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Term insurance is one of the simplest forms of life insurance still many people have ambiguities regarding it. This article is an attempt to clear many of those ambiguities and answer frequently asked questions about it.
For starters let’s find out what is a Term insurance plan?
A Term Insurance plan is the purest form of life insurance. Under this plan the insurance company pays a pre-specified sum to the nominee of the latter if he dies during a specified time period called Policy term. If the Policyholder survives the term of the policy then nothing shall be paid by the insurance company. This plan aims to replace the income of the deceased policy holder so that his family is saved from the sudden financial Risk by the cease in income of the deceased.
Some wonder, why is the premiums charged for Term plans so low as compared to other life insurance products?
The answer to that question is Term plans do not have any investment component. The insurance company is liable to pay only when the policyholder expires during the currency of the policy. There is no survival benefit that is why the Premium is kept low.
One of the most practical questions that people ask about term insurance is how to choose best term plan?
a) Go for a company that has the best Claim settlement ratio. Claim settlement ratio of nearest to 100% is the best.
b) Go for the company providing the maximum Coverage period.
c) Company charging a cheaper premium is always more lucrative for the buyer.
d) Term plans are highly customizable. Companies that provide the desired features lure more customers.
Another important question related to term plans is can everyone buy a term plan?
The answer to the above question is no. Only an earning person who can present valid income proof and falls in the age bracket of 18-65 years is eligible to buy a term plan. The eligibility criteria vary from company to company.
Yes, the convertible option is available. The term plans can be converted to whole life insurance or endowment plans by paying extra premium.
This question worries some curious heads. Generally a Grace Period of 30 days is granted when the mode of paying premium is annually and 15 days in case of half yearly mode of premium. So, even if you have missed your policy renewal date you can contact your agent or directly the insurance company and communicate your intent to continue the policy and submit the premium with the grace period.
The answer is yes. Generally, the insurance company issues a term plan only after conducting the medical tests and it may reject issuance of policy in cases where they find a person unfit beyond their acceptable limits.
The smokers can be issued insurance policies but they would have some loading on their premium as the life risk is higher than a non smoker. As term plans are issued after a medical test if the health condition of some heavy smokers is very bad they insurance company may not issue them the policy.
Yes, you can. You have to intimate the insurance company your desire to change, add or reduce the nominee/s and the required changes would be made.
Yes, you can buy multiple term plans provided you have not exhausted your eligibility. A person is eligible to buy term plans carrying sum assured worth not more than 20 times of the person’s annual income. With advancement in age the eligibility percentage keeps shrinking.
Another very popular question asked by people is whether suicide is covered under a term plan?
This is an interesting question. All types of deaths are covered under term insurance plan including suicide from the second year of the policy. Suicide is not covered in the first year of the policy.
This is a favorite question of many proposers. The premium paid under term insurance plans is Deductible from the taxable income under section 80 C of the Income Tax Act, 1961. Maximum deduction under section 80 C is allowed up to Rs. 1,50,000. Moreover, the proceeds from the insurance company at the time of claims are fully exempt from tax under section 10(10)D of the act.
The above are some of the important questions asked by people while considering life insurance plans. While buy insurance plans it is good to ask as many questions that come across your mind. You should shoot numerous questions at your insurance advisor. The more you ask the more you know. Also plans of various companies should be compared to chuck out weaker plans. Comparing saves you money and promotes a satisfying purchase. Term plans are very important for your families secure future, thus, one must be double sure while buying a plan.