Imagine you want to apply for a credit card. You can see that every bank offers a vast array of credit cards with different features and benefits. Some may give you a cashback when you shop online, some may give you access to airport lounges, some may reward you with points on each transaction, and so on. It is now up to you to go through the benefits carefully and decide whether you need the card.
Now, when we talk about Term Insurance, it can be considered an important personal purchase if you have family members who depend on you financially or loans/liabilities. Being a pure risk protection plan, term insurance creates a financial cushion for your loved ones- so they don’t face any monetary troubles if you pass away.
So, before investing in a term insurance plan, you should have a detailed look at the various benefits it offers so you know that you are investing your hard-earned money wisely in an avenue that you really do need.
Let’s Have A Look At The Various Benefits A Term Plan Offers.
The Promise Of Financial Stability
The first and foremost benefit of a term insurance plan is the financial stability it gives your loved ones in your absence. If you have financial dependents, the claim amount of a term insurance plan will help them meet their financial goals, right from daily expenses, utilities, grocery, and school fees to major milestones like paying off loans, funding your child’s higher education, etc.
You can live a worry-free life if you own a term insurance plan - it is one of the smartest and easiest ways to ensure the financial safety of your loved ones.
Covers All Types Of Deaths
Any kind of death caused due to accidents, critical illness, natural causes, etc. is covered under the policy. The only exception is when the death is due to suicide within one year of buying a policy. If one commits suicide within a year of buying the policy, the nominee will be given the premiums paid until then (without the taxes).
Premiums Are Economical And Remain Fixed
The premiums of a term insurance plan are highly affordable and remain the same throughout the policy tenure. This means that even with rising costs, the premium does not increase. So, you can effectively choose a cover that is inflation-proof while paying affordable premiums (without worrying about the age and life stage you’re in).
For example - The premium of a Rs. 1 Crore term cover may be as low as Rs. 900 per month. This means, for every rupee you invest, your family will get nearly Rs. 1000 back, in case you pass away during the policy tenure.
You Can Tailor The Plan To Suit Your Needs
Insurance companies offer you a volley of customisation options so your plan is the best for you.
Here are a few customisation options that come with term insurance -
- Premium Payment Frequency
You can choose to pay the premiums on a yearly, half-yearly, quarterly, and monthly basis - depending on your convenience.
For instance, if you are salaried, the monthly payment option might suit you better. On the other hand, if you own a business and have an erratic yet large income, the yearly payment option might be the right choice.
Pro tip: Always put standing instructions on a bank account, and not on a credit/debit card. This is because the cards come with an expiry date - due to which your payment might not go through smoothly.
- Claim Payout Options
You also get to customise how your loved ones will receive the claim amount depending on their financial aptitude, liabilities, goals, etc. The claim payout can be made as a lump sum, monthly payments, or a combination of both.
So, if you think your family cannot handle huge sums of money, you can choose the monthly payment option. If you have existing loans, you can choose for your family to get the claim amount in one shot, so they can be debt-free sooner.
- Increasing Cover Option
If you choose this option, your plan’s cover amount will increase by a specific percentage till a predefined limit is reached. This is a good feature to have if you envision rising financial responsibilities over the years like your child’s higher education, wedding, etc. or if you want a cover that’s inflation-proof.
Riders are add-ons that enhance your plan’s coverage. They offer additional financial security in case of any contingencies during the policy tenure. They don’t require any extra paperwork or medical tests beyond the ones you undergo for the base term plan.
Some commonly available riders you can opt for include critical illness rider, accidental death benefit rider, an accidental disability rider, waiver of premium rider, etc.
- Premium Payment Model
You can also choose the premium payment term. You can pay the premiums -
- Regularly till the end of the policy term (Regular Pay Option)
- Finish them off in a limited number of years (Limited Pay Option)
- In one shot as a lump sum (Single Pay Option)
You can choose the premium payment term based on your financial capacity and life stage. For instance, if you are young and have just started working, you can opt for the regular pay option. If you are self-employed, go for the limited pay option so you complete the payments in bigger and faster instalments.
Claim Payout Guarantee After 3 Years
If your policy has been active for a continuous period of 3 years, then the insurance company cannot deny your family’s claim on account of fraud, misstatement, or suppression of facts - under Section 45 of the Insurance Act. As long as you pay your premiums, the insurer will pay your family’s claim amount under any circumstances, if the policy is active for a period of three years or more.
Term insurance plans come with tax benefits, as laid down by the Income Tax Act of 1961.
- You can avail of a tax deduction on the premiums paid up to Rs. 1,50,000 per annum, as per Section 80C.
- The claim amount your family will receive is tax-exempt under Section 10 (10D).
The value of a dear one’s life cannot be compensated with monetary value. However, you can make sure that along with facing a loved one’s loss, one does not have to face a financial crisis too. Buying a term insurance policy guarantees your family’s financial security when you are not around.