How Term Insurance Works

The current COVID-19 pandemic has revealed the uncertainty of life and highlighted the importance of term insurance plans. Whether you are the sole provider in the family or have an earning spouse, having the protection of term insurance is essential today. Can you imagine your family having to live on half of what you earn or worse without any regular monthly income?

Life can take an unexpected turn any moment and your family’s quality of life can suffer without the protection of term life insurance. Decrease in the level of income can negatively affect their lifestyle and completely derail the life goals you have set for them. However, with an adequate term insurance plan, you can shield them from challenges that life throws at them.

What is term insurance?

Term insurance provides life insurance protection to the life assured for a specific term wherein the death benefit is paid to the nominee in case of the life assured’s death. Term insurance plans are one of the most cost-effective life insurance products as it allows the insured to get a higher sum assured by paying a premium, which is comparatively lower than other insurance products.

What does term insurance cover mean?

The primary objective of buying term insurance is to provide for the regular expenses and meet the financial goals of your dependents in your absence. Term life insurance provides death benefit to the nominee in case of the life assured’s death.

How term insurance works

Term insurance only provides death benefit to the nominee in case of the life assured’s death. However, there are term plans that have varied features to meet the needs of people with varying goals.

1. Increasing term insurance (increase in life cover during specific events in life)

Here, the sum assured increases every year while the premium amount remains unchanged.

2. Term insurance with return of premium

If you want to get your term life premium back at maturity, this is the right policy for you. However, the premiums for an ROP option are a bit on the higher side

Term Insurance Benefits

• Cost effective

A term insurance policy provides pure life insurance protection without maturity benefit and hence is a cost-effective form of life insurance. This insurance plan ensures that you get a high sum assured amount by paying a comparatively lower premium amount. A term life insurance plan is one of the preferred methods to secure your family’s future and provide maximum financial protection by spending less than Rs. 500 per month^*.

• Flexible pay-outs

With new-age term insurance plans, your family members are not bound to receive the death benefit pay-out as a lump sum. In fact, they can opt for receiving the pay-out both as lump sum and/or as monthly income. This ensures that your family receives regular monthly income in your absence apart from a substantial amount to meet their life goals.

You also get the freedom to go for a fixed monthly income plan or increasing monthly income plan where the pay-out increases by a certain percentage every year.

• Increase in cover and riders to enhance coverage

Another built-in feature and advantage of term life insurance is that you get the flexibility to enhance the coverage according to important life stages. For example – if your life coverage was Rs. 1 crore before marriage, you can increase the sum assured Additionally, you can enhance protection with various riders, such as accidental death benefit, permanent disability benefit, critical illness cover and waiver of premium.

• Term Insurance Tax benefits

Term life insurance provides tax benefits to policyholders under Section 80C of the Income Tax Act, 1961 (the Act). You are eligible for deductions up to Rs. 1.5 lakh per annum on premiums paid. Additionally, under Section 10(10D) of the Act, maturity benefit or death benefit of term life insurance is fully exempt from income tax. The above mention term insurance tax benefits and deductions are subject to the provisions contained in the Act.

Conclusion

Though you do not get maturity benefits on the money spent on a term insurance, it ensures that your family will not have difficulty in meeting life’s goals, even when you are not there. Despite the importance of term life insurance in our lives, many Indians are acutely under-protected with only 2 out of 10 people under term life insurance protection1. Do not make that mistake; buy a term insurance plan for the sake of your loved ones, today!

Source

1] https://www.financialexpress.com/money/insurance/protection-not-a-priority-only-two-out-of-10-indians-have-term-insurance/1497356/

^*Premium amount depends on age, gender, policy term/premium paying term, plan benefits, channel etc. and is subject to policy terms and conditions. The Premium amount mentioned is exclusive of GST and other applicable taxes.