Simplifying Life Insurance in India
10 Year Term Life Insurance Plan in India
We can't prevent every hardship in life's uncertainties, but we can secure our family's financial future with insurance. When choosing term insurance, the policy term is crucial as it defines the duration of coverage. This should align with your life stage, needs, and financial goals.
While lifelong coverage is ideal, a 10 year term insurance plan may be suitable when short-term protection is needed. It offers a practical solution for those with temporary financial obligations. Let's explore the benefits, considerations, and significance of a 10 year plan for both short-term security and long-term peace of mind.
10 Year Term Insurance Plan Overview
What is a 10 Year Term Insurance?
A 10 year term insurance is a term plan with a policy tenure of 10 years. It provides financial coverage for 10 years and is best suited for short-term financial protection.
If the insured person passes away during the term policy, the policy pays out a death benefit to the beneficiaries. This death benefit is typically a lump sum of money that the beneficiaries can use for any purpose, such as paying off debts, covering living expenses, or funding future needs like education.
Unlike whole life insurance, term life insurance doesn't accumulate cash value and is a pure protection plan that provides just the insurance cover. Once the tenure is over, the policy expires. It's a straightforward and cost-effective option for those seeking short-term financial protection.
How Does a 10 Year Term Insurance Policy Work?
A 10 year term insurance policy is a life insurance plan that provides coverage for a period of 10 years. Here’s how it works:
- Premium Payments: The policyholder pays regular premiums (monthly, quarterly, or annually) to keep the policy active throughout the 10 year term.
- Coverage Period: The policy offers financial protection for 10 years. If the policyholder passes away during this period, the insurance company pays a death benefit to the policyholder’s beneficiaries.
- Death Benefit: The death benefit is a lump sum paid to the policyholder's family or beneficiaries if the policyholder dies within the 10 year term. This money can cover expenses, pay off debts, or support the family financially.
- End of Term: If the policyholder survives the 10 years, the policy typically ends without payout. The policyholder may have the option to renew the policy, but the premiums might increase based on age and health at that time.
Illustration
Mr. Sujoy, a 35-year-old, decides to purchase a 10 year term insurance policy to ensure his family is financially protected in case something happens to him. He selects a policy with a coverage amount of 50 lacs. Sujoy pays ₹8,000 annually for 10 years to keep the policy active.
Scenario 1: Death
If Sujoy passes away during these 10 years, the insurance company will pay ₹50,00,000 to Sujoy’s family or beneficiaries. This amount can be used to cover living expenses, pay off any outstanding loans, or ensure financial security for the family.
Scenario 2: On Maturity
If Sujoy survives for 10 years, the policy ends. There is no maturity benefit, but he may choose to renew the policy for another term, although the premiums may increase due to the policyholder's age.
Why Should You Choose a 10 Year Term Insurance?
1. Affordability
A 10 year insurance plan, even for higher sum assured, typically offers more affordable premiums compared to longer-term options, since it is for a lower term. This makes it a budget-friendly choice for individuals seeking essential coverage for the required term without a significant financial commitment.2. Short-Term Obligations
A 10 year term insurance is suitable for covering short-term financial obligations, like paying off a mortgage, covering education of children, supporting dependents until they become financially independent. Thus, aligning the coverage period with specific milestones optimises the benefits of the term plan.3. Optimising Risk Mitigation
A well-planned short-term coverage provides protection during critical life stages, thus minimizing financial risks associated with unexpected events during those stages. It ensures that dependents are safeguarded during the most vulnerable periods.4. Premium Stability
Since you have planned the coverage for this period of 10 years, you can buy a level term plan, thus keeping your premiums stable for the tenure. This predictability can be beneficial for budgeting purposes, especially for people who prefer a simple and consistent financial plan.5. Career or Business Focus
A 10 year term plan is suited for those in dynamic careers or entrepreneurs focused on short-to-medium-term business objectives. During their most volatile and aggressive times when the dependencies are most pronounced, they can plan a high coverage to take care of the financial liabilities in case they meet an unfortunate demise.6. Death Benefit
In the event of the policyholder's death during the 10 year policy term, the designated beneficiaries will receive the guaranteed sum assured. You can select between a lump sum payout or instalment payments, depending on what you believe will best support your family's needs.7. Tax Deductions
Premiums paid for the 10 year term policy are eligible for tax deductions under Section 80C of the Income Tax Act, 1961.8. Surrender Benefit
If you discontinue premium payments before the end of the policy term, you may be entitled to a surrender benefit, provided that at least 2-3 years' worth of premiums have been paid in full.9. Rider Protection
The policy allows for adding riders, which offer enhanced protection against accidental death, disability, critical illnesses, and other risks.10. Loan Facility
Some insurers offer a loan facility with their 10 year term insurance policies, allowing you to borrow against the sum assured to meet urgent financial needs.Who Should Consider Buying a 10 Year Term Insurance?
