In today’s volatile environment, many people prioritise ensuring their families’ financial futures. A term insurance policy, often known as term life insurance, is critical to this strategy as it provides comprehensive coverage at low costs. This sort of life insurance gives you the peace of mind of knowing that if anything unexpected happens, your loved ones’ financial requirements will be met.
Basics of term insurance
Term insurance is a basic type of life insurance that provides coverage for a set “term” or duration. If the insured person dies during this period, the beneficiaries get the death benefit, which can be used to replace lost income, pay off debts or support future requirements such as schooling or higher education. It is crucial to remember that if the policy expires before the insured’s death, there is no payment, and this form of insurance normally does not accrue cash value.
Benefits of term insurance
· Straightforward and simple product
Term insurance policies are simple to understand without the complexities of cash values or investment risks that are found in other life insurance plans. This simplicity means that the terms are clear: the insurance company pays a death benefit if the insured dies within the policy’s term; if he doesn’t, the policy expires without any benefit. This transparency is what makes term insurance popular among individuals who require a simple, easy-to-understand product.
· Highly affordable
A term insurance policy is specifically crafted to be cheaper than a whole life insurance policy. This is primarily because it does not have any investment component and is just a death benefit. This straightforward approach reduces costs, making high coverage accessible to more people. Let us say a young adult can secure a Rs 1 crore policy at an annual premium of a few thousand rupees. Term insurance calculator can help you calculate the premium you need to pay.
· Provision of tax advantages
Tax advantage is the unique feature of term insurance policy which is offered under the Indian Income Tax Act. The premiums paid in a financial year are deductible from your taxable income as per Section 80C, a limit of up to Rs 1,50,000 per annum. Additionally, the death benefit received by the beneficiaries is tax-free by Section 10(10D), meaning that the entire benefit is available to support your family with no tax deductions at all.
· Flexible insurance tenure
The flexibility in insurance term selection helps you to match the period of coverage to your financial demands, such as the number of years remaining on a mortgage or your children’s educational timeline. You may choose periods as short as 5 years or as long as 40 years, depending on your age, financial objectives, and worries about future insurability.
· Renewability
Many term plans permit you to extend your coverage without the need to undergo additional medical exams towards the term’s end, even if your health has deteriorated. This feature is crucial as it permits you to expand cover as required, ensuring ongoing protection.
· High coverage
Despite the premiums being less on term insurance plans, the policy still offers generous coverage. This high coverage-to-premium ratio ensures in the occasion of any tragedy, your family can maintain their lifestyle, cover considerable expenditures such as critical medical bills or mortgage payments or settle debts.
· Convertible
A few term insurance plans come with the convertible option, which permits you to change your term policy into an endowment plan or whole life insurance plan without the need for undergoing any further medical examination. This advantage permits you to adjust the insurance type depending on changing financial goals and needs.
· Incentives
Many insurance providers endow you with lower premiums if you are living a healthy life. For instance, non-smokers often pay substantially less than smokers. Some providers might even provide discounts or offers on premiums if a customer has a healthy BMI or submits health check-up reports annually.
· Riders
Riders amplify the term insurance utility with additional advantages such as critical illness coverage and a waiver of premiums in the case of disability or accidental death benefits. Such add-ons are customised depending on your preferences and are generally available for an additional charge.
· Fixed premiums
The premiums of a term policy are fixed at the time of purchase and remain the same throughout the term of the policy. This predictability helps in financial planning, as you can budget for long-term goals without having to worry about increasing insurance premiums.
· Debt protection
Term insurance can be designed in a way to specifically cover major debts like a home loan so that your family isn’t left with any financial burdens in case of your untimely death. The policy amount can decrease correspondingly with the reduced loan balance.
· Income replacement
In the unfortunate situation of the policyholder’s early death, the lump sum payment from the term insurance plan serves as an income replacement, allowing the family to maintain the same standard of living and meet daily needs without experiencing financial strain.
· Educational funding
Selecting a sufficient cover amount will guarantee that your kids will have their education needs met so that their future is secured, even if you are no longer around. This could be in the form of money for higher education or even university abroad.
· Business protection
From the viewpoint of business owners, a term insurance policy is an essential factor as it may cover loans which were taken for business purposes or compensate the company for the financial loss, so the business continues to function.
· Mental peace
The most significant advantage of term insurance is the peace of mind it provides. Knowing that your family will be financially secure during your absence helps you to live more freely without having to worry about the financial consequences of unanticipated circumstances.
Ending note
Choosing the correct term insurance is more than simply a financial choice; it is a step towards providing a secure future for your family. It serves as a source of hope, guaranteeing that your aspirations for your loved ones do not die with you. With each payment paid, you get not just coverage but also peace of mind, knowing that you have done everything you can to protect your family from financial trouble. Term insurance is a must-have financial instrument because of its simplicity, price, and benefits.
Also Read: Comparing term insurance with other investment-linked products
