Types of life insurance
Life insurance plans in India can be divided into the following three types :
- Term Insurance Plans: Term plans are the simplest type of life insurance plan found in India. Not only is it affordable, the terms and conditions are also easy to understand. This type of insurance is pure risk coverage.
- Unit Linked Insurance Plans (ULIPs): This type of insurance is the perfect long-term investment option available to Indians, in addition to being an insurance cover. The premium paid is partly utilized as a risk cover, and partly invested in market-linked instruments. It affords flexibility of investment making it a very viable option for the financially “woke” Gen-Z.
- Endowment Insurance Plans: Endowment plans are a good mix of savings and insurance. Its benefit is that it is the best long-term savings option available to policyholders. Here, if you outlive the policy duration, you can receive the maturity benefits of the same. Additionally, periodic bonuses are also offered.
In this article, we will be discussing term insurance plans, or term plans in detail. Read on to know more.
What are term plans?
Term plans are insurance policies that provide coverage for a fixed period (a term). They provide a high coverage at affordable costs, making it a popular choice amongst the common man. In fact, one can avail term plans offering a life cover of up to one crore INR, with premiums that start at around 500 INR.
Some important terms
Before we delve into the specifics of term plans, let us look at some important terms related to term plans.
- Term Insurance Premium: As the name suggests, this is the premium paid towards the term plan. In simpler terms, it is the money paid to the insurance provider for financial security in the future. This payment may be made in a lump sum, monthly, quarterly, once in six months, or annually.
- Claim Settlement Ratio: This is a very important term, especially when it comes to zeroing in on the insurance provider from whom to purchase term plans. It is the ratio of the total number of claims settled by the insurance provider in a year to that of the total claims raised by policy holder in that year. If the claim settlement ratio is high, it means the insurance provider can be relied upon to provide you with financial security in the future.
- Sum assured: This is the amount of money that will be received by the person you nominate in the unfortunate event of your demise. The premium paid is dependent on the sum assured. The greater the sum assured, the greater the premium.
- Add-ons or Riders: Riders or add-ons are benefits that can help enhance your existing term plans. They are optional, and available at a nominal cost in addition to the premium and help you customize your term plan to your life and needs.
Terms plans have the 3Ds covered
There is a general misconception regarding term plans, that benefits can be availed only upon death of the policy holder. This is just partly true. Because term plans offer benefits that covers all the 3Ds of life- disability, disease, and death. The three giant risks that we have to always be prepared for in life.
- Disability: A disability brings with it numerous expenses towards treatment, training, medicines, equipment, etc. All of these expenses cannot be single-handedly borne by the common man without any help. This is where term plans come into the picture. It helps you stay prepared for what the future brings with its disability cover. Special riders in the term plan that you have already availed can take care of the expenses that could arise from disability. The riders will provide consumers with a lump sum amount or a fixed monthly income, depending on the need of the hour.
- Disease: No human is free from the risk of diseases. As a generation that is living in the era of a global pandemic, Gen-Z is no stranger to disease and illness. This is why term plans are perfect for them. It provides covers for diseases that are critical and terminal, so that money is a burden that is off your chest. You can receive quick pay-outs in cash upon diagnosis so that bills are the last thing on your mind and you can completely focus on the best treatment plan. You can avail covers on diseases either through a stand-alone term plan, or by means of riders in existing term plans.
- Death: The crux of life insurance is financial security upon demise. They provide for your loved ones when you have passed and ensure that things go smooth sailing. If you think that term plans are just an unnecessary expenditure, you couldn’t be more wrong. The expenses that are incurred upon one’s demises are numerous – from organizing the funerals services, to ensuring that the household functions whilst they grief, there are a lot of expenses that accrue upon death. A term plan will be your gist to your loved ones from the great beyond.
Features of term plans
Now that we know what term plans are and the major risks they cover, let us look at some of its features that make it apt for Gen-Z.
- Low age of entry: Term plans can be availed from the age of 18 years. You don’t have to wait until you are in your mid or late twenties to avail this life insurance plan to benefit your loved ones.
- Long periods of cover: The period of cover offered by term plans are quite longer than that of other life insurance plans. You can claim even up to 40 years of policy tenure if you purchase a term plan.
- Easy to purchase: Term plans can be easily purchased by the tech-savvy Gen-Z. It does not require you to stand in queues or go through loads of paperwork. You can purchase a term plan through a few simple steps online. You can also compare and contrast the various plans being offered and pick the one that best suits you. The paperwork and payments can be done online without any hassle.
- Flexible premium payments: Term plans offer flexibility in payment of premiums. They can be done monthly, once in every four months, or once a year. And as mentioned above, the payments may be made online, in the comforts of your home.
- Cover can be adjusted: The cover of the term plan you have purchased can be increased or decreased depending on the financial condition you are in.
- Protection from liabilities: In addition to protection from the risks of the 3Ds of life – disability, disease and death, term plans also protect you from financial liabilities like repayment of loans.
Benefits of term plans
Term plans provide consumers with numerous benefits. Some of these benefits are listed below.
- Premiums are affordable: Term insurance allows consumers to get themselves a high-value coverage through affordable premiums that may be paid every month, every six months, or every year.
- Longer life cover: Term insurance plans provide their consumers with a much longer coverage as opposed to other plans. In fact, whole life insurance covers consumers until the age of 99 years.
- Sum Assured as a pay-out: The sum assured of a term insurance plan will be provided to the beneficiaries as a pay-out. It is up to you to choose whether such pay-out be one lump sum amount, or a periodic payment, or a mixture of both lump sum and periodic payments. This allows you to ensure financial security for the future.
- Coverage for terminal & critical illness: Term insurance plans can be extended to terminal & critical illnesses. Upon diagnosis with a terminal or critical illness, the consumer can avail insurance as a lump sum amount.
- Enjoy tax benefits: Term plans empower consumers to avail tax deductions under Sections 80C and 80D of the Income Tax Act, 1961. In addition to exemptions on the interest on premium paid and the premium paid, even the sum assured received in a financial year is exempt from taxation under Section 10(10D) of the IT Act, 1961. However, tax laws are subject to change from time to time.
