Life is unpredictable, and your family's financial security should always remain your top priority. A term insurance policy is an umbrella of protection that guarantees the financial security of your loved ones in case of an unfortunate event.
Unlike all other life insurance policies, term plans serve as a pure protection policy designed to provide a high-life cover at a low premium. This article discusses how term insurance gives significance to safeguarding the financial security of your loved ones in your absence.
A term insurance policy is a life insurance plan that provides financial coverage to the holder for a specified period of time (the "term"). If the insured dies within the term, the insurance company pays the sum assured to the nominee.
However, if the policyholder outlives the term, the maturity benefit is not payable except if riders or return-of-premium add-ons are opted for.
High sum assured at a low premium
Fixed term of coverage
No maturity benefit (except if a return-of-premium rider is chosen)
Several payout options for beneficiaries
Ability to add riders for increased coverage
A term life insurance policy safeguards your family’s financial well-being in the following ways:
The basic intention behind a term life insurance plan is to give security to your family in the event of your premature death within the policy period. The lump sum amount helps your dependents continue their way of living and fulfil their financial obligations without worrying about an immediate alternate income source.
If you have long-term loans, such as a home, car, or personal loan, your family will struggle to repay them if you are not there. A term insurance claim helps pay off these loans so that your loved ones do not have a financial burden.
If you are the only earning member of your family, a term plan can serve as an income replacement instrument. The payout ensures your dependents have enough to handle their daily needs, children's education expenses, and other financial obligations.
Whether your children's education at the post-graduate level, their marriage, or your spouse's retirement, term insurance protects such long-term plans in case of your unfortunate demise within the policy period.
The IT Act offers tax benefits on term insurance policy payments. Check them out below:
Section 80C: Premiums paid are exempt up to ₹1.5 lakh per year.
Section 10(10D): Death benefits received by nominees are tax-free.
Several insurance companies have an increasing sum assured facility, which enhances the coverage amount with inflation so that your family's financial protection does not get diluted in the long run.
Based on your family's financial requirements, you may choose various payout options:
Lump sum: Single payment to meet current financial requirements.
Monthly income: A regular monthly payment to cover ongoing expenses.
Combination of Both: Provides an instant safety net and ongoing financial assistance.
Following are the major term life insurance policy types:
Level Term Insurance: A guaranteed sum for the entire policy term is assured.
Growing Term Insurance: The sum assured goes up at a specified percentage.
Decreasing Term Insurance: Suitable for loan repayment, the sum assured decreases over time.
Return of Premium Term Insurance: Pays back the premium paid if the policyholder survives the term.
Convertible Term Insurance: Allows conversion to other insurance products.
Before purchasing a term insurance policy, remember the following:
Sum Assured: This must ideally be 10-15 times your yearly salary.
Policy Term: Choose according to your retirement age or targeted financial needs.
Premium Affordability: Choose a premium according to your affordability.
Riders and Add-ons: Personalise your policy with riders, such as critical illness coverage, accidental death benefits, and premium waivers.
Claim Settlement Ratio: Choose an insurer with a high claim settlement ratio so your beneficiaries have a higher chance of gaining coverage when raising a claim.
A term insurance policy is a crucial tool in financial planning that provides broad coverage to your loved ones. With the protection of a high sum assured at affordable premiums, you can ensure that your loved ones can easily settle liabilities and safeguard their future goals in your absence.
However, make sure that you read the policy’s terms and conditions and research its claim settlement process so that your loved ones face zero hassles in receiving coverage when needed.
