Benefits of Term Insurance
Safety is an important consideration for all of us. For instance, when we are driving, we make sure that we have our seatbelts on for our safety. Naturally, we extend this care and consideration to every sphere of life and are even more cautious when it comes to our family.
Life insurance is an effective way of ensuring that your family is financially safe and protected when you are not there to look after them. A life insurance policy with an adequate sum assured goes a long way towards keeping them financially protected and on track to achieve their life goals. Term Insurance plans offer you an optimum sum assured at a relatively affordable premium. This makes term insurance affordable for everyone and helps you take care of your family's financial goals.
What Is A Term Insurance Plan?
A term insurance plan is a protection-oriented life insurance policy designed primarily to cover the financial loss suffered due to premature demise. Under a term plan, the life of an individual is insured for a chosen tenure. If the insured dies during the policy tenure, the plan pays a death benefit, subject to the terms and conditions of the policy. This benefit can help the family meet its financial needs and goals in the absence of the breadwinner.
For instance, say Mr. Sharma buys a term plan for a term of 25 years. The sum assured is ₹25 lakhs. If Mr. Sharma dies during the term of 25 years, the sum assured of ₹25 lakhs would be paid to the nominee(s), subject to the terms and conditions of the policy.
Pure term plans do not offer any maturity benefit. This means that if the life insured survives the policy tenure, nothing is paid. However, the term insurance plan with return of the premium benefit has a maturity benefit. It refunds the premiums paid during the policy tenure on maturity, less the taxes.
Different Types of Term Insurance Plans in India
There are different types of term insurance plans. Have a look at some of them –
- Level-term insurance plans where the sum assured remains the same throughout the policy tenure.
- Increasing term insurance plans where the sum assured increases every year at a predefined rate or amount.
- Decreasing term insurance plans where the sum assured reduces every year by a fixed amount or at a fixed rate.
- Term with a return of premiums where the premiums are refunded on maturity, less the taxes.
You can choose any of these plans depending on your coverage needs.
Overview of Benefits of a Term Insurance Plan:
1. Simple To Understand:
A term insurance policy is a simple-to-understand plan. You choose a:
a. Sum assured
b. Policy tenure
c. Premium paying term, and
d. Premium paying frequency
Based on the above listed inputs, your age, medical history and other factors, the premium is determined. You pay the premium over the chosen term and get covered. In the case of a premature demise, the sum assured is paid as the death benefit to the nominees of the life assured, subject to the terms and conditions of the policy. There is usually no benefit payable on maturity in pure term plans. However, if the term plan with return of premium is selected, the aggregate premiums are refunded, less the taxes, if the insured survives the policy term.
2. Financial Security:
Term plans cover the risk of the premature demise of life assured during the policy term. In such cases, a death benefit is paid to the nominees/beneficiaries, subject to policy terms and conditions. Thus, with the plan, you can ensure the financial security of your family members even if you are not around.
Term insurance plans are usually cost-effective. Their main objective is coverage against the risk of premature demise. Since savings are not involved, the premium may be affordable as it usually involves the mortality premium only.
Moreover, you can choose to pay the premium throughout the tenure, for a limited period or in a single installment. There are different premium payment frequencies too, like the monthly, quarterly, half-yearly or annual premium payment mode. The choice of the premium payment term and frequency may make it easy for you to get a premium that is pocket-friendly.
4. Tax Benefits:
A term insurance policy offers tax benefits on the premiums paid as well as on the plan benefits. Have a look at how –
- The premium paid for the plan is allowed as a deduction from your taxable income. The deduction is allowed under Section 80C of the Income Tax Act, 1961, up to a limit of Rs.1.5 lakhs, under old tax regime.
- The death benefit is tax-free in the hands of the nominee or beneficiary under Section 10 (10D) of the Income Tax Act, 1961
- If you choose the term plan with the return of premium option, you get a tax exemption on the maturity benefit received from the policy under Section 10(10D).
If you choose to enhance the policy’s coverage by adding the critical illness rider, the premium paid for the rider would also be allowed as a deduction under Section 80D.
