Term Insurance

Term Insurance & its Advantages

Term Insurance & its Advantages

Last Updated : Feb. 7, 2022, 6:24 p.m.

A term insurance plan helps secure your family financially in case you die during the policy term. Besides, the tax benefits on offer that would help raise your in-hand salary. Flexibility in term insurance payment offers, affordable premiums only make your term insurance journey rewarding. Check out this post below and know about term insurance & its advantages below.

What is Term Insurance?

Term insurance is a contract between the policyholder and the insurance company where the latter agrees to pay a handsome amount should the latter die during the policy term. The financial support extended during such times helps the family members of the deceased policyholders maintain their lifestyle. It’s a lump sum amount that you and the insurance company agree upon for a release in case you die during the policy period. This is called sum assured. In exchange for these benefits, you need to pay the premium at any of the monthly or annual intervals.

What are the Advantages of Term Insurance?

The following are the benefits that a term insurance policy provides you –

Affordable Premium

A term insurance plan comes at an affordable cost and gives you space for other monthly expenditures. As compared to other life insurance products, a term insurance plan is available at a premium that you can easily afford if you have a decent income. Another important benefit of a term insurance plan is that the earlier you buy a policy, the lower will be the premium amount. One of the reasons for the same is that the premium once decided remains the same during the policy term, which is unlike other insurance products where premiums rise with time.

High Sum Assured

To go with the affordable premium, term insurance comes with a high sum assured too, based on your age, lifestyle, health conditions, etc. If you apply at a young age and have no health conditions, you can get a sum assured of INR 1 crore or even beyond.

Easy to Understand

While buying a policy, you may find it difficult to understand the specific terms. But this is not the case with term insurance. It is quite easy to understand. It is a pure life cover that does not have an investment component attached to it. Here, you pay the premiums for a fixed duration, so your family can get a lump sum amount in case of your death.

Multiple Payout Options for the Beneficiary

During the policy term, you may be paying the EMIs of your new home, car, or even a personal loan. So, if you die, these financial liabilities may fall on your family members. It is where the various payout options of the term insurance policy help them manage the EMI payments and other financial duties. You can choose from different types of releases – lump sum payment, installments, or a combination of both.

Additional Rider Options to Strengthen the Term Insurance Policy

Term insurance plans offer riders by which you can enhance the basic term insurance benefits. You can add these riders to the base plan by paying a nominal premium amount. For example, the Waiver of Premium Rider waives all future premiums in case of dismemberment and if you’re diagnosed with any of the specified critical illnesses mentioned in the policy. This means your life cover will continue even when you are not able to pay for the same.

Income Tax Benefits

Term insurance plans also help you get tax benefits. The premium you pay for a plan is tax-deductible, so the payouts your beneficiary receives also come with tax exemptions as per the existing tax laws. Under Section 80C of the Income Tax Act 1961, the premium you pay to buy a term insurance plan is exempt from taxes up to INR 1.5 Lakh in a year. Imagine the tax savings you will have in absolute numbers should you continue the policy for long. The death benefit payable to the beneficiary is fully exempt as per the provisions of Section 10(10D) of the Income Tax Act 1961.

Critical Illness Coverage

Life is long and you may suffer from critical illnesses during any phase. So, getting the necessary coverage is important to stay financially protected at such times. You can choose to get critical illness coverage via opting for add-ons or riders. The critical illness rider can help you secure your future from any severe medical contingencies. Under the Critical Illness cover, you will get a lump sum in case you are diagnosed with the listed illnesses. The add-on cover ensures payment for such illnesses and keeps your savings intact.

Accidental Death Benefit Coverage

Accidents can happen at any time and may lead to death or dismemberment. So, an additional cover for Accidental Death and Dismemberment helps safeguard your family financially should such an incident arise. The insurer will pay a sum assured to the beneficiary in a lump sum as per the benefits of the term insurance policy contract. You can add the Accidental Death and Dismemberment Rider at any time if the remaining policy term is at least five years.

Return of Premium Option

A pure term insurance plan only provides life cover to the beneficiary in the event of death. It does not provide any benefit on the maturity of the policy. However, you can get a maturity benefit under a term insurance plan if you choose the return of the premium option. So, if you survive till the policy tenure, the company will return you the total premiums paid by you. But the returned total premium amount won’t include any taxes, levies, rider premium and modal amount paid on the premium. However, that leads to higher premiums. To know more about this, you can use an online term insurance calculator to check the premium with or without maturity benefits. It will help you make a prudent decision based on your financial needs.

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