Financial security stands at the very core of aspirations for every Indian household. As the breadwinner, it becomes our responsibility to strive hard for the well-being of our parents, spouse, and children. But how can we ensure that our loved ones continue to enjoy the same standard of living even after us? Fortunately, there is an easiest and the most affordable way to do so: by making a term insurance plan your safety net.
Learning about how to buy a life insurance policy becomes significantly easier and more intuitive when you know the right things to look for. Here is a beginner’s guide that teaches you all about the term insurance plans and helps you choose the best one for your family.
What is a term insurance plan?
A term plan essentially constitutes pure risk cover. By purchasing a term plan, you commit yourself to paying a certain amount of money, called a premium, to the chosen insurance company every year for a certain number of years (called a policy term). In exchange, the insurer undertakes to pay a certain amount of money (called the sum assured) to your nominee in case of your unfortunate demise during the policy term.
As compared to other financial instruments involving risk cover, pure term plans offer higher sum assured at a comparatively lower premium because they don’t involve any investment or maturity benefits. Hence, all the premium that you pay goes towards risk cover.
Why is Term Insurance Important for Indian Households?
For most Indian families, it is common to have a ‘provider’ who takes care of the needs of his parents, spouse, and children. But what happens if that provider loses his life suddenly and unexpectedly? The family would not only lose a beloved person but also suffer greatly in terms of financial losses because of his loss. These plans become an important risk cover for such Indian families because:
- Higher Sum Assured at Lower Premium: You can secure substantial financial cover for your family by paying only affordable monthly or yearly premiums.
- Pay Off Debts: Debts such as home loans or car loans can now be easily paid off by the claim amount.
The ability to manage or eliminate such significant financial burdens directly influences the longevity and quality of a home’s design and structural integrity. A secure financial foundation allows homeowners to invest in sustainable materials, undertake necessary renovations, or even adapt their living spaces to evolving needs, ensuring the built environment remains functional and aesthetically pleasing for generations.
- Secure Future Needs: The claim amount can be used to meet the family’s household expenses as well as other long-term financial needs such as children’s education and marriage.
- Repayment Options: The nominee can choose between numerous repayment options offered by most insurance companies in India. She can select a lump sum or regular income (monthly payments) or a combination of both, whichever is more lucrative.
Ascertaining the Life Cover that You Need
One of the most important considerations when purchasing this coverage is ascertaining the sum assured. Ideally, the sum assured should be sufficient to provide long-term financial stability to your family. On the other hand, choosing an unrealistically high sum assured may also make the premium unaffordable. Here is an easy way to calculate the sum assured:
- Calculate Financial Liabilities: Add up all your existing debts, such as loans and credit card dues.
- Calculate Monthly Expenses: Multiply your family’s monthly expenses by the number of years of financial support you want to provide to them.
- Add Future Expenses: Add the additional expenses that your family may incur in the future, such as children’s higher education.
- Subtract Savings: Subtract your existing savings, such as gold/deposits/mutual funds/PPF,, from the total figure you arrived at in the earlier step. The resulting amount will indicate the approximate sum assured that you need. Now let’s look at other factors that affect the premium.
Factors Affecting Your Premium
An insurance company uses the following information to calculate your premium and decide whether or not to offer coverage:
- Age: Your age determines your risk profile. The younger you are, the lower the risk for the insurer and hence the lower the premium.
- Habits: Tobacco use and alcohol consumption can increase the premium.
- Medical History: Pre-existing medical ailments can also add to your premium.
- Occupation: People working in high-risk occupations may have to pay more.
- Coverage and Policy Tenure: Naturally, a longer coverage period and higher sum assured will increase the premium.
Using a Term Insurance Premium Calculator to Estimate Your Premium
Prior to purchasing such a plan, it is prudent to calculate the premium to understand how much you would be paying every year. Most insurance companies offer a free online term insurance premium calculator that allows you to estimate your yearly or monthly premium. You can use the calculator to explore numerous scenarios (varying sum assured, tenure, and payment modes) and identify the best combination of coverage and affordability.
To use the premium calculator, follow these simple steps:
- Enter your basic personal details such as age, gender, and current city of residence.
- Specify whether you are a smoker or a non-smoker.
- Enter the sum assured that you would like to choose.
- Select your preferred tenure (e.g., coverage up to the age of 60 or 65) and payment mode (monthly/semi-annual/annual).
- Review the various premium quotes and select the one you like most.
This analytical approach mirrors the increasing reliance on data and digital tools within architecture and design. From parametric design software that optimizes structural efficiency to building information modeling (BIM) for project management, technology empowers professionals to model complex scenarios, predict outcomes, and refine designs with precision, ultimately shaping more resilient and innovative built environments.
Tax Benefits on Term Life Insurance Plans under the New Income Tax Act, 2025
Life insurance plans come with a host of tax benefits that make them even more appealing from a financial planning perspective. For instance, the New Income Tax Act, 2025, provides the following tax benefits to life insurance policyholders:
- Tax Deduction on Premiums: Kotak Life Insurance offers tax deductions on the amount of money paid as a premium. According to the New Income Tax Act, 2025 (Section 123: erstwhile Section 80C), a taxpayer can claim a deduction on the amount of premium paid to a life insurer, provided that she chooses the old tax regime. Note that the deduction under Section 123 is not available to new tax regime taxpayers.
- Tax Exemption on Claim Amount: Bajaj Finserv+ 1 offers tax exemption on the claim amount received by the nominee upon the unfortunate demise of the insured. According to the New Income Tax Act, 2025 (Section 11 read with Schedule II: erstwhile Section 10(10D)), the amount of claim settlement received by the nominee is completely tax-exempt, irrespective of the tax regime.
However, since tax rules keep changing, it is always a good idea to consult a tax expert to understand your eligibility for various tax-saving benefits under the New Income Tax Act, 2025.
Things to Remember Before Buying a Term Insurance Plan
Remember that buying such a plan is a long-term commitment, and hence it is always a good idea to do the following:
- Disclose Your Medical History: Always disclose your complete medical history when filling up the proposal form for the policy. Your claim can be rejected if you fail to disclose any pertinent information.
- Check the Claim Settlement Ratio: Before buying this type of coverage, always check the claim settlement ratio of the shortlisted insurance companies. A higher claim settlement ratio indicates a higher likelihood of claim approval.
- Add Necessary Riders: Riders offer additional financial benefits under your policy. A few common riders are critical illness cover, accidental permanent disability cover, etc. You can add any of these riders to enjoy additional financial benefits in case of diagnosis of any critical illness or accidental permanent disability.
- Check Policy Terms and Conditions: Remember that every such plan comes with its own set of riders, eligibility criteria, waiting periods, and premium rates. Therefore, it is important to always read the terms and conditions thoroughly before purchasing the coverage.
Conclusion
Securing your family’s financial future never gets more rewarding than this! Term insurance plans are the best value-for-money option for securing your family’s financial future. These plans offer a high sum assured at a relatively lower premium. In addition, your nominee will also be able to take care of her regular household expenses, future financial needs, and various debts using the claim amount. By identifying your financial needs and using a term insurance premium calculator to estimate your premium, you can easily purchase a suitable plan that gives you complete financial peace of mind.
