Friday, May 24

How Does Term Life Insurance Work?

Term life insurance is a type of life insurance policy that provides coverage for a specific period or “term.” In the Indian insurance market, this term usually ranges from 5 to 30 years. It offers financial protection to your family in the unfortunate event of your demise during the policy term. This type of coverage can help your beneficiaries manage their financial needs and maintain their standard of living when you’re no longer there to provide for them.

Key Features of Term Life Insurance

  1. Premium Payments

To secure a term life insurance policy, you need to pay regular premiums to the insurance company. The premium amount of term insurance depends on various factors such as your age, health, lifestyle, and the coverage amount you choose. It’s essential for insurance holders to pay your premiums on time to keep the policy active and ensure your family’s financial security.

  1. Coverage Amount

The coverage amount, also known as the “sum assured” or “death benefit,” is the lump sum payment that your family or nominees will receive if you pass away during the policy term. This amount can be a significant financial cushion for your loved ones, helping them cover various expenses like daily living costs, outstanding loans, and educational expenses.

  1. Policy Term

In India, term life insurance policies come with flexible policy terms, typically ranging from 5 to 30 years. Choosing the right term length is crucial as it determines the duration for which your family will be financially protected. It’s advisable to align the policy term with your long-term financial goals and responsibilities.

  1. Nominees

When you purchase a term life insurance policy, you need to nominate individuals who will receive the death benefit in case of your demise. In India, nominees are usually immediate family members like spouses, children, or parents. Make sure to keep the nominee details updated to ensure a smooth claims process.

Advantages of Term Life Insurance

  1. Affordability

Term life insurance is one of the most cost-effective types of life insurance available in India. The premiums of term insurance are relatively low, making it accessible to a wide range of individuals. This affordability allows you to secure substantial coverage without affecting your budget.

  1. Financial Security

By having a term life insurance policy, you provide your family with financial security. It ensures that they have a safety net to fall back on in case of your untimely demise, helping them maintain their life and meet their financial obligations.

  1. Tax Benefits

For the Term life insurance policies in India offer tax benefits under Section 80C and Section 10(10D) of the Income Tax Act, 1961. The premiums paid are eligible for tax deductions, and the death benefit received by the nominees is usually tax-free.

Types of Term Plans  

The main types of term insurance plans offered by insurance companies in India include:

Level Cover: Offers fixed sum assured over the tenure. Premiums increase annually.

Increasing Cover: Sum assured rises over the term to counter inflation. Premiums increase accordingly. 

Decreasing Cover: Sum assured decreases but premiums remain fixed over the policy tenure.

Return of Premium: Premiums paid are returned at maturity in addition to the sum assured amount for death.

Online Term Plans

Many insurers now offer online term plans that can be purchased instantly without paperwork and medical tests. The premiums are very low as there are negligible distribution costs. However, the sum assured is also capped at Rs 1-2 crores for online plans.

Tax Benefits 

The premium paid for term insurance qualifies for tax deductions under Section 80C up to Rs 1.5 lakhs annually. The death benefit received by nominees is also tax exempt under Section 10(10D).

Claim Settlement

The claim process involves intimating the insurer of death, submitting necessary documents like death certificate and policy bond, and completing other formalities. Once the claim is approved, the sum assured amount is paid to the nominee.

Thus, term life insurance provides cost-efficient financial security against premature death of the earning member during the coverage period. The premiums paid secure a large tax-free corpus for dependents to maintain their lifestyle.


In conclusion, term life insurance is an important financial tool for Indian individuals and families. It offers an affordable way to secure your loved ones’ lives & maintain their financial future, ensuring they are well taken care of even when you’re not around. By understanding the term life insurance and considering your specific requirements, you can make an informed decision that provides peace of mind and financial stability to your family. If you have any questions or are ready to explore term life insurance options tailored to the Indian market, don’t hesitate to contact Aditya Birla Sun Life Insurance for expert guidance and personalized assistance.