The Key Features of Term Insurance

Life is full of surprises that we can never predict. We work hard to leave behind a comfortable life for our loved ones, but have we ever thought about what would happen to them once we are no longer there? This thought is not pleasant, yet the most vital thing a person should think of. Securing your family’s financial future is a noble act, and the easiest way to do it is by purchasing term insurance.

A lot of people usually get confused by the terminology related to insurance, like premiums, riders and underwriting, etc. Let us shed light on these terms and clear up some of the most common queries that people have with regard to term plans.

A term plan is basically net coverage wherein you pay a certain amount of premium to insurance companies on a yearly basis, and in return they promise to pay a lump sum amount to your nominee in case of your demise during the policy term. Term plans are the most economical plans because of the fact that they only provide coverage without any investment component. Thus, you get an affordable premium for an affordable amount of sum assured.

You should buy term insurance at an early age

Since the premium is calculated on the basis of the age and health profile of the proposer at the time of policy initiation, it is always a wise decision to buy term insurance when you are young and healthy. Insurance companies do an underwriting process wherein they scrutinize your health reports and other personal details before they approve your proposal.

If you are in your twenties or early thirties, it is highly likely that you will get approved at a lower premium since you are young and healthy and have a good life expectancy. Thus, buying term insurance at an early age locks you in with a lower premium that you would never have to pay if you had postponed the purchase by a few years.

A few essential features of term insurance policy are as follows:

• Death benefit: Death benefit is the main reason why a term plan is purchased. The nominee of the proposer gets an amount of money which is decided at the time of policy initiation.
• Policy tenure and payout options: In this section, you have to decide the policy tenure, which means up to what age you will have the coverage. You also have the option of choosing how you want the nominee to receive the sum assured. You can choose either a lump sum payment, regular monthly payouts or a combination of both.
• Riders and add-ons: You can also go for additional add-ons like critical illness cover and accidental death benefit.
• Payout options: You can also decide whether you want to pay your premium on a monthly, semi-annual or annual basis.

Please note that all the eligibility criteria, underwriting norms, premium rates, terms and conditions may differ from one insurance company to another and thus it is advisable to read the terms and conditions properly before buying any policy.

Understanding tax implications under the new Income Tax Act, 2025

While term insurance is primarily designed to provide financial protection, eligible policies may also offer certain tax benefits under the Income-tax Act, 2025. Understanding the applicable provisions can help you make more informed financial decisions when purchasing a term insurance policy.

Under Section 123 read with Schedule XV, eligible life insurance premiums may qualify for a deduction, subject to the prescribed conditions and the overall ₹1.5 lakh limit applicable to specified payments. This deduction is not available to taxpayers opting for the concessional tax regime under Section 202.

The tax treatment of death benefits is governed by the applicable provisions of Schedule II and is subject to the conditions and exclusions specified under the Act. Since tax treatment can vary based on the policy and the taxpayer’s circumstances, it is advisable to check the applicable provisions before making tax-related decisions.

How to Decide the Appropriate Amount of Cover?

The thumb rule to decide the appropriate amount of cover is that it should be at least ten to fifteen times of your income. But in order to arrive at an accurate figure, it is always a good idea to sit down with a pen and paper and write down your monthly expenses. You also have to take into account the debts that you might have like a home loan or a car loan. You can also consider your children’s college fee and other expenses in this regard.

Now subtract the amount of your current savings from the total and you will arrive at an approximate amount of cover that you need. It is important to get an adequate amount of cover because if you opt for lesser amount than required, your nominee will not be able to lead a comfortable life.

On the other hand, if you go for a cover that is way too expensive, you will not be able to bear the premium payments. Thus, it is essential to go for an appropriate amount of cover.

Following are a few steps that can help you while purchasing a term insurance policy:

Today, with technological advancements, we have the ease of purchasing a policy online from the comfort of our homes. But it is essential to go through the application form personally and fill it in detail. It is essential to be absolutely honest while filling out the application form about your health, lifestyle and family medical history because the truth will come out eventually and will lead to denial of your claim at the time of your claim.

Insurance works on the principle of faith and trust, and unless and until you are completely honest about your health status and lifestyle, an insurance company will not settle your claim at the time of your claim.

If an insurance company asks for medical tests, please get them done immediately.

It is also important to read the policy document thoroughly and check the claim settlement ratio of the company before buying any policy. You can also check the reviews of people that are available online.

Securing your family’s future is the most noble thing that you can do for them, and by learning about the working of term plans, choosing the appropriate cover and being honest while going through the underwriting process, you can build an unbreakable shield of financial security for your beloved ones.