Top 10 frequently asked questions about term insurance plans

Term insurance is the most popular and accessible type of life insurance available in India. Every single life insurance provider in the country has their own term insurance plan. Due to the popularity of term plans, there is also a lot of misinformation that you might come across while researching the topic. To simply your understanding of term plans and clear any misunderstandings, we have complied 10 of the most frequently asked questions regarding term insurance.

1. What is Term Insurance?

Term Insurance is the most basic or purest form of life insurance cover. In a term plan, your family will get a sum assured in the event of your unexpected death. There are generally no savings features or investments in a term insurance plan, which is why such plans are also known as pure life insurance plans. The premium you pay in a term plan is completely dedicated to providing you with life cover. This is why term plans are one of the most affordable forms of life insurance. With a term plan, you can provide financial security to your loved ones/nominee(s) by ensuring a death benefit payout in case of your absence.

A term plan's life insurance coverage is active for a set period, that is determined at the time of purchasing the plan. This is known as the Policy Term. For example, it can be 10, 20, or 30 years. Furthermore, some term insurance plans may even provide life insurance coverage up to 100 years of age. To learn more about Term Insurance, click here.

2. How is Term Insurance Different from Life Insurance?

The first thing to note is that term insurance is a type of life insurance! People often mistake term insurance to be a separate thing altogether, but that is not the case. The main difference between term insurance and other life insurance plans is the existence of survival or maturity benefits. Whole Life Insurance plans generally also include an element of savings. A maturity benefit is the lumpsum amount the Insurance Company will pay at term end, while survival benefits are paid out during the policy term itself.

Generally, term insurance only offers life cover, and no maturity or survival benefits are payable. Even if you get a return of premium term plan, you will only get back your premium amount, and there will be no additional returns added to your sum. However, the advantage of term plans is that you get a higher sum assured for lower premium rates. To know more about the differences between term insurance and other types of life insurance, check out- Term VS Whole Life Insurance – Which One is Better?

3. Why is Term Insurance Necessary?

Term Insurance is necessary to secure your family financial future in case of any unexpected eventuality. The term insurance payout allows your nominees to continue their lives with dignity and financial security. Read more about, Term Insurance Benefits here.

4. Is There a Maturity Benefit in Term Insurance?

No, there is no maturity benefit in term insurance plan, unless you get a return of premium plan. Return of premium plans pay back all your premiums at term end. However, note that the return sum will be equal to the premium sum you have paid over the years (excluding taxes & rider deductions). This means that while you get your money back, it will not actually grow in value.

5. Who Should Buy a Term Insurance Plan/Policy?

A term insurance policy is necessary for a person who is the only earning member in the family, has many financial commitments and/or has taken multiple loans/advances that are pending repayment. To learn why one should buy a term insurance plan in 2024, read more here.

6. What is Covered in a Term Insurance Plan?

A Life Insurance Term Plan will provide life cover to the insured individual. If the insured person passes away during the policy term, then the insurance company will have to initiate a claim settlement and pay a lumpsum amount to the policy’s nominees.

7. Are There Tax Benefits for Term Insurance Plans?

Yes, term plans do come with tax benefits under India’s Old Tax Regime. You can buy a term plan to get tax benefits under Section 80C of the Income Tax Act, 1961. Additionally, the term plan death benefit is tax-free under Section 10 (10D) of the Income Tax Act. You can even use term plans as a key instrument in your tax planning.

8. What is a Joint Term Insurance Plan?

Joint term plans provide life cover to two people under one policy! Joint term plans are generally catered towards married couples or parents who wants to cover themselves and their child. Edelweiss Life Insurance offers the Better Half Benefit option that can turn your term plan into a joint insurance policy. With this benefit, your spouse gets an additional life cover up to 50% of your life cover.

9. When Should You Buy Term Insurance and Why?

Term life insurance coverage should be purchased at a younger age as the premiums will be available at a lower rate. However, you can buy a term plan at any stage of life to ensure optimum protection for your family.

10. Why You Should Consider Buying a Term Insurance Plan?

• Affordability: Term life insurance is typically much more affordable than whole life insurance or savings plans. This is because term life insurance only provides life cover without any returns or investment element.
• Coverage for specific needs: Term life insurance is ideal for those who only need coverage for a specific period of time, such as the years when their children are dependent on them financially or when they have a mortgage to pay off. This type of insurance is also a good option for those who are concerned about their beneficiaries' financial future, in case of their unexpected death.
• Flexibility: Term life insurance policies often come with the option to convert to a permanent life insurance policy, which gives you the flexibility to choose the coverage that best fits your changing needs. Additionally, many term life insurance policies come with a return of premium option, which allows you to get your premiums back if you outlive the term of your policy.
• Tax benefits: Premiums paid for a term life insurance policy are tax-deductible, which can help to lower your overall tax bill. Additionally, the death benefit paid out to your beneficiaries is typically tax-free, which can help to provide financial security for your loved ones in the event of your passing.
• Peace of mind: Having a term life insurance policy in place can provide peace of mind for you and your loved ones. Knowing that your loved ones will be financially secure even in your absence can bring a sense of security and comfort to everyone involved.

 

Siddhant Dubey - Writer & Photographer

Siddhant works as a freelance content writer who is interested in a wide range of spheres from photography and personal finance to cooking. He is also an aspiring photographer striving to showcase life around him through his vision.