A term plan is an affordable life insurance policy that offers a substantial sum assured. The term insurance benefits allow you to stop worrying about your family’s future, as the policy ensures their monetary security in your absence. If you plan to get a term policy, the insurance plan’s terminology may appear a little confusing at first. Read on if you want to understand the most common ones.
- Life assured
A term plan aims to provide life cover for a particular person, also known as the life assured. When you buy the plan for yourself, it makes you the life assured. However, if you purchase it for your spouse or parents, they become the life assured.
A policyholder is the one who purchases the term policy and pays the premium. You can be both the life assured and policyholder if the plan is in your name. However, even if the life assured is someone else, you can be a policyholder if you pay for it.
- Sum assured
When purchasing a term plan, the policyholder has to decide the amount of policy cover, known as the sum assured. If an unfortunate event leads to the policyholder’s absence during the policy tenure, the insurer will pay the sum assured to the nominee. The term insurance tax benefit makes the sum assured tax-exempt under Section 10 (10D) of the Income Tax Act, 1961.
While purchasing the term life insurance policy, you need to decide who will have the right to make a policy claim and receive the sum assured. This person or persons are the nominees. It can be anyone you trust, including spouse, parents, children, relative, and others.
After buying the term policy, you have to make regular payments to the insurer to keep the plan active. The payment is known as the premium, and you can pay it yearly, semi-annually, quarterly, or monthly.
- Policy term
As the name suggests, a term insurance policy is valid for a limited time or period, which is the policy term. You can decide the duration of the policy while purchasing it. Your nominees can make a policy claim only during this period in case of an untoward incident.
- Death benefit
It is the lump sum, which the insurance provider pays to the nominees when they make a successful claim. If you do not have any additional riders, the death benefit remains equal to your policy’s sum assured. Some riders can make your nominees entitled to receive a higher death benefit over the sum assured.
If you want to enhance the existing term policy’s benefits, you can purchase add-on covers, known as riders. Depending on the rider, you can get a variety of extra benefits. Some popular choices include an accidental death benefit and critical illness riders.
If an unfortunate incident results in the policyholder’s death during the term insurance policy tenure, the insurance provider pays the sum assured to the nominees. However, the nominees need to file a claim or an application to the insurer to receive the benefit. If the claim does not match the policy’s terms and conditions, the insurer has the right to reject it.
- Free-look period
Some insurance companies offer you a free-look period. During this time, you have the flexibility to return the term policy without any penalty. The duration of the period varies among insurance providers.
With term insurance tax benefits, high sum assured, and low pricing, this policy has become a popular choice. You can purchase it directly from an insurance company’s website.