There are many different types of insurance plans out there. The pandemic has shown how important it is to prepare for unexpected medical emergencies. You might have an awesome investment portfolio but it is incomplete if you are not securing your health and your family’s financial future with insurance policies. In this article, we will discuss term life insurance, and how it can benefit you.
As of FY22, the Indian Insurance market stands at $131 billion. The Indian insurance industry grew at a CAGR of 17% over the last two decades and is expected to continue its commendable growth trajectory in the future years. These numbers show that the insurance industry in India is growing rapidly.
The number of people who are buying insurance is also on the rise. According to the Indian Protection Quotient (IPQ) survey, Indians are buying more term plans now as term insurance ownership has increased to 43% from 36% in two years. So, the industry is growing and more Indians are buying insurance.
If you are still on the fence about buying insurance plans, we hope this article will answer some questions – What is term life insurance, how it works, and the benefits of buying one?
What Is Term Life Insurance?
Term insurance is a life insurance product, which offers financial coverage to the policyholder for a specified time period. In the event of the death of the insured individual during the policy term, the death benefit is paid by the company to the beneficiary.
There are two ways in which you can take life insurance. The first way is by opting for a pure life cover, also known as term insurance. The section option is by taking life cover with a savings component built-in, also called endowment insurance.
What Are The Key Features Of Term Life Insurance?
These are some of the features of term life insurance.
Larger Life Cover
Since term life insurance plans are more affordable, it is possible for you to choose a higher life cover for the same premium as an endowment plan. For example, a 30-year-old person can get a term plan with a cover of ₹1 crore for a 30-year term by paying a premium. The ₹1 crore endowment plan will most likely be out of bounds for most 30-year-old people. However, taking a term plan for a similar cover is relatively more feasible.
Once you choose which term life insurance plan to buy, you can add riders to your term insurance plan. Riders will help you extend your policy benefits by paying an additional premium and getting comprehensive coverage.
For example, when you choose a critical illness rider or a critical illness plan, they are entitled to receive the sum assured on being diagnosed with the critical illness. Apart from that, they also receive the death benefit of an equal amount on death over the term of the policy. There are other riders to choose from, such as loss of employment cover, disability cover, and waiver of premium cover, among others. The policyholder should choose riders based on their specific needs to make the life cover more suitable and meaningful.
Certain insurance companies provide the flexibility to enhance the life cover during the critical stage of the policyholder’s life. For example, the policyholder may be allowed to enhance life cover by 50% at the time of marriage and by 25% at the time of becoming a parent. This makes it possible for them to start with a modest cover and then enhance it as responsibilities increase as also the ability to pay a higher premium.
Several innovative features have been introduced by several insurance companies recently. For example, companies are proactive in cutting premium rates and they are even providing extra discounts to specific categories such as non-smokers, for example. Buying term plans is now easy and convenient because of the internet. It is possible for a healthy individual, as defined by the insurer, to buy a term plan online without taking a medical test.
What Are The Benefits Of Term Life Insurance?
Here are the benefits that you receive when you invest in term life insurance.
- Multiple Payout Options
When you sign up for a policy, you are needed to pay a fixed amount to the chosen insurance provider to receive benefits. You can choose monthly, quarterly or annual payouts, as per your convenience. This makes sure the beneficiary receives the death benefits if the policyholder passes away. It could either be given out as a lumpsum payout or in a staggered manner, which is equal to the sum assured.
- Tax Benefits
When you buy term insurance, you receive a lot of tax benefits. Under Section 80C of the Income Tax Act, 1961, you can avail of tax benefits up to ₹1.5 lakhs on the premium paid. On top of that, with the critical illness cover, you can also avail of additional tax benefits on premiums paid under Section 80D of the Income Tax Act, 1961.
As per Section 10 (10D) of the Income Tax Act, the sum assured that a policyholder receives after the maturity of the plan is tax-free. This also applies when the person insured surrenders their policy or loses their life. On top of that, the bonuses that are received with this amount are also exempted from tax under Section 10 (10D).
- Affordable Premiums
You can get a high-value life cover from a term insurance plan by paying an affordable premium amount. Premium payments can be made monthly/half-yearly/yearly. The earlier you buy a term insurance plan, the lower the premium amount you have to pay.
- Whole Life Cover
Term insurance plans provide significantly larger coverage. Whole life insurance plans offer coverage until the age of 99 years.
- Premium Waiver
Premium waiver refers to a benefit wherein any future premiums are waived off during special circumstances. For example, this applies in cases where the insured policyholder is a victim of permanent disability because of an accident. This is applicable only if all the previous premiums have been paid.
In The End…
Term life insurance plans are suitable for everyone. These insurance plans offer coverage at affordable premiums and they offer a wonderful hedge against the uncertainties of life at any age.
If you are someone who is in their 20s, you can buy a plan that offers high coverage for a low premium. For those who are in their 30s, the same plan can provide good cover when you are having growing families and increasing liabilities. Even for those who are in their 40s and 50s, term life insurance plans can give sufficient coverage for responsibilities such as children’s higher education and weddings, as well as, their retirement.
If you have already started saving towards your life goals, it is important to include insurance plans in your checklist as well. Many ignore the importance of insurance plans and focus solely on investing in products that give them quick returns. Though there is nothing wrong with focusing on capital appreciation, it is also crucial to pay attention to insurance plans, as they can help you during medical emergencies and other uncertainties. They can offer protection to your family and help them in case of unexpected events.
We hope you learned what term life insurance is, how it works, and its benefits in this article. If you wish to know about other investment products, like Mutual Funds, Smart Deposits, Digital Gold, and Fixed Deposits, head over to our Blogs section. You can also learn about budgeting, improving your money management skills, and more with our blogs. We have all the resources you need to improve your financial skills and take informed investment decisions.
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