5. Accidental Death Benefits:
Coverage for accidental death benefits can be added under many term insurance plans, by paying extra nominal premium. This coverage benefit adds another layer of protection against accidental contingencies.
The accidental death benefit covers deaths due to accidents. If the life insured happens to pass away during the policy tenure due to an accident, an additional rider sum assured may be paid along with the death benefit payable under the term plan. This enhances the claim payout.
Under some plans, accidental permanent and total disablements might also be covered. A lump sum benefit may be paid in cases where the life insured becomes permanently disabled due to an accident. The benefit payout may help the life insured to meet the financial needs of such a contingency.
6. Critical Illness Coverage:
Critical illness coverage rider allows coverage against specified critical illnesses, listed under the plan, by paying nominal extra premium. Such illnesses may involve considerable emotional and physiological trauma. The advanced treatment costs may cause a financial strain which is why the coverage becomes important.
Term insurance plans may offer critical illness coverage as an added benefit. If the life insured is diagnosed with any covered illness during the policy tenure, the rider sum assured is paid in a lump sum.
The rider payout gives you the necessary funds to meet the medical and financial obligations that you have. Moreover, suppose you add the coverage as a rider. In that case, under old tax regime, the premium paid for the rider is allowed as a deduction from your taxable income under Section 80D of the Income Tax Act, 1961, up to Rs. 25,000 if you are below 60 and Rs. 50,000 if you are a senior citizen.
Considerations Before Buying a Term Insurance Cover:
1. How much insurance do I need and for how long?
The basic formula to calculate a suitable life insurance cover depends on your age, debts; if any, lifestyle, annual income, among several other factors.
2. Is the premium affordable?
Term Insurance premiums are reasonably priced, making them one of the preferred life insurance plan to opt for, if you are looking for a pure insurance cover. Further, you can choose to pay the premium annually, half yearly, quarterly or monthly, depending on what suits you best. Thus, you should opt for a life insurance plan which suits your needs, budget and financial goals.
3. Will this help me achieve my life goals?
The main aim of any investment is to help you fulfil your dreams. By taking a term insurance cover, you can rest assured that your family will be well looked after even in your absence and can continue to achieve their goals in life.
Knowing the advantages and things to remember before buying a term plan will help you make wise investment decisions. Consider going for a term plan today as it is important to have a life insurance cover for everyone. It acts like a financial safety shield for your family's goals even if you are not around to fulfil them.
Term insurance plans may be considered as one of the requirements of a financial portfolio, given the coverage that they provide. Their innumerable benefits make them an important financial product to have. Choose an optimal sum assured so that your family’s financial needs are effectively taken care of in your absence. Also, add riders for an all-inclusive scope of protection and get protected against possible contingencies that might occur. So, plan for life’s challenges efficiently. Consider buying a term insurance plan with a suitable sum assured and secure your family’s finances in your absence.
1. What kinds of optional benefits are available under term insurance?
Riders are optional benefits available under term insurance plans. Some of the common ones include the following –
- Accidental death and disablement benefit rider – It covers accidental deaths and permanent total disablement. If the insured suffers from any of these contingencies, the rider sum assured is paid, subject to the terms & conditions of the respective rider.
- Critical illness rider – The rider covers specified illnesses. If the life insured suffers from any of the covered illnesses during the policy tenure, the rider sum assured is paid.
- Waiver of Premium rider – This rider waives off future premiums under a policy, if the life assured is unable to pay them due to a critical illness diagnosis or disability due to accident.
2. What if I do not die within the policy period of the term insurance?
If the life insured survives the policy tenure and the plan matures, usually, no benefit is paid. However, if you have chosen the term plan with return of premium option, the premiums are refunded back on maturity, less the taxes.
3. Does the term insurance plan offer critical illness coverage?
Term insurance plans might offer critical illness cover as an optional or as an inbuilt rider. It depends on the policy that you buy and whether the coverage would be available or not.
4. Can I raise multiple claims for term insurance?
Once a claim is made under a term insurance plan, the death benefit is paid. After payment of the benefit, the plan terminates. So, multiple claims cannot be made under a term plan.
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