A term insurance policy provides financial protection for a fixed period. You pay a premium for the chosen policy term, and if the life assured dies during this period, the nominee receives the applicable death cover, subject to the policy terms and conditions.
Unlike savings or investment-oriented life insurance, term insurance is primarily designed for financial protection. This makes it suitable for people who want substantial life cover at a relatively affordable premium.
What is a term insurance policy?
A term insurance policy provides life cover for a specified period, such as 20, 30 or 40 years. If the life assured dies during the policy term, the nominee receives the death cover mentioned in the policy.
A regular term plan generally does not provide a maturity payout if the life assured survives the policy term. The premium is therefore mainly towards providing life cover rather than building savings.
For example, a person with a home loan, young children and dependent parents may use term insurance to provide financial support to the family if their income is no longer available.
What are the benefits of term insurance?
The main purpose of term insurance is to protect dependants from the financial impact of losing an earning member. Its key advantages include:
- Financial protection: The death cover can help the nominee manage household expenses, outstanding loans and other financial commitments.
- High cover at an affordable premium: A standard term plan focuses mainly on life cover, so its premium can be lower than that of policies that also include savings or investment features.
- Long-term protection: You can choose a policy term that covers important earning years and major financial responsibilities.
- Choice of features: Depending on the policy, you may have options for different cover amounts, policy terms and additional riders.
What are the tax benefits of term insurance?
Eligible life insurance premiums may qualify for tax deductions under applicable income tax provisions.
Under Section 123 of the Income Tax Act, 2025, individuals and Hindu Undivided Families can claim an aggregate deduction of up to Rs. 1.5 lakh for specified payments, including eligible life insurance premiums, subject to the conditions under the Act. The deduction is available under the old tax regime.
There has also been a change in the GST applicable to individual life insurance. From 22 September 2025, individual life insurance policies became exempt from GST, meaning the earlier 18% GST no longer applies to eligible individual life insurance premiums.
Tax rules and eligibility can change, so check the provisions applicable to the financial year in which you claim the deduction.
What are the main types of term insurance plans?
Term insurance can be structured in different ways depending on the cover and payout arrangement. Common types include:
- Level term insurance: The sum assured remains unchanged throughout the policy term.
- Increasing term insurance: The sum assured increases at specified intervals, subject to the policy conditions.
- Decreasing term insurance: The sum assured reduces over time and may be considered for certain financial liabilities.
- Term insurance with return of premium: Some plans return eligible premiums if the life assured survives the policy term, subject to the policy conditions.
- Joint life term insurance: A single policy can provide cover for two lives, depending on the policy structure.
The features, eligibility conditions and payout arrangements can differ between policies. Therefore, read the policy document carefully before selecting a particular option.
How can a term insurance calculator help?
A term insurance calculator can help you estimate the premium for different levels of life cover. You generally enter details such as your age, desired sum assured, policy term and other relevant information.
You can then compare different combinations before applying for a policy. For example, you could check how the estimated premium changes when you increase the cover from Rs. 1 crore to Rs. 2 crore or extend the policy term.
The result is only an estimate. The final premium can change after the insurer assesses factors such as your health, lifestyle, occupation, policy term and sum assured.
How should you choose the right term insurance plan?
Start by deciding how much financial protection your family may need. Consider your annual income, outstanding loans, regular household expenses, children’s future education costs and other financial responsibilities.
Your existing savings and investments should also be considered. These resources can help determine how much additional life cover your family may require.
Next, select a policy term that matches your financial responsibilities. If you have a long-term home loan or young children, consider a term that provides protection while these responsibilities are expected to continue.
When comparing policies, look beyond the premium. Check the exclusions, premium payment conditions, claim-related requirements, available riders and other policy terms.
It is also important to provide accurate information about your health, occupation, smoking or tobacco use and other details requested in the proposal form. This helps the insurer assess the risk based on the information provided.
What should you know about the free look period?
Life insurance policyholders get a free look period to review an eligible policy after receiving the policy document. Under the current policyholder protection framework, the free look period is 30 days for life insurance policies with a term of one year or more.
This gives you time to read the policy document and check whether its terms match your understanding. If you decide to cancel the policy within the applicable free look period, the refund is subject to the prescribed conditions and applicable deductions.
Is a term insurance policy right for you?
A term insurance policy can be suitable if your primary objective is to protect your family’s finances against the loss of your income.
The right level of cover depends on your circumstances. A person with a home loan, young children and dependent parents may need more protection than someone with limited liabilities and no financial dependants.
Instead of choosing a policy only because it has a low premium, assess your income, liabilities, dependants and future financial goals. A term insurance calculator can help you compare estimated premiums, while the final decision should be based on the level of protection your family actually needs.
Conclusion
A term insurance policy is primarily designed to provide financial protection for a fixed period. It can offer substantial life cover at a relatively affordable premium and may help families manage financial responsibilities if the life assured dies during the policy term.
Before buying, assess the required sum assured, policy term, premium affordability and policy conditions. Bajaj Finance can also be considered when exploring financial solutions as part of your broader financial planning. Also consider applicable tax provisions, available features and your family’s changing financial needs.
Choosing term insurance based on your actual financial responsibilities can help ensure that the cover remains relevant throughout the period when your family depends on your income.
