Benefits of Term Insurance

Benefits of Term Insurance Plan

Here, we have outlined the detailed benefits of term insurance that everyone should know. Term insurance benefits include:

1. Simple to understand

A basicterm insurance policy is a simple-to-understand policy. It offers coverage against the risk of premature death or demise during the policy tenure. If the life insured passes away during the tenure, a death benefit is paid. On the other hand, if the insured happens to survive the policy tenure, no benefit is usually paid under basic term plans. However, if you choose a return of premium term policy, the premiums paid are refunded on maturity.

2. Financial security

One of the primary term insurance benefits is the financial security that the policy provides. By covering the risk of premature demise and the provision of highsum assured, the policy takes care of the family’s financial needs and goals if the breadwinner passes away unexpectedly. This gives peace of mind to the breadwinner as well as the family members who can avoid a financial crisis in the absence of the breadwinner.

3. Affordable

Another advantage of term insurance is its affordability. Term insurance plans have low premiums which are pocket-friendly and affordable. Moreover, there aredifferent premium payment modes and frequencies. You can choose thesingle premium option and pay the premium in one lump sum or the limited premium option and pay for a limited tenure. The regular premium mode requires premium payments throughout the policy tenure.

Regarding premium paying frequencies, many plans allow you to pay the premium monthly, quarterly, half-yearly or annually thereby making the premium suitable for your budget.

4.Tax benefits

Term insurance plans also allowtax benefits. Here’s how –

• Premiums paid for the term insurance policy, up to 10% of the capital sum assured for life insurance policies issued on or after the 1st of April 2012, qualify for income taxdeduction under Section 80C up to Rs.1.5 lakhs under old tax regime. For policies issued on or before the 31st of March 2012, premiums up to 20% of the capital sum assured are allowed as an income tax deduction. On the other hand, if you have bought the policy on or after the 1st of April 2013 and you suffer from any disease or disability defined under Section 80DDB or Section 80U, premiums up to 15% of the capital sum assured are allowed as an income tax deduction¹.
• The death benefit is always tax free²
• The premiums refunded on maturity, if you have chosen thereturn of premium term plan, are also tax-free under Section 10(10D)3subject to satisfaction of underlying conditions. However, if you have bought the policy on or after the 1st of April 2023, thematurity benefit will be tax-free if the premium is up to Rs.5 lakhs³ and if all conditions under section 10(10D) are satisfied, otherwise gain from such policy will be taxable in the hands of recipient.

5. Critical illness coverage

Many term plans allow thecritical illness rider coverage either as an inbuilt benefit or as an optional one with nominal additional premium. This benefit provides coverage against named critical illnesses and pays a lump sum benefit if the insured is diagnosed with any of the covered illnesses. This benefit can be used for taking advanced treatments or for meeting any other financial obligation.

6. Accidental death benefits

Like the critical illness cover, many term plans also extend theaccidental death benefit coverage either as an inbuilt benefit or as an optional rider at a nominal additional premium. This benefit covers accidental deaths during the policy tenure and pays an additional benefit in such cases. The additional benefit provides additional financial assistance to the family.

7. Other riders

You can find other optional riders too in term insurance plans which help in enhancing the scope of the policy. One of the available rider is theWaiver Of Premium rider which waives off the future premiums on disability or death of the life insured.

8. Different types of plans

There are differenttypes of term insurance plans available in the market. Some of the common ones include the following –

• Level-term plans wherein the sum assured remains the same throughout the policy tenure
• Increasing term plans wherein the sum assured increases with each policy year
• Decreasing term plans wherein the sum assured reduces every year
• Return of premium plans which refund the total premium on maturity
• You can choose the type of coverage you need and enjoy the desired protection.

9. Payout of Sum Insured

Another advantage of a term insurance policy is that the full sum assured is paid out. If the life assured dies during the policy term, then the sum assured is paid to the nominee at the time of his death. The family can then use this amount for important financial commitments, such as the outstanding dues, the education of the children, and any other expenses. If the life assured has opted for an insurance policy with riders, added protection may be provided, offering more relief during difficult times.

10. Whole Life Cover

A whole life cover within a term insurance plan is about offering the family protection for a longer term. Whole life covers are different from traditional term plans. In such a plan, the life assured is covered for full life rather than just a period. This type of insurance protects your family for life, and they'll enjoy peace of mind and financial security in the later stages of life.

11. Coverage for Terminal Illnesses

Some term insurance plans come with benefits that cover terminal illnesses. Some plans also pay a lump sum if the life assured is diagnosed with a terminal illness, so the insured has money to pay for medical bills or support their family. This insurance coverage provides the insured with peace of mind when it is needed the most, enabling them to concentrate on their health and recovery.

