Unveiling the Advantages of Term Insurance Plans
By Akhil Chugh
Date August 13, 2023
In the dynamic landscape of India’s financial security, one steadfast pillar stands out: Term Insurance. Designed to provide a shield of protection for your loved ones against life’s uncertainties, term insurance has emerged as a crucial tool in the realm of financial planning. This insurance variant offers a unique proposition, combining affordability, simplicity, and substantial coverage, making it a compelling choice for individuals seeking to ensure their family’s well-being in the event of unforeseen circumstances. As we navigate the intricacies of term insurance in India, let’s delve into its nuances, benefits, and the pivotal role it plays in safeguarding our future.
What is a Term Insurance?
A Term Plan is a simple straight forward life insurance plan which promises to pay a fixed defined sum of money, also known as the Sum Assured, if the insured (the person whose life risk is covered) expires during the plan term. If the insured survives the entire plan term no benefits are payable at the end of the plan term. Since the plan usually covers only death risk, the premiums comparatively are very low.
It helps you to aid financial protection for you as well as your family at affordable rates especially if started at an early age.
Benefits of Term Insurance:
1. High Sum Insured with Affordable Premiums:
Term Insurance Plan is the simplest form of Life Insurance. One of the primary Term Insurance benefits is its affordable cost. As compared to other life insurance policies, a Term Insurance Plan is available at a premium that you can easily afford. You can get a high-value life cover from a term insurance plan by paying an affordable premium amount if you start early.
The earlier you buy a Term Insurance Plan, the lower the premium amount you have to pay. Let’s illustrate this with an example. So, if you are buying a Term Plan (let’s consider that the coverage is Rs 1 crore till the age of 75) at the age of 30, you would pay a premium of about Rs 12,000 every year. That is, you would pay Rs 5.4 lakhs in total. But, if you buy the same plan at 45, you would be paying a yearly premium of around Rs 30,000 The amount you pay toward the Term Plan in the next 30 years would be Rs 9 lakhs.
2. Whole Life Cover:
Term insurance plans offer substantially longer coverage. Whole life insurance plans offer coverage till the age of 99 years.
3. Easy to Understand:
While buying a life cover, you may find it difficult to understand the insurance-specific terms of various life insurance policies. One of the prime features of Term Insurance Plans is that they are quite easy to understand.
As a pure life cover, a Term Insurance Plan does not have an investment component in it. You pay the premiums, and the insurer covers your life for a fixed duration to offer the term insurance benefits.
4. High Coverage:
For calculating the minimum cover, you need, you can go by the common thumb rule of having a sum assured that is 10-12 times your annual income. So, if your current annual income is ₹30 lakh, you should have a life cover worth at least ₹3 – ₹3.6 crores. Your financial liabilities like home loans, business loans, personal loans, and credit card bills are vital factors to consider before buying insurance coverage. In the event of your untimely demise, the repayment burden will fall on your family members, who may face difficulty managing the EMIs and household expenses. To avoid such an unfortunate situation befall your family, you must choose a term plan with high coverage that meets all your existing liabilities.
A Term Plan provides a significantly higher sum assured, allowing you to leave enough money for your family and dependents to avoid financial difficulties in your absence. Compared to traditional, ULIP, or endowment policies, Term Insurance provides around 60 times the coverage.
5. Multiple Death Benefit Payout Options
You may be paying the EMIs of your new home, or a personal loan you have borrowed. In your absence, your financial liabilities may fall on your family members. It is where the various payout options of Term Insurance Policy play an important role.
Your dependents may get a lump sum amount in case of your unfortunate demise and this lumpsum will help them to manage the aforesaid financial liabilities.
Some Term Insurance policies also give you the option to receive a monthly income along with the lump sum amount as the death benefit. With this monthly income, your family may find it easier to manage regular expenses.
6. Host of Tax Benefits:
While the primary reason for buying Term Insurance is securing your family’s future, you also get to save tax with them.
Let’s look at its 3 Term Insurance tax benefits:
Section 80C: Under this section, you can claim a deduction up to Rs 1.5 for certain investments and purchases, which includes the premium amount you pay towards the Term Life Insurance Plan.
Section 80D: This exemption is allowed on the premium paid towards health-related coverage like critical illness riders. You can claim deductions up to Rs 25,000 for the premium paid towards it.
Section 10 (10D): In the case of Term Insurance, this benefit can be claimed while claiming the payout. The entire amount is completely exempt from taxes.
7. Peace of Mind:
The primary purpose of any insurance is to provide peace of mind, and term insurance excels in this aspect. Knowing that your loved ones will be financially protected if something happens to you brings a sense of security that allows you to focus on living life to the fullest.
Term insurance presents a practical and versatile solution for safeguarding your family’s financial future. Its affordability, flexible policy duration, and comprehensive coverage options make it an attractive choice for individuals with various financial goals. But before factoring in all the benefits, you should remember the core objective of insurance is protection and not savings. Unlike most life insurance products, Term Insurance remains true to this objective.
Evaluate your financial needs and family expenses when you finalize the best insurance plan for you. Remember, the period of coverage should be available till all your liabilities are over. By embracing the essence of term insurance, you embark on a journey towards securing your loved ones’ well-being with unwavering confidence.
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