What is Term Insurance and how does it work?

Term Insurance is a Life Insurance Policy that pays a fixed sum assured to your nominee if you pass away during the chosen policy term. It works on pure risk cover which means that almost all of your premium goes toward the protection itself rather than into any investment or savings component, which is why Term Plans generally cost far less than Insurance Plans that also build a maturity value.

However, if you opt for the Return of Premium (ROP) plan, you may get the paid premiums back if you survive the policy term.

Why do people buy Term Insurance?

People buy Term Insurance mainly to replace their income for dependents if they are no longer around, at a much lower cost than a Savings Life Insurance Plan. A Term Plan does not build cash value, so an insurer can offer a large sum assured for a comparatively small premium. This makes it a practical starting point for anyone whose family depends on their income, whether for daily expenses, a Home Loan, or a child’s future education.

How much term cover do you actually need in 2026?

A practical starting point is to choose a cover of around 15 to 20 times* your annual income, then add your outstanding Loans and major future financial goals and deduct any existing life cover or assets that can reasonably support your family. For example, if you earn ₹10 lakh a year, the starting cover could be ₹1.5 to 2 crore. If you also have a ₹50 lakh Home Loan and want to set aside ₹25 lakh for your child’s education, you may need to increase the cover accordingly.

The 15–20× income rule is a financial-planning guideline. However, the right cover ultimately depends on your income, liabilities, dependents, existing assets, and future financial commitments.

Source: Explained: Why your ideal term cover should be 10-15 times your annual pay | Personal Finance - Bus…

Who should consider a Term Plan and at what age?

Term Insurance suits anyone with dependents or financial obligations, including salaried employees, self-employed professionals, and homemakers whose contribution has replacement value for the household. Entry age typically starts at 18. Term Life Insurance for senior citizens is also increasingly available, with several insurers extending entry ages toward the late 60s, although premiums rise and medical underwriting becomes more detailed at older ages.

Buying earlier in life generally locks in a lower premium for the chosen term, since your age and health at the time of purchase influence the rates you pay for the rest of the policy term.

What are Term Insurance Riders?

Term Insurance Riders let you add specific protection to a base plan, such as cover for critical illness or accidental death, for an additional premium. Riders are optional. You are not required to buy any of them, and each comes with its own terms, waiting periods, and exclusions separate from the base policy. Commonly available riders include:

• Critical Illness Rider
• Accidental Death Benefit Rider
• Waiver of Premium Rider

It is worth reviewing each rider closely before you add it to base plan.

What tax benefits does Term Insurance offer?

Term Insurance premiums can qualify for a deduction from taxable income within the old tax regime. Premiums of up to ₹1,00,000 may be deductible under Section 123 (previously Section 80C) of the Income Tax Act 2025. Tax benefits are subject to change as per prevailing tax law. It is crucial to consult a qualified tax advisor to confirm current eligibility before assuming a specific benefit applies to you.

How are Term Insurance claims settled?

Term Insurance claims are generally settled in three steps: claim intimation, claim processing, and claim decision. The nominee or the policyholder’s family should inform the insurer as soon as possible and submit the required documents. The insurer then reviews the documents and assesses the claim before communicating its decision. If the claim is approved, the payout is generally transferred electronically to the nominee or other eligible beneficiaries.

How can ABSLI help?

If you are evaluating a Term Plan, the ABSLI Super Term Plan is designed to provide life cover for a chosen term. It offers:

• Multiple plan-option choices, subject to policy terms
• Optional riders, subject to eligibility and underwriting
• Online premium payment and claim-related servicing

Calculate your cover with DIME formula.

To learn more, click here

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