Benefits of Term Insurance for Self-Employed

Self-employed individuals either don’t retire or retire quite late. As such, their families depend on their income for a long time. If they pass away prematurely, the family suffers a financial loss. A term insurance policy can cover this loss. Self-employed individuals can choose a term insurance policy and provide financial security to their families if they are not around.

What Are the Benefits of Buying Term Insurance at an Early Age?

There are multiple benefits to buying term insurance early! The big one is finding a low premium when you are young and healthy. More importantly, by locking in a reasonable premium rate for the whole policy term, your coverage is still affordable, and you can have extended coverage to help provide your family with financial support for a longer period. In addition, it will give you peace of mind knowing there is financial security for loved ones in case of your untimely death. Finally, term insurance plans are very simple and flexible! You may enhance the existing protection with add-ons for critical illness coverage or accidental death benefits. Term insurance can be a great way to get reasonable, comprehensive financial protection.

Lower Premiums

Buying term insurance at a young age ensures that you get the most affordable premiums. Since you're in good health and less likely to develop any serious medical conditions, insurers offer you lower rates. This is one of the most significant advantages of purchasing term insurance early.

Extended Protection

Opting for term insurance early means extended protection for your family. If you buy a policy when you're younger, you'll ensure that your loved ones are financially secure for a longer period. You’ll be able to cover a greater age range with your policy, providing peace of mind for years to come.

Peace of Mind

Buying term insurance early brings peace of mind. You can rest assured knowing that your family is financially protected if something were to happen to you. You won’t have to worry about the financial burden that could be placed on them, as the sum assured would provide for their needs.

How to Select the Best Term Insurance with the Right Sum Assured Option?

Choosing the best term insurance and the right sum assured is crucial to ensure adequate protection for your loved ones. To begin with, assess your family’s financial needs, including current and future expenses, such as children’s education, household maintenance, and any outstanding loans. The sum assured should be sufficient to cover these expenses in case of your untimely demise.

Start by evaluating your income and liabilities. A common guideline is that the sum assured should be 10-15 times your annual income. This gives enough coverage to replace lost income and meet any financial obligations your family may have. It’s important to choose a policy that aligns with your future goals, including retirement planning or any long-term expenses you anticipate.

Consider factors like the policy tenure and the flexibility to increase the sum assured as your responsibilities grow over time. For instance, you may want to raise your coverage amount as your family expands or your financial obligations increase. Some policies also allow you to add optional riders like critical illness or accidental death benefits, which can further enhance your coverage.

The key is to strike a balance between affordability and comprehensive coverage. You don't want to underinsure your family, but you also want to keep premiums within a reasonable range. Compare various plans available in the market, check the claim settlement ratio of insurers, and choose the one that offers the right sum assured and benefits for your needs.

Conclusion

A term insurance policy can be a good addition to your portfolio given the benefits that it provides. So, understand what the plan is all about and how it can help provide financial security. Choose a suitable sum assured and tenure and enjoy coverage against the risk of premature demise. Pay the premiums for complete coverage and unlock term insurance benefits.

FAQs

1. What kinds of optional rider benefits are available under term insurance?

Some of the optional riders available under term insurance plans are as follows –

• Accidental death benefit rider which covers accidental deaths and pays an additional benefit covered under the rider in such cases
• Accidental permanent total/partial disability benefit rider covers both total and partial permanent disabilities caused due to an accident.
• Critical illness rider which covers named illnesses and pays a benefit on diagnosis of any such illness
• Family income benefit wherein a regular income is paid if the insured passes away
• Wavier of Premium rider waives all future premiums, if you are unable to pay them due to a critical illness diagnosis or accidental permanent disability.

2. What if I do not die within the policy period of the term insurance?

If you do not die within the policy tenure, the term insurance policy will mature. Under most term plans, no benefit is paid on maturity. However, if you choose the return of premium term plan, your premiums would be refunded on maturity.

3. Are Death benefits from Term Insurance taxable?

Death benefits received from a pure term insurance policy are generally not taxable under Section 10(10D) of the Income Tax Act, 1961. This means that the nominee will receive the full death benefit amount, which is free from tax. Always check the terms of your policy and consult with a tax advisor for specific details.

4. Does term insurance have maturity benefits?

Traditional term insurance policies do not provide clients with maturity benefits because they only offer risk cover. If the life assured survives the policy term, no benefit is payable. However, a return of premium term plan returns the premiums paid by clients at the end of the policy term, outlined in terms and conditions, in the event the life assured survives the policy term. While the return of premium plans offers a level of maturity benefit, they can also be more expensive than traditional term plans.