People today are realising the importance of having adequate life insurance. With growing uncertainty surrounding our lives given our lifestyles and in light of the recent pandemic, the importance of having adequate financial support /coverage and stability in absence of the bread earner is deeply felt. A Term Plan offers peace of mind unlike any other plan and is a must for everyone. This article revisits the Term insurance policy, given its importance today.
What is a Term Plan?
Term insurance is a pure life insurance policy that offers financial protection to the beneficiary in case of the unfortunate death of the policyholder during the policy tenure. The primary objective here is to offer the highest financial protection to the beneficiaries. Being a pure protection plan, term insurance offers the highest insurance coverage at the lowest premium rates which are typically fixed for the policy duration. Below are the key features /benefits of term plans.
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Benefits of buying a Term Plan
High Coverage at a low premium Term insurance plan offers the highest death benefit or life cover in lieu of a nominal premium. This is because there is no investment component or ancillary services inbuilt in the product and there is no survival benefit, i.e, no money to be received back upon completion of policy tenure if the policyholders survive. This makes it possible for even poor people to take adequately high life cover at affordable prices, ensuring the most critical need of maximum financial protection and stability for families. Some insurers now also provide the option of increasing life cover at set intervals with the pre-defined percentage increase. This helps the policyholder increase the life cover in tandem with his or her rising income levels.
Fixed premiums for life Once a term insurance policy is issued at a certain premium, the premium typically never revises or changes during the policy term with fixed cover. One rests assured of paying a fixed amount without any change, except the tax component. A higher or maximum cover feasible, taken early is thus highly recommended as the premiums will only become cheaper over time even though they may seem expensive in the initial years. Further, the premium payment becomes even more affordable with monthly/half-yearly/yearly payment options.
Adequate coverage for life Term plans can be taken for longer durations that can easily cover your entire productive /working years of life and even beyond till say 60-65-70 and even 75 years of age. Some insurers also offer the option of whole life cover till the age of 99 years. Usually, the duration can be chosen as per need but it must at least cover your working life or till the time you are having liabilities or are not debt-free.
Lower premiums at a young age The premium for the term plan depends mostly on the policyholder’s age and the policy term. This is because it directly impacts the probability of the claim being triggered during the tenure. Since the probability for death is lower in the younger age group, the premium too is lower. As one age, the probability increases and thus the premium too increases every year. Needless to say, getting a term plan as early as possible in your life is recommended.
Easy to buy Buying a term insurance plan is relatively very easy. Often, if one is young without any ailments, there would be no mandatory requirement of medical tests /screening. Simply get in touch with your insurance advisor and explore the options available and choose the plan suitable to you.
Match lower covers with specific needs We frequently take loans for our needs in the form of home, personal or business loans. If the amount is high, it may prove to be a very heavy burden on your family. It is therefore advised that additional term plans are taken to cover this risk. Take term plans with cover equivalent to the loan amount and of similar tenure to the loan period, ensuring that your family is in a position to repay the loan and none of their life goals is compromised. You can also apply for an additional term policy for the long term that specifically covers multiple or sequential loans.
Optional Riders /Add-ons can be added
Term plans come with the flexibility of adding optional riders at a nominal cost. Riders are an important addition to the basic plan offering & provide an option to customize the coverage as per need. Popular riders include
- Critical Illnesses Cover This rider gives additional protection against life-threatening illnesses such as Cancer, Heart Attack and Kidney Failure. Usually, a fixed amount /lump sum is paid out in case a critical illness is diagnosed. Some insurers may also offer riders for specific diseases.
- Accidental Death Cover This rider would give your nominee a higher payout in case of an unfortunate demise due to an accident of the life insured.
- Waiver of Premium rider With this rider, in case of permanent disability due to an accident or diagnosis of a critical illness, all future premiums are waived off and the life cover continues for the remaining policy duration. Some insurers may offer this as an in-built policy feature with no extra to the policyholder.
- Terminal Illness Benefit With the terminal illness benefit, if the insured person is diagnosed with a terminal illness, then the full death benefit is paid out. Again, some insurers may offer this benefit in-built with the policy at no extra cost.
Income Tax Benefits Finally, there are tax benefits to be enjoyed with term insurance. In respect of the premium paid, you can avail of a deduction of up to Rs 150,000 per annum under Section 80C of the Income Tax Act 1961. Also, the death benefit paid to your nominee (in case of unfortunate death) and rider payouts is tax-free under Section 10 (10D). However, the tax benefits should never be considered as a primary factor for decision-making before buying any insurance.
The extent of financial comfort and stability possible with a pure protection plan is simply unmatched. Any sensible person would give the highest priority to buying adequate term insurance, as high as possible, as soon as one starts earning and then increasing the same at every important life event like say marriage, the birth of a child, getting a home loan, etc. A cover of Rs.1 Crore is the least one must-have today to give some sort of comfort to the family. Typically, a cover of at least 10 times of your annual income plus all outstanding liabilities must be targeted. Further, with the customisation option with multiple riders, buying term insurance is a significant decision to be taken with proper care. Please get in touch with us today to know more at chandrakant@ghanchiinvest.com or call at +9820926446 / +91 7977061717. For other financial and Investment planning check our section here. A term plan is a very small price to pay for the amount of peace of mind you and your family members can enjoy.
