Term insurance is a type of life insurance that provides protection for a set period of time. In the event of the insured’s untimely death, the insurance policy will pay a lump sum amount to the policyholder’s loved ones. In other words, a term insurance policy provides financial stability to the insured’s dependents in the event of the death of the policyholder. Fortunately, parking money in a pure-term insurance policy does not require one to possess market knowledge. However, one still needs to choose a particular tenure and pay regular premiums toward the policy.
Read along to find more information about term insurance policies.
Types of Term Insurance
In essence, term insurance is a contract between the policyholder and the insurance provider who promises to pay a lump sum amount of money to the insured on their nominee in exchange for a premium amount. Such a payment is made out to the beneficiary or insured in case of the untimely death of the insured or any other situations covered under the policy.
Note that there are several types of term insurance policies available for the public and each type comes with a distinct feature. Based on one’s needs and financial standing, individuals can choose to buy a competitive term insurance policy from a leading insurance company.
That said, let us take a look at a few popular types of term insurance plans below:
1. Basic plan or Level term plan
This particular one is essentially a pure life protection policy that one can avail of for a fixed tenure.
This term insurance plan extends maturity benefits, wherein the insurance premiums paid out to get the policy are returned only if the insured survives the pre-defined policy term.
3. Convertible Term Plan
At a later period, the policyholder can convert this particular term policy into a different type of plan, such as a full life plan or an endowment plan.
4. Riders on a term plan
These plans offer more comprehensive coverage, such as critical illness or accidental permanent disability.
5. Increasing term plan
Policyholders can increase the amount of their current life insurance coverage after achieving specific life objectives. They may also increase their current life insurance coverage annually after reviewing their insurance plan and changing financial requirements.
6. Decreasing term plan
In this particular plan, the insurance coverage diminishes at a specified rate over the policy lifetime. This kind of term insurance is deemed appropriate for those individuals who have financial obligations since they can use the insurance proceeds to pay off their active debt.
Key Features of Term Insurance
Here are some of the key features of term insurance plans that can benefit policyholders
Coverage: The insurance policy provides comprehensive coverage at an affordable premium cost, making it accessible to all individuals. Some leading insurance providers offer a robust insurance cover amount of up to Rs. 1 crore for a tenure of maximum 30 years at a nominal premium.
Riders: With rider benefits, insurance companies can allow customers to expand the current coverage of their chosen policy and customize the same as per their needs. Some of the most popular term insurance riders’ perks that policyholders can consider adding to their existing plan include critical illness benefits, premium waiver benefits, and premium return benefits. Individuals may choose one or multiple riders to their existing policy and enhance its coverage significantly. However, it is crucial to note that adding any rider to the existing plan would inflate the cost of the insurance premium. This is why, individuals should be mindful of their approach and add multiple riders only if they affordable the revised premium amount.
Premium: While it reflects the cost of availing an insurance cover, one should not base their buying decision entirely on it. They should also factor in other key features to make an informed choice. Individuals can use an online term insurance calculator to compute the premium and the impact on the rider. Such quick results will help plan insurance better and align the coverage with their needs.
Why Should You Buy a Term Insurance Policy?
Besides knowing the meaning and extent of the term insurance policy, it is important to be aware of the accompanying benefits to understand whether it is an effective financial tool.
To help you get a jump start, here are a few key benefits of the term insurance policy
- Affordability: Term insurance for women are considered to be the most affordable of all life insurance plans. Other programmes, such as traditional life insurance plan or endowment plans, requires one to pay higher policy premiums. This lower premium aspect may come in handy for those individuals who are looking to plan financial security for their family and safeguard their future but while a minimal amount toward it.
- Tax benefits: Term insurance policies extend lucrative tax benefits that allow individuals to save on taxes. To elaborate, the insurance premiums paid by the policyholder are entitled to tax deductions that come under the purview of Section 80C of the Income Tax of India Act, 1961. Additionally, the policyholder can claim additional tax deductions under Section 80D if the individual has availed of term insurance inclusive of a critical illness cover. Notably, the death benefit paid by the insurance company to the beneficiary of the policy is tax-free under Section 10(10D).
- Riders: Riders are simply upgrades or add-ons to one’s current life insurance policies that aim to increase the insurance policy’s coverage. To acquire broad coverage while continuing to enjoy term insurance perks, individuals can buy riders such as accidental permanent disability cover, critical illness cover, and accidental death.
- Increasing extent of coverage: Individuals can choose a term insurance plan that offers extra cover when the insured hits a set milestone in life. This helps them enhance their coverage and be better prepared for emergencies.
Besides these, insurance companies now tend to provide a host of advantages with term plans. For instance, some leading providers offer online assistance to customers to help them manage their insurance portfolio, raise their current coverage amount, and access claim details without any hiccups. This makes term insurance policy a lucrative financial option for many individuals.
