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Term Insurance Benefits

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Benefits of a Term Insurance Plan

What is a Term Insurance Plan?

Term insurance plans are some of the best term plans in which the insurance company pays the sum assured to the policyholder's nominee in the event of the policyholder's death. The term insurance plans are provided for a set period of time known as the "term." The duration of term life insurance could range from 5 to 60 years, depending on the kind of term plan benefits it provides. A Term Insurance policy is the most straightforward method of ensuring that your family's financial needs, such as monthly expenses and annuities, are met in the event of your (the policyholder) untimely death. The benefits of term insurance plan are that it covers future needs such as the cost of a child's higher education or marriage.

What are the benefits of a Term Insurance Plan?

The primary term insurance benefits are dedicated to providing financial security for family members of the policyholder. One must consider looking at the benefits of term life insurance before opting for one.

A few term insurance benefits are listed below :

  • Finance-related security for the family members
  • High coverage for a low premium
  • Loan and other asset security
  • High coverage for a low premium
  • Coverage for Critical Illness Care
  • Attractive Tax Benefits

Whole Life Cover

The benefits of term insurance plan are different from the benefits of the whole life cover insurance that covers until the policyholder's death or until the policyholder reaches the age of 99. While benefits of term life insurance include coverage for a specific period of time, whole life insurance provides coverage for the policyholder's entire life.

Financial security for Family :

The returns on a term life insurance policy can help take care of your family's regular expenses. This is especially relevant if you are the sole earning member in your family. A term insurance plan offers a regular payout to family to take care of home and personal expenses in case of untimely death of policyholder. The payout can also be used to fulfill goals of higher education, investments or children's marriage.

Safety for loans and other assets :

Another benefit of a term insurance plan is that it makes it easier for you to take out a personal, car or home loan. Term insurance plans act as safety for a loan, i.e, in case of an emergency or untimely death, the family can repay the loan using the term insurance death benefit pay-out and rid themselves of any debt. Thus, term life insurance policies can help take care of your debt without burdening your family or affecting their lifestyle.

High Cover at a Low Premium Cost :

Term life insurance premiums are one of the lowest premiums you will pay ! These are pure protection plans for a restricted term and offer a single return as a death benefit. Thus, there is low risk to the insurer in a term insurance plan as compared to a permanent life insurance policy or endowment plans. This is why term insurance premiums are always low, fixed and affordable.

Better yet, the benefit of a term insurance policy is that you can get substantially higher coverage at one of the lowest available premium rates! Some term insurance policies offer a Total Return Of Premium(TROP) option with a 105% return upon maturity of policy.

Cover Critical Illness Care :

Having a term insurance plan can come in handy in the unfortunate event of diagnosis of a critical illness. A benefit of term insurance plan is that it also offers life insurance cover along with protection when a critical illness like cancer or heart problems are first detected.

The term insurance policy will provide a lump sum amount when an illness pre-specified in the term insurance policy is first diagnosed. Most insurance policies have a standard list of illnesses they cover (heart-attack, cancers, kidney failures, stroke and paralysis, organ transplant etc.) which can vary to some extent. It is prudent to read through the list of illnesses and other policy documents carefully. The critical illness protection is a 'rider' in term insurance plans which can affect the rate of premium.

Modern lifestyles can lead to habits like alcohol and tobacco use. These habits may prevent you from getting a reasonable health insurance cover and the high premium costs may burn a hole in your pocket. Moreover, if unfortunately a critical or terminal disease like cancer occurs, the cost of healthcare may drain you and your family of your entire savings. Additional riders like an Accelerated Death Benefit Rider on a term insurance plan can prevent such circumstances.

Attractive Tax Benefits :

The various benefits are as listed below :

  • The many term insurance benefits include tax deductible up to a maximum of 1.5 lakhs annually on premiums.
  • The death term insurance benefits received in the event of untimely death are also tax-free under Section 10 (10D) of the Income Tax Act of 1961.
  • Some term insurance plans, such as TROP term insurance, provide a return on maturity.

Term Insurance Benefits under Section 80C :

Section 80C of the Income Tax Act is the most popular tax-saving tool. This Section provides a maximum deduction of Rs.1.5 lakh. The term insurance benefits, when it comes to tax deductibles extend to PPF, EPF, ULIP, ELSS, and payments like home loan repayment, life insurance premiums, etc.

Term Insurance Benefits under Section 10(10D) :

According to Section 10(10D) of the Income Tax Act of 1961, any sum received under a term insurance plan, including any bonus on such policy, is tax-free whether received from India or a foreign company.

Return of Premium Option

The term insurance plans with a return of premium are the same as a standard term plan. The benefits of term insurance plan include the fact that it pays out a death benefit. The features of term insurance plans are you can pay the premiums based on the policy period. When term insurance plans mature, the insurance provider will refund the premiums.

Why should I choose a Term Insurance Plan?

