detailed claim ratio analysis and the claim status of different companies.

4. Are all Types of Death Covered under the Policy?

No. Suicidal death of the insured during the first year of cover is a major exclusion. Other such common omissions are self inflicted injuries and involvement in adventure sports. Some recent term plans come with terrorism cover as well.

5. Can Term Life Insurance be bought by an NRI?

Yes, NRIs are eligible for term plans. However, not all insurers off such cover. So, always clarify eligibility before applying for a plan.

6. Is there a Difference between Term and Endowment Plans?

Term plans offers pure risk coverage and is one of the cheapest forms of life cover. It is a necessity for those who have dependants or any impending debt clearance that relies solely on their income. If you survive the tenure of the policy, no sum assured is paid. However, you can always add a maturity rider.

Endowment and whole life insurance, on the other hand, act as both life insurance and an investment option. You need to pay regular premiums in order to build a substantial corpus. You can use this amount to fuel major financial expenses on the maturity of the policy.