Benefits of Term Insurance

Overview of Benefits of a Term Insurance Plan

A term insurance policy is a life insurance plan which is intended to cover the risk of premature death or demise of the life assured, during the policy tenure. The term plan encompasses the essence of life insurance and provides financial protection. The premiums are low allowing you to choose an optimal sum assured which would take care of your family’s finances in your absence. Moreover, you can choose a coverage tenure that matches your needs and enhance your policy with optional and inbuilt riders. This gives you control and flexibility to design your policy the way you want it and enjoy financial protection against the risk of premature demise.

Benefits of Term Insurance Plan

Some of the benefits of a term life insurance policy are as follows -

1. Simple to understand

A basic term 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 high sum 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 are different premium payment modes and frequencies. You can choose the single 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 allow tax 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 as an income tax deduction under Section 80C up to Rs.1.5 lakhs under old regime of Tax. For policies issued on or maybe 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 the return 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, the maturity benefit will be tax-free if the premium is up to Rs.5 lakhs3 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 the critical 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 the accidental 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 the Waiver Of Premium rider which waives off the future premiums on disability or death of the life insured.

8. Different types of plans

There are different types 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.

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.

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 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.

Reference

1. https://incometaxindia.gov.in/tutorials/20.%20tax%20benefits%20due%20to%20health%20insurance.pdf

2. https://www.livemint.com/money/personal-finance/how-life-insurance-policies-are-taxed-11665145664260.html

3. https://www.indiatoday.in/business/story/life-insurance-premium-above-rs-5-lakh-check-new-tax-rule-on-payout-2422444-2023-08-17

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