Why is term insurance important? Why should you think it’s a wise financial decision? In today’s uncertain world, ensuring your loved one’s financial future is critical. Term insurance is a simple and reasonable solution to ensure that your family’s requirements are addressed even if you are not present. It provides enough life insurance at an affordable rate, making it a vital component of financial planning.
What is term insurance?
Term insurance is a form of life insurance policy that provides financial protection for a specific period, known as the “term.” If the policyholder dies during this time, the nominee receives the death benefit. Unlike other types of life insurance plans, term insurance does not include an investing component; instead, it concentrates only on providing life insurance.
Types of term insurance
Here are the distinct types of term insurance –
- Level-term plan: The level-term policy is illustrated by a situation where the amount assured is constant throughout the policy term.
- Increasing term plan: The assured sum increases annually, often to counteract inflation.
- Decreasing term plan: Premiums are paid in instalments, and the amount assured reduces over time making it good for meeting liabilities such as loans.
- Convertible term plan: Enables the policyholder to transfer their term policy to some other type of life insurance policy.
- Return of premium plan: Allows the policyholder to get back the premiums that he or she paid if he or she outlives the term.
Benefits of term insurance
- Financial security for the family: The foremost advantage is the provision of capital to the policyholder’s family in case of his/her premature death. The death benefit assists to cater for daily needs, outstanding bills, and other future needs. In India most families are dependent on a single earning member, the term insurance makes sure that the family can afford the lifestyle that they were accustomed to if that earning member is no longer alive.
- High sum assured at low premiums: Term insurance offers a large sum assured for rather a small and reasonable premium, which makes it a cheap method to get a large sum assured. For instance, a healthy non-smoking 30-year-old man can enjoy a sum assured of Rs 1 crore for an annual premium of as low as Rs 10,000. This makes it affordable for people of different classes in the society to get access to it.
- Tax benefits: The amount paid towards term insurance can be claimed as tax deductions under Section 80C of the Income Tax Act to the extent of Rs 1. 5 lakhs. Also, the amount received by the nominee in the form of a death benefit is tax-free under Section 10(10D), thus the entire sum assured is passed on to the dependent family without any deduction.
- Riders for enhanced protection: Additional benefits can be obtained by incorporating riders such as critical illness riders, accidental death, and disability riders. These riders come as additional perks that are unique to the individuals, such as the critical illness rider, which offers the client a one-time payout upon having a critical illness that will cater for the treatment expenses and the rest.
- Flexibility: There is flexibility on the policy term and the sum assured whereby one is allowed to choose the policy term that he wants and the amount he wants to be paid upon his death. It also guarantees that the policy reflects the financial objectives like paying for a child’s education or repaying a home loan.
- Simplicity: All in all, term insurance is clear and simple as there is no investment part included in the coverage. This makes it the most suitable product for those who wish to undertake only pure risk and do not wish to be involved in investment choices.
- Peace of mind: To be able to plan for the future and know that your family is financially protected is the best feeling as it frees up one’s mind for other things. This peace of mind is very much desirable, especially in a country like India where the welfare of the family is highly regarded.
- Protection against liabilities: Term insurance can also pay off any remaining loans such as home loans or personal loans so that your family is not a burden of these. In most societies especially in India, joint family systems are well practised hence this protection also shields the family members against being burdened with huge bills.
- Supports future financial goals: The death benefit can be used to cater for other future needs such as children’s education or marriage to avoid them being a dream. This support is very important in a country where tertiary education and weddings are likely to be expensive ventures.
- Critical illness coverage: Critical illness rider allows policyholders to get a cash payout upon diagnosis of any of the stated critical illnesses thus managing medical expenses. Given the gradually increasing health care costs in India, this benefit can go a long way in meeting health care expenses during such times.
- Accidental death benefit: An accidental death rider is an addition to the policy as it offers compensation in the event of an accident-causing death, thus improving the policy’s protection. This is especially pertinent in India as road accidents are all too familiar in the country.
- Disability rider: This rider provides cash benefits in the event of total and permanent disability so that the financial position is not compromised. It ensures that a person can manage on the financial side when he or she loses the chance to work.
- Customisable premium payment options: Premium can be paid in different modes such as regular pay mode, limited pay mode, or single pay mode depending on the policyholder’s preference. This flexibility enables people to have better control over their expenses and to select a plan that they can afford.
- Discounts for non-smokers and healthy individuals: As with many insurance policies, there are standard premium discounts for non-smokers and other health-conscious people, which brings the price down. These discounts promote health consciousness while extending the scope of term insurance to a large population.
- Online availability: The term insurance purchased online is affordable and sometimes cheaper than its offline counterparts. The internet also offers useful resources for comparing products and making decisions in favour of the buyer.
Ending note
Term insurance is an important financial instrument that offers reliable security for your family’s future at a reasonable price. It meets a wide range of financial demands and goals thanks to its multiple varieties and perks. Term insurance provides complete coverage and peace of mind, with features such as large sum guaranteed and tax benefits as well as optional riders and adjustable periods. Make a wise financial decision today by purchasing a term insurance policy that will protect your loved ones’ future.
