Term of Policy

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Definition

The term of policy refers to the period for which the policy remains active. The policy term is determined at the time of purchase. Policyholders have the flexibility to choose the policy term based on the number of years they want to be covered for.

Description

When you buy any electronic item and get a warranty card along with it, it defines the period till which you can get the product replaced for any fault. You can get a benefit of replacement or repair only if the product gets damaged within a warranty period. Raising a concern within the warranty period matters because  the coverage is guaranteed1. Same is the case for terms of policy when the coverage to the life insured is certain. If anything happens to the life insured, the insurer is liable to pay for the losses.

To get the coverage, the insured has to pay the premium either for the complete term of policy or for the time lesser. The premium is paid to get the coverage which is also the basis of the policy contract.

The cover is active only till the time the policy is active, after which there is no coverage offered to the life insured. In life insurance, the policy is not renewed at the end of the Term of the policy. Instead, the insured has to buy a new life insurance policy.

Example

Prashant purchased a term plan for Rs.1 crore when he was 25 years old. The term of the policy was 20 years. Prashant survived the policy term, and he received no maturity benefit at the end. Under the term plan, no maturity benefit is payable.

But Prashant was only 45 when the policy term ended and he was left with no financial security. So he renewed the policy and chose the new term of policy as 25 years. That means his life is covered till he turns 70 years of age.

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