Why Term Insurance is a Must Buy?
By Akhil Chugh
Date May 28, 2023
You may set countless financial goals in your lifetime. Then work out the math to build financial strategies to achieve them. But life itself is unpredictable. An untimely death can not only jeopardize these goals but can leave your family high and dry. Since the ambiguities of life are inevitable and highly unpredictable, it is wise to guard your family’s financial security. One of the best means to accomplish this is to buy a Term Insurance Plan, a financial decision that guarantees a shedload of benefits.
These plans are considered by many as one of the basic financial necessities of life, especially in today’s times. Term insurance plans also have multiple features and benefits, right from affordable premiums to riders for additional covers. Let’s understand what is Term Insurance Plan and its importance in detail.
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.
Why Term Insurance is a Must Buy?
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:
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.
Term Insurance has several benefits. It provides higher coverage for a lower premium, it’s simple to understand and comes with immense tax benefits. 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 yourself. Remember, the period of coverage should be available till all your liabilities are over.
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