1. Those Looking for Temporary Financial Protection
A term plan for 10 years is suitable when there's a need for financial protection for a specific period, such as until a mortgage is paid off or when children are financially independent.2. People Looking to Cover Debt Repayment
Consider an individual who has taken a home loan of 1 crore and plans to repay it over a period 10 years. Individual can buy a 10 year term plan, thus ensuring their debt is covered if something happens to them during this repayment period. Thus, people looking to cover their debts for a certain tenure can opt for 10 year term insurance.3. Business Owners
A 10 year term plan is valuable for business owners who want to provide financial security for their families in case of untimely death, especially during the critical early years of the business when the credits are high.4. People Looking for Supplemental Coverage
10 year term insurance can be added to other insurance policies, like whole life or endowment plans, to enhance overall coverage during certain years of increased liabilities.5. Life Changes
Significant life changes like losing a job, changing careers, or getting divorced can impact your finances and require temporary life insurance.
For example, if your child is returning to school, a term life insurance policy can provide financial security if something happens to you before they start earning again.
Features and Benefits of 10 Year Term Life Insurance Plan
Coverage Duration
This policy provides coverage for a term of 10 years. The death benefit is paid out if the insured passes away within this period.Premium Payments
Typically, premiums are fixed and remain constant throughout the policy term.Renewability
Some policies may offer the option to renew for another term after the initial 10 years, often at a higher premium based on age.Convertibility
Allows you to convert the term policy to a permanent policy (e.g., whole life or universal life) without a medical exam, usually before the term expires.Death Benefit
Pays out a lump sum to the beneficiaries upon the insured’s death during the term.No Cash Value
Unlike permanent policies, term life insurance does not build cash value or savings.Affordable Premiums
Generally, term life insurance is more affordable compared to permanent life insurance.Temporary Needs
Ideal for covering specific financial responsibilities that may diminish over time, such as a mortgage or education expenses.High Coverage Amount
Often allows for a higher death benefit compared to the premium amount paid.Additional Benefits
Some policies may include riders for critical illness or disability, providing extra protection.How to Calculate Premium for 10 Year Term Life Insurance?
Calculating 10 year term insurance premiums involves several factors. Here’s a step-by-step guide to help you understand the process:
- The coverage amount is often based on your annual income, debts, future expenses, and additional financial responsibilities.
- Your age and health status significantly impact the premium. Younger and healthier individuals typically pay lower premiums.
- Since you are looking at a 10 year term, the premiums will be calculated based on this duration.
- Factors such as smoking, occupation, and hobbies can affect your premium. Riskier lifestyles usually lead to higher premiums.
- Additional benefits like critical illness riders can increase the premium.
The Premium Calculation Formula
Premium = (Base Premium + Rider Premium + Loading Factors)
Calculation of 10 Year Insurance Premiums
Let’s take the example of Rishab, a 30-year-old marketing professional who wants to secure his family’s financial future. He decides to buy a 10 year term life insurance policy with a coverage of ₹50,00,000.
