Term insurance is a type of life insurance that provides financial protection to your family if something happens to you during a specific period, called the term.
It’s one of the simplest and most affordable forms of life insurance.
How it works:
When you buy term insurance, you choose:
- The sum assured (the amount your family will receive if you pass away).
- The policy term (how long you want the coverage – for example, 20, 30, or 40 years).
- The premium payment term (how long you’ll pay premiums – could be the same as policy term or shorter).
You pay a fixed premium (monthly, yearly, etc.), and if you die during the policy term, the insurance company pays the full sum assured to your nominee (usually your family).
However, if you survive the policy term, there is no payout (unless you have a return-of-premium option, which costs more).
Key Features:
- Pure protection: Term insurance is designed only for life cover. It doesn’t have any investment or savings component.
- Affordable: Since it doesn’t include investment, the premiums are much lower than other types of life insurance like ULIPs or endowment plans.
- Large cover at low cost: You can get a high sum assured (like ₹50 lakh or ₹1 crore) for a relatively small premium.
- Flexible options: Some policies offer riders (extra benefits) like accidental death cover, critical illness cover, or waiver of premium if you get disabled.
Why it’s important:
Term insurance is useful if you’re the main earning member in your family. In case something happens to you, your family will still have money to take care of important expenses like:
- Daily living costs
- Children’s education
- Home loans or other debts
Tax benefits:
- Premiums paid are eligible for a tax deduction under Section 80C (up to ₹1.5 lakh per year).
- The death benefit received by your family is tax-free under Section 10(10D).