Beginner's Guide to Purchasing Term Insurance

Let's Understand What Term Insurance Is

Let's imagine that Shashank is a young professional with a wife and two kids. He has always been the breadwinner of his family and his income is the sole source of support for his loved ones. He knows that if something were to happen to him, his family would be left without a source of income and would struggle to make ends meet.

That's why he decides to get a term insurance policy. He knows that if he were to pass away within the policy term, his nominee, his wife, would receive a lump sum of money, called the death benefit. In Shashank’s case let’s say the death benefit is 1 Cr. This way, if something were to happen to him, his family would have the financial resources to cover living expenses and other financial obligations such as home loan repayments, children's education and other important things.

So, if Shashank were to pass away, his wife would receive the 1 Cr death benefit and use it as a replacement of Shashank’s income, and she could use the money to keep up their lifestyle, cover the cost of their children's education, and ensure that they don't struggle financially.

Why do you need Term Insurance?

Financial security for your family:
If you are the primary breadwinner, purchasing a term plan would cover your family's monthly expenses while you are away.

Secure your Assets:
You may have taken out a vehicle, housing, personal use, or education loan. Your family may experience financial hardship while you are away due to the payback of these debts. Your loans are paid off with the income from your term insurance plan, which also ensures that your family won't have to shoulder the further debt.

In a term insurance policy, if the insured individual passes away within the policy term, the death benefit, also known as the cover amount, is paid to the nominee.

Risks related to lifestyle:
With age, there is a higher chance of having a lifestyle illness. Some term insurance policies include critical sickness coverage, which safeguards your family during unforeseen events while you are still alive. The critical illness2 benefit offers cash protection against several serious health issues, including heart attack and cancer.

Term Insurance Cover Calculator

Term Premium for ₹ 1 crore

Aged 45, Up to Age 70

Yearly Premium: Rs. 31,920

which is month: Rs. 2,660 and per day: Rs. 88

Different Term Insurance Payout Options?

There are three categories for term insurance's payout option:

1.What is the Term Insurance One-Time Payout?

Time Lump Sum is a standard term insurance payout option where the insurer pays the beneficiary or nominee the full death benefit.

For instance, if you choose the payment option for a one-time lump sum that offers Rs. 1 crore in life coverage, the whole money would be paid to the designated beneficiary or beneficiaries upon your passing (policyholder)

2. What is the Fixed Monthly Payouts + One-Time Lump Sum Payment?

In this instance, the policyholder paid an extra monthly amount for the following five years in addition to the lump sum distribution of the absolute value insured to the nominee.

This payment type benefits the nominees or beneficiaries who can utilize the additional funds to cover their daily costs. Let's use an illustration to assist you in grasping this: The nominee would get Rs. 1 crore as a one-time payment instantaneously and Rs. 40,000 each year for the next ten years if the policyholder purchases an Rs. 1 crore life coverage under this payout option.

3. What is the Increasing Monthly Payouts + One-Time Lump Sum Payment?

When the policyholder dies, this option gives a one-time payout to the nominee equal to the whole sum insured value. Additionally, the nominee will receive installments of monthly payouts for a specific time that rises with each passing year (decided by the policyholder while buying the policy). Some limitations and restrictions apply to specific payment alternatives.

Take a life insurance policy of Rs. 1 crore as an example. If the policyholder dies, the nominee will receive Rs. 1 crore immediately. Additionally, Rs. 40,000 is paid each month for the first year, after which the payouts grow by a predetermined percentage, or 10%, for ten years after the insured person's passing. In the second year, the candidate will receive a monthly salary of Rs. 44,000, and so on.