The term insurance benefits plan provides numerous advantages. The benefits of term insurance plan are to provide financial stability to your family members in different unexpected events. The benefits of term insurance plan also extend to the provision of several ways to ensure financial growth. The term insurance plans are simple, and accessible also as an online term plan. One should consider all these points while looking for the benefits of term insurance plan.

There are various reasons which can be catered for by a term insurance plan. Let's explore the reasons for choosing a term insurance plan :

Simplicity :

Term insurance Plans are popular because of their simple nature and great return. There is definitely less jargon to deal with as there are no complex clauses explaining risks or dividends ! Since term insurance policies are Pure Protection policies, their main purpose is to take care of a family's financial needs in case of an untimely demise.
Other life insurance policies or endowment plans are Cash-Value policies which require careful analysis of how a portion of the premium is to be divided for a risk cover and the rest is invested to generate an earning. This can be overwhelming for many laymen who do not understand the workings of the market.

The Term Insurance Plan on the other hand is quick and simple to understand . A term insurance plan benefits the family in case of the policyholder's untimely death. There is a single death benefit paid out to the nominee selected at the time of purchasing policy. There is no other savings component or maturity benefit.

Renewing a term policy is a simple affair where the premium is usually recalculated and adjusted at the end of term. The term policy is convertible into an endowment policy at renewal too. Opting out or cancelling of a term policy is also an easy affair as the policy cover ceases if you stop paying the premium. There is no return as there is no saving component and the policy is simply cancelled.

Low and Fixed Premium :

Term insurance policies are a steady and reliable option for those on a budget. The low premiums can ensure financial protection in an emergency which doesn't burn a hole in your pocket. Term insurance premiums are low because the term insurance cover is offered for a restricted period of time. Most of the time, people outlive their policies which translates into no payout from the insurer and sometimes, a return of the premium charged (in case of TROP plans) to the policyholder. It's a win-win!

The premium decided at the time of purchase of policy remains unchanged throughout the term of the policy, i.e, the premium is fixed for a term insurance policy. This is a major advantage of term insurance premiums as you are safe from annual premium hikes and your loved ones are protected by a safe and cost-effective insurance policy.

For Example :

Mr Sushil, a 30 year old working professional can get a level term insurance policy for 20 years with a sum assured of ₹10Lakh at a premium rate of ₹3000 paid annually.

If Mr Sushil purchases an endowment policy with the same sum assured without profits but with the same death benefit as in term insurance, his annual premium will be over ₹30,000.

If Mr Sushil purchases an endowment policy with profits for the same death benefit, his annual premium will be over ₹50,000 per year.

Thus, term insurance plans offer a steady, standard financial protection for a fixed term at a low price.

Rider Benefits :

Term Insurance plans offer additional options or rider benefits in case of contingencies like an accident or a critical illness. There are majorly 6 types of riders offered with term insurance plans.

Accidental Death Benefit Rider :

This is a benefit offered wherein if the person passes away due to an accident, an additional sum is paid to beneficiary, which is over and above the assured sum received as death benefit. In case of normal death, only the assured sum is paid out to the beneficiary.

Accidental Disability Rider :

This rider comes into effect only in case the person is disabled due to an accident. A certain percentage of assured sum is paid as regular income by the insurer to the beneficiary for a specified amount of time. The disability must have occurred in an accident for this rider to become effective.

Accelerated Death Benefit :

If unfortunately, the policyholder suffers from a terminal illness wherein money is needed to take care of medical expenses, a lump-sum amount is paid out in advance for medical care.

Critical Illness Benefit :

If a person is critically ill, it can affect their income and the family's overall finances. This rider assures a lump-sum payout in advance when a critical illness , as listed in the policy is first diagnosed.

Waiver of Premium Benefit :

This rider ensures that your term policy remains active even if you are unable to pay future premiums due to loss of income or disability.All future premiums are waived off if this rider is in place.

Income Benefit :

This is an additional benefit wherein the family receives an extra income over and above the assured sum for a specified number of years. It ensures a regular source of income for some time, in case of untimely death.

Online Facilities :

You can buy term insurance policy either Offline or Online. The benefits of term insurance plans available online are plenty. You can make a more informed decision by first comparing the various term insurance plans offered by the companies (level term, group term , TROP term, standard term etc.). Then choose an increasing, decreasing or convertible plan type to supplement your life insurance goals. And finally , you can compare the various premium rates offered by all major insurance providers. While purchasing a term insurance policy online, you can even avail discounts and bonuses, which are not available in an offline transaction.

Online purchase of a term insurance policy removes the middleman or 'agent' fee along with offering a higher sum assured than offline branches. Also, in many cases, medical tests are not required to purchase an online policy for a sum assured under ₹50 Lakhs. Online policy purchases are more transparent, convenient and reliable.

Good investment for individuals starting a business :

Although term insurance plans are not usually considered for investment growths, there are certain benefits like tax exemptions under sec 80C and 10(10D) of the Income Tax Act, which make term insurance plans a steady investment.

