May 29, 2024

Everything about Term Insurance Plan

A term insurance plan is a pure risk cover, and it is a type of life insurance that extends financial protection to the insured’s family against a fixed amount of premium for a given tenure or term. Such a plan allows individuals to get a substantial amount of sum assured at an affordable premium. Notably, the nominee receives the insured amount in case of the death of the insurance policyholder. 

One must know more about the policy to ensure one picks a term insurance plan that helps build a corpus and offers a financial safety blanket to the insured’s family members. By doing so, they will be able to make an informed choice when selecting the most suited term insurance plan.

Read along to learn the basics of a term insurance plan.

Features of Term Insurance

The features and associated benefits of a term plan are discussed below –

  • Affordability

Term insurance plans are among the most affordable life insurance products. In fact, the premiums paid for term plans are relatively lower compared to other life insurance policies. 

  • Age of entry

Anybody who is 18 or above can avail of a term insurance plan. However, the earlier you get a plan, the more likely you are to avail of sizeable coverage at a reasonable premium. 

  • Policy term

A term insurance plan offers coverage for a fixed number of years – a policy term. In case there’s an unfortunate event during the policy term, the nominee will get the assured sum. Depending upon one’s needs and requirements, one can select a policy term that suits their financial requirement or makes one feel secure. 

  • Maturity Benefit

Term insurance plans offer financial protection to your family in case of an unforeseen event. However, it is not meant to be used as an investment instrument as it doesn’t offer any returns on premiums if the policyholder survives the tenure. Notably, the entire premium amount goes toward securing insurance coverage, and no part is deducted for investment. This ensures substantial coverage to help meet the current and future expenses of loved ones. 

Alternatively, one can opt for a term insurance plan that comes with a return on a premium feature. This serves as a maturity benefit and helps individuals receive the entire premium they have paid throughout the policy term. 

Flexible premium payments

Individuals can pay their term insurance premiums conveniently from options such as – monthly, quarterly, semi-annual, and annual payment options. Usually, regular premiums are most suited for salaried individuals with a stable source of income. However, those with surplus funds can opt for a one-time lump sum premium. 

Alternatively, one can opt for the limited payment option and pay off the premiums in the first few years of the term insurance policy. Self-employed individuals with active payment can benefit from this option and eliminate the need to pay at regular intervals. 

  • Life cover

A term plan accompanies a life cover option that helps keep an individual’s family secure from financial struggles in case of an unfortunate event. Typically, term plans come with a life cover of choice at certain premiums. 

The policyholder’s loved ones will receive a sum assured in case of an unwarranted incident. Such a payout helps the policyholder’s family face financial challenges without compromising on their current lifestyle standard. 

  • Additional add-ons

Individuals can also choose to add riders or add-on benefits to their term insurance policy to extend their base coverage at a nominal charge. 

Typically there are several types of rider options available with term plans, namely –

  • Accidental death cover
  • Critical illness rider
  • Waiver of premium benefit
  • Updating term insurance

Term insurance policies offer policyholders the flexibility to update their plans per their changing financial requirements. They can increase the sum assured or include riders in their plan. This will allow them to easily attend to their increasing financial liabilities and serve as a financial blanket to rely on. 

  • Tax benefits

Term insurance plans come with several tax benefits. Under Section 80C of the income tax act, policyholders can claim a tax deduction of up to Rs. 1.5 lakh on the premium paid. The payout from the term plan is also exempted from tax under Section 10(10D). 

Additionally, individuals can avail of tax deduction benefits under Section 80D on the paid premium with a health rider. 

  • Premium waiver

This particular feature helps waive off policyholders’ future premiums in case of disability caused by an accident. If a policyholder fails to pay premiums due to loss of income from any disability, they can still shield their family’s financial future. 

All these features and their added benefits help individuals to enhance their financial planning and build a corpus to achieve financial security. 

Why does one need a comprehensive term insurance policy? 

An individual needs a term insurance policy for more than one reason. Some of the most crucial ones are highlighted below:

  • Financial security

Buying a term insurance plan can help secure one’s family’s financial future, even in the absence of the policyholder. The payout of the insurance plan will allow the beneficiary access to funds that will act as a security blanket. 

  • Secure assets

Often individuals take out loans whose repayment weighs the family members down in their absence. The family can benefit from the proceeds from the insurance policy by using it to pay off the loan, ensuring that financial liability does not fall upon the loved ones. 

  • Lifestyle-related risks

People are more prone to develop a lifestyle disease with their increasing age. Getting a term insurance policy that comes with a critical illness cover can help protect policyholder access to treatment and even help their family in case of unwarranted events. Most critical illness coverage extends financial coverage against diseases such as heart disease, cancer, etc. 

Hence, a term insurance policy allows individuals to plan their finances better and act as a security blanket for their families in their absence. 

How much life cover does one need? 

The answer is typically subjective, as the financial need and lifestyle standards vary. However, to avail of a better idea, individuals may use a term insurance calculator to compute the benefits and returns to avail of a better idea. They may also consider determining the Human Life Value by weighing their income, expenses, future liabilities, and financial goals to ascertain the suitable coverage amount. 

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