What is a term policy?
A term insurance plan or term policy is an insurance plan where one can, at affordable premiums, cover themselves and their dependents against financial uncertainties in case the policyholder passes away during the tenure of the policy. At a relatively low premium, term plans offer substantial coverage to policyholders. However, it is crucial to keep in mind the difference between traditional life insurance and term insurance. In the latter, if you were to live out your entire policy’s term, there is no benefit offered at maturity.
In a classic term plan, the payout is offered on the death of the policyholder only during the policy term, which is why it is recommended to opt for a plan that offers a long policy tenure. A term plan that is designed purely for the protection of one’s family should have a death benefit that is high enough to cover the family's necessary expenses. If you have a family that is financially dependent on you, the term plan is one of the preferred choice.
Why Renewing Your Term Insurance Is Smart
Although it has been repeated many times, the significance of renewing your policy cannot be overstated. Once your policy lapses, it can lead to you losing all the benefits you had accrued under the policy. Hence, it is constantly stated that a term policy should be renewed before it lapses whether you have purchased an offline or an online term plan. Here are some more reasons why you should renew your term insurance on time –
1. Continue Securing Your Loved Ones
No matter how much you fortify your present, the future remains uncertain. It is important to remain equipped to deal with life’s uncertainties by having a financial cover to fall back on. Even when there is nothing financially distressing, life’s crucial milestones — a college education, buying a home, getting married, and more—are big-ticket expenses. You want to make sure that your loved ones can experience these moments without any financial strain. Renewing a term plan to secure them is vital for maintaining this protection.
2. Paid-up Benefit
Generally, there is no savings component attached to a term insurance policy. If you opt for renewing your term insurance where you continue to pay up your premiums, this extends your cover for premature death. Hence, in your absence, your family continues to remain assured that their financial well-being will be taken care of through the death benefit payout under the term plan. Moreover, premium payments are also not too intense. One should ensure payment of premiums regularly to ensure the security of your loved ones over the policy tenure.
3. Prolonged Tax Benefits
A term policy falls under the list of policies that one can avail of tax benefits through Section 80C of the Income Tax Act, 1961. According to this Section, the premiums paid towards one’s policy are exempted from taxation. Additionally, any death benefits offered by the term insurance will also be tax-free as per Section 10 (10D). The tax benefits mentioned above are subjected to provisions stated in the Income Tax Act, 1961. If you choose not to renew your term policy, you no longer have the privilege of taking advantage of these tax benefits. Hence, continuing with your term plan can be a wise decision when it comes to wanting to reduce your annual tax burden.
4. Avoiding Added Costs
When you first buy a term policy, many of your current lifestyle factors — age, health, gender, smoking habits, etc. — are taken into consideration. To crosscheck your information, you are required to undergo medical tests. If your policy were to lapse, you would have to go through the tedious process of providing your insurer with the latest updated documents, while also losing all the premiums you paid in your prior policy in case of term plan with return of premium (ROP) benefit.
Purchasing a separate policy can be an option if your policy has matured however if you have a policy which has lapsed due to non-payment of premium, it is better to renew your existing term plan.