For individuals who are young and venturing into business or a Startup, buying term insurance policy is a better investment than buying a cash-value policy with high premiums. This can help save insurance cost spent on cash value policies and you can use the capital for business development.

Disclaimer:

The article is meant to be general and informative in nature and should not be construed as solicitation material. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a sale.

*Tax benefits are as per the Income Tax Act, 1961, and are subject to any amendments made thereto from time to time’

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FAQs about Term Insurance Benefits :

How much Term Insurance Cover do I need?

Term insurance policies are a corpus you maintain to help your family maintain expenses in case of an untimely death. However, there is no 'magic number' for the right cover amount for you.

You can reach an approximate value for the right term insurance cover amount with a little exercise :
 
  • 1. Sit down and calculate your personal and family expenses along with your future plans and insurance needs.
     
      EXAMPLE YOUR FIGURES
    A Age 35  
    B Numbers of dependents 3  
    C Annual income ₹ 12 lakh  
    D Household expenses(annual) ₹ 6 lakh  
    E Less:Expenses on insured person* ₹ 1.2 lakh  
    F Number of years family will need funds(60-A) 25  
    G CORPUS NEEDED TO COVER REGULAR LIVING EXPENSES (D-E) x F ₹ 1.2 crore  
    ADD OUTSTANDING LOANS TO THIS FIGURE
    H Home loan ₹ 50 lakh  
    I Car loan ₹ 7 lakh  
    J CORPUS NEEDED TO PAY OFF LOANS (H+I) ₹ 57 lakh  
    ADD THE AMOUNT YOU NEED FOR FIGURE BIG-TICKET EXPENSES
    K Children's education ₹ 20 lakh  
    L Children's marriage ₹ 15 lakh  
    M Retirement/Contingency needs of spouse over time ₹ 7 lakh  
    N CORPUS NEEDED TO MEET LONG-TERM GOALS (K+L+M) ₹ 45 lakh  
    REDUCE THE TOTAL FIGURE BY THE EXISTING INSURANCE COVER AND ASSESTS
    O Existing assest** ₹ 23 lakh  
    P Existing life cover ₹ 2 lakh  
    Q Total ₹ 25 lakh  
    INSURANCE COVER NEEDED (G+J+N)-Q ₹ 1.97 crore  
     
  • 2. Calculate your dependent family's monthly expenses and multiply it by 150 (to factor in inflation).
  • 3. Add your personal financial liabilities like home or car loans, credit card debt etc.
  • 4. Subtract your liquid assets like FDs, Mutual Funds, Bonds etc.
  • 5. Add expenses planned for future milestones, up to 15 years, like your child's education and marriage.
  • 6. Add the retirement amount you would like to leave behind for your spouse.
Total Insurance Cover That You Would Need
Monthly Expenses× 150 times
Expenses/ Investments Examples
Liabilities (+) Home Loan, Personal loan, Credit Card
Liquid Assets (-) Fixed Deposits, Stocks and Mutual
Future Expenses (+) Children’s education, Children’s Marriage
Retirement Corpus for Spouse (+) Retirement Corpus
 

There are various human life value calculators available online to help determine the right cover amount for you. Although these are rudimentary calculations without an exact science, this exercise can help you visualize the big picture of your financial aspirations.

What is the best age to buy Term Life Insurance?

The sooner you invest, lower the payout and higher the returns !

Insurance, of any kind, should be a priority right from the start of your career. The sooner you get into the habit of prioritizing your finances, the better your returns on investments. Similarly, term life insurance policies should be purchased when you are a young, healthy individual. This ensures that you get a low premium because age is on your side and you also help financially secure your dependent family, like your ageing parents.

As you expand your family with spouse and children, a term insurance plan is a smart investment to help protect your family's future expenses in case you're not around. If you're close to retirement and your children are financially secure, you can look into other cash value instruments instead of a term insurance plan to help build a better corpus.

How long should you buy term life insurance for?

Choosing the right tenure of your term insurance plan is very important. Your policy term should not expire before your retirement, i.e, you should have a cover till the time you intend to work, which could be up to 60-65 years. There are also policy covers which last almost a lifetime, i.e, offer cover upto 90 years of age. However, such a policy will have a substantially high premium which isn't feasible.

If you buy a policy at age 30 with a tenure of 20 years, your policy term will come to an end when you are merely 50 years old. So, with a number of years to go before retirement, you will be left financially vulnerable. Even if you set out to purchase a new policy, the premiums will be very high , factoring in your age and in case you have a pre-existing health issue, it might drive the cost up further !

Thus, it is recommended to have a term policy with a term as long as it takes you to build enough assets or financial worth to take care of your family. Thus, in case of a health condition or untimely demise, your family is financially secure with a substitute income. If you choose a policy with a long term cover , like 80-90 years, the premium cost will be substantially high.

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