10 Year Term Insurance Plan Details for Rishab:
- Age: 30 years
- Health Status: Non-smoker
- Policy Term: 10 years
- Sum Assured: 50 Lakhs
Insurers calculate the base rate based on age, health status, and sum assured. In Rishab’s case, lets assume that the base rate is ₹1.5 per thousand of the sum assured. Here is how the premium is calculated:
Base Premium = (Sum Assured / 1,000) × Base Rate
Base Premium= (50,00,000/1,000) × 1.5 = ₹7,500 per year
While Rishab is satisfied with the base coverage, he enhances his policy by adding an accidental benefit rider. This rider will provide an additional sum assured where the premium rate is increased to 10% - 20% of the base premium.
Rider Premium = Base Premium × 10% = 7500 × 0.1 = 750
His job involves regular travel, which is which is considered high-risk, leading to a 20% loading factor increase in the base premium.
Loading Factor = Base Premium × 20% = 7500 × 0.2 = 1500
Total Premium Calculation:
Premium = (Base Premium + Rider Premium + Loading Factors)
Premium = (7500 + 750 + 1500)
Premium = ₹9,750 per annum
Rishab pays ₹9,750 every year for the next 10 years. If he passes away during term his family receives the coverage amount of ₹50,00,000. If he survives the term, there is no payout.
Disclaimer: The above calculations are only for illustration purposes. For an accurate calculation, it's best to use an online premium calculator provided by insurance companies or consult with a financial advisor as they consider all the specific details and current rates.
Is a 10 Year Term Life Policy the Right Choice for You?
Coverage Needs
Assess your financial obligations and the needs of your dependents. A 10 year term policy may be suitable if you have short-term financial obligations to cover, such as a mortgage or children's college expenses.Affordability
Term life insurance policies are generally more affordable compared to whole life policies. Consider whether the premiums for a 10 year term policy fit within your budget.Future Plans
Think about how your financial responsibilities may change over the next decade. If you anticipate needing coverage for a longer period, consider a longer-term or a different type of policy.Health Considerations
Your health and age can also impact the cost of insurance. If you anticipate a decline in health or expect significant changes in your life within the next 10 years, it may be worth considering a longer-term or permanent policy.
You should review your overall financial situation and future goals, and consult with a financial advisor or insurance agent to determine the most suitable life insurance policy for your needs.
A 10 year term life insurance policy is ideal for individuals seeking short-term financial protection for their families. It offers an affordable alternative to permanent life insurance, making it suitable for those with budget constraints. This policy is best for individuals with specific financial commitments expected in the next 10 years.
As life stages and circumstances evolve, policyholders can reassess their needs, making it an adaptable solution. While it may not suit everyone's long-term goals, 10 year life insurance serves as a practical and accessible choice for those prioritizing immediate protection and financial security.
FAQs about 10 Year Term Insurance Plan
Can we extend the death benefit of a 10 year term plan after the expiry of the term of 10 years?
What happens if the policyholder passes away after the period of 10 years?
What happens if I outlive my 10 year term plan?
Can I add riders to my 10 year term plan?
What does a 10 year level term insurance mean?
What is a 10 year decreasing term insurance?
What are the implications of renewing a 10 year term insurance policy after it expires?
Can you cash in a 10 year term life insurance policy?
Who benefits most from a 10 year term insurance plan?
Do you need to take a medical exam for a 10 year term life insurance policy?
Is a 10 year term policy more expensive for a smoker?
How does a 10 year term life insurance policy work?
Who is eligible to purchase 10 year term insurance plans?
What if I forget to pay premiums for my term plan?
Do premiums for a 10 year term insurance policy increase every year?
Other Important Articles Related to Term Insurance
Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
Latest News
Read More
Renew & Download Policy Document, Check Challan, Credit Score, PUC & more
Anytime, Anywhere. Only on Digit App!
Rated App
Rated App
Scan to Download
