If you are in your twenties or thirties, you must have come across a lot of articles or annoying family friends or relative who is also an insurance agent secretly, stating the importance of financial planning and more importantly getting yourself covered through life insurance. Even if you are in your thirties or forties, you still keep listening to the importance of financial planning, and insurance is a very critical part. So, let’s understand what life insurance is, and what the benefits of term insurance are.
Life Insurance can be defined as protection against a probable financial loss that might result from the ‘premature’ death of a person. The nominee receives the sum assured, and the family is thereby not affected by the financial impact of the untimely death of the person earning bread and butter.
There are two types of Life Insurance:
- a) Whole Life Policy (also called as Endowment Policy): The sum assured is paid in case of death during the tenure, or one can also encash the maturity amount after the end of tenure.
- b) Term Life Policy: A term plan insurance is a life insurance plan which promises to pay ‘Sum assured’ if a person dies during the tenure of the plan. Since the plan covers only death risk, the premiums for this policy are lower than endowment plans.
In this article, we will discuss what a Term Insurance policy is in detail. They provide cover for a specified period, and if the insured person dies while the policy is active, the nominee receives the claim amount. Term plans are primarily made to secure the family’s needs in case of untimely death or accident.
People say it’s never too late to buy a Term Insurance Plan, but it is best if bought in your twenties. Premiums of the term plan go up with increasing age. There are other benefits of term plans that you must be aware of as well
Features of a Term Insurance Plan:
- Eligibility Criteria: To buy a term insurance plan, one must have completed 18 years of age, and the age should not exceed 65 years.
- Premium: The premium is the lowest among all life insurance. The premiums are low because there is no investment component involved, and the entire premium goes only in covering the risk. There is no survival benefit or maturity benefit after the policy term is over. However, there are some term plans with maturity benefits provided by some insurers in India.
- Surrendering of the policy: You can exit from an insurance plan before maturity. Some surrender charges may be deducted, which vary as per the product. No charges will be levied if the surrender is done after five years.
- Converting into another plan: Term life insurance policies can be renewed and converted. The renewal feature ensures that you can extend the policy without a medical examination at the end of the earlier term insurance policy. The conversion feature allows you to convert the term life policy into an endowment policy for the same insured amount with an associated increase in premium.
- Insurance Riders: Insurance riders are additional benefits over and above a basic policy, which prove useful in the event of a specific occurrence. Even when such an event occurs, the life insurance cover remains intact. Following are some insurance riders:
- Critical illness: The critical illness rider makes sure that the insured person is entitled to receive financial benefits even on being diagnosed with critical illnesses such as cancer. If you have bought the insurance policy with critical illness rider, then you receive the funds which come handy for the medical treatment required, and hence, the chances of survival are increased.
- Disability: The Insured person is entitled to receive benefits on attaining disability due to some accident or such other event.
- Accidental death benefit: The policyholder is entitled to receive benefits on an accident leading to an untimely death.
- Waiver of premium: In the event of some accident, the policyholder is not required to pay future premiums on the policy, and still receives all the benefits of the policy.
- Benefits of having a Term Insurance Plan:
- Simplicity: Term insurance plans are easy to comprehend as compared to plans such as endowment policies that combine risk cover and also savings. Term life plans are straightforward; you can pay the premium and get covered for the term chosen.
- Reasonable pricing: Term life plans can be easily related to each other on the basis of cost as they are structurally similar and are simple to comprehend. Buyers have information concerning term insurance policy, and this has made the term plan market more competitive.
- Flexibility: In the case of a term plan, if you stop paying the premium, your risk cover is discontinued, and the policy comes to an end. Nothing is receivable for the insured as there is no savings element involved in the term insurance policy.
- Tax Benefits: It is often said that if you purchase an endowment type of insurance plan, as the premium is more, you avail more deduction u/s 80C of the Income Tax Act. It also gives you tax-free returns once the policy matures. However, it needs to be considered that the premium paid for the term insurance plan is much less and it is also eligible for tax benefit u/s 80C. Further, the difference amount in premiums of term and endowment insurance can be invested in some other tax-saving schemes like ELSS, PPF, which can generate tax-free savings just like an endowment plan.
- Minimum Premiums: The premium for a term insurance plan is much lower as compared to other policies. For example, a 30-year old healthy male can buy a term insurance policy for 20 years for Rs. 10 lakh sum assured for an annual premium of approximately Rs. 3,000. For an endowment policy with the same death benefit, the premium will be around Rs. 30,000 annually.
Group Term Plan: What Are Some Group Term Insurance Benefits To Know About?
Group term life insurance is an insurance cover offered to a group by employer, association, or any other such organization. Insurance cover provides benefits to the beneficiaries if the insured person dies in the covered period. It is cheaper than an individual policy. Hence, group term life insurance is often an important component in employee benefit packages.
Here’s how you can choose an insurance plan that is best for you:
- Check the credentials of the insurance company.
- Calculate and decide how much life cover do you require.
- Check the claim settlement ratio of the insurance company.
- Factor in the inflation in paying the premium and coverage benefits.
- Check the terms and conditions of various insurance plans thoroughly.
- To make your financial planning foolproof, you may take two-term insurance plans with different tenures and riders.
Buying a term plan today is very simple; you need primary documents like identity proof, address proof, and similar documents. You also have to undergo a medical check. Once you clear the medical check-up, you are provided with the policy document. You can also finish the complete procedure online, sitting at your computer or even from your smartphone. Get your policy to avail of term insurance benefits.
