Why Term Insurance?
A Term Insurance is the simplest form of life insurance, which provides coverage to your family in case of any unforeseen situation. It is the cheapest way to get high coverage as term insurance plans are pure protection plans with no element of savings. However, there are quite a lot of people who still consider term insurance plans are a waste of money since in most cases, there is no maturity benefit.
However, it is a very important part of a person’s investment portfolio. By being smart at an early age and investing in a good Term Insurance Policy you can secure your family’s financial well being and safety in case something happens to you.
Income Replacement Strategy
A Term Insurance plan can also work as an income replacement tool which would provide benefit to the insurer’s family in case of a loss in income due to a critical sickness/injury or death. It is more like an income protection plan for your family if something happens to you or if you are not around to fulfil their needs.
Term Plan as an Effective Financial Planning Tool
With the increasing cost of living these days, it is very important to have the right kind of financial planning and tools to help you out and to cover all kinds of roadblocks that you and your family might face. A term plan especially helps to keep your loved ones safe and provides them with a safety bubble so that they can meet their expenses as well maintain a certain lifestyle which you have worked so hard to provide to them. It is recommended that you start early with the term insurance investment.
Below mentioned points help in understanding the importance of investing in a term plan.
- Cost-effective Premiums
As mentioned earlier, a Term Insurance is the cheapest form of life insurance plan which provides high-risk cover at a very low cost - Financial Security
Don’t make your family vulnerable to financial liability in case something happens to you. Especially if you have taken any loans/mortgages or have some additional liabilities - Additional Riders
You can always personalise your policy by having riders to cover any perceivable risks and thus enhance your overall coverage - Customisable
Some term insurance plans like HDFC Life Click to Protect 3D Plus Plan, have various payout options. Be smart and Customise your policy as per yours needs/requirements as well as payout options
Factors to Consider While Buying a Term Insurance Plan
One of the key questions, like nothing you envisage, can be enough to cover the goals of your family. To keep it simple and straightforward, -- Deduct your liquid assets from your obligations (financial). Financial Obligations are defined generally as a combination of the below:
- Mortgages
- Annual Salary for the number of years you want to cover
- Any other debts
- Future needs of the family
Top 10 Reasons Why Buying Term Insurance is a Smart Choice
Term Insurance offers financial security to the family in case of any mishap to its bread earner. Top Benefits of a term insurance plan:
- Coverage
It provides a high-risk cover for your loved ones at a low cost. There is no other product in the industry to provide this benefit. - Cost
The cost incurred is marginal, considering the gains in case something happens to you within the policy tenure. There is no alternative to peace of mind. - Simple Product
Being the easiest to understand life insurance plan, it is indeed very easy for anyone to purchase the same. - Online Access
Being easy to access and convenient, term plans can be bought online. Also, online plans are cheaper than their offline counterparts. - Fixed Premium
The premium is fixed once the policy is issued. So, if you opt for a term insurance plan at a young age, you end up paying the lower premium for the entire policy tenure. - Coverage for a Longer Tenure
Term Plans do provide coverage till 80-85 years and with a whole life component attached to it, some term plans also provide coverage till 99 years of age. For example, ICICI Prudential iProtect Plan provides coverage till 85 years and if you opt for whole life coverage, the life insurance coverage gets extended to 99 years as well. - Payout Options
In most plans, you have multiple payout options. For example, in HDFC Life Click 2 Protect 3D Plus Plan, there are multiple payout options for the policyholder to choose from like:
- Life Option
Death/Disability Benefit + Waiver of Premium for Permanent Accidental Disability during the policy tenure and the policy continues till the end of the policy tenure or death of the insured.
- 3D Life Option
Death/Disability Benefit + Waiver of Premium for diagnosis of Critical Illness of the insured during the policy tenure and the policy continues till the end of the policy tenure or death of the insured.
- Extra Life Option
Death/Disability Benefit + Accidental Death Benefit + Waiver of Premium for Permanent Accidental Disability during the policy tenure and the policy continues till the end of the policy tenure or death of the insured.
- Income Option
Death/Disability Benefit in a lumpsum + Monthly Income for the Income Period paid to the nominee on death of the insured + Waiver of Premium for Permanent Accidental Disability during the policy tenure and the policy continues till the end of the policy tenure or death of the insured.
- Extra Life Income Option
Death/Disability Benefit + Monthly Income for the Income Period paid to the nominee on death of the insured + Accidental Death Benefit + Waiver of Premium for Permanent Accidental Disability during the policy tenure and the policy continues till the end of the policy tenure or death of the insured.
- Income Replacement Option
12 times the increased monthly income would be paid as Death Benefit to the nominee on death of the insured + Increasing Monthly Income would be paid out + Waiver of Premium for Permanent Accidental Disability during the policy tenure and the policy continues till the end of the policy tenure or death of the insured.
- Return of Premium Option
Death/Disability Benefit + Monthly Income for the Income Period paid to the nominee on death of the insured + Waiver of Premium for Permanent Accidental Disability during the policy tenure and the policy continues till the end of the policy tenure or death of the insured.
Maturity Benefit= All premiums paid would be returned back
- Life Long Protection Option
Death/Disability Benefit + Benefit paid out if the insured is diagnosed with a terminal ailment + Waiver of Premium for Permanent Accidental Disability during the policy tenure and the policy continues till the end of the policy tenure or death of the insured.
- 3D Life Long Protection Option
Death/Disability Benefit + Waiver of Premium for Permanent Accidental Disability or Critical Illness during the policy tenure and the policy continues till the end of the policy tenure or death of the insured.
You need to choose the options according to your requirements.
- Riders
You can have additional riders to cover future requirements like accidental death benefit rider for the double accidental death benefit, critical illness benefit on diagnosis of any of the listed critical illnesses of the mentioned degree, waiver of premium if the policyholder dies within the policy tenure or is diagnosed with a critical terminal illness in order to provide continuity benefit, accidental disability benefit for any permanent disability for accidental reasons, etc. There are many riders but these are the most popular ones. - Tax Benefits
The premium paid towards term insurance plans are tax-free under section 80C of the Income Tax Act 1961 upto INR 1.5 lakhs every policy year.
The death benefit paid under term plans to the nominee in case you happen to die within the policy tenure would also be tax-free under section 10(10D) in the hands of the beneficiary.
Various Types of Term Insurance Plan to Choose From
There are various types of term insurance plans available in India to choose from:
- Level Term Insurance Plans
Which provides level coverage for the entire policy tenure - Increasing Term Insurance Plans
Which provides increasing coverage to meet your increasing liabilities. This type of plan can be taken at a younger age when your liabilities are likely to increase. - Decreasing Term Insurance Plans
Which provides decreasing coverage to meet your lowering liabilities. This type of plan can be taken against a loan wherein the principal outstanding reduces over time with repayment and so does the loan amount. Hence the sum at risk also reduces over time. - Term Plan with Return of Premium Option (TROP)
Which provides a return of the entire amount of premium paid during the policy tenure as maturity benefits on survival till the end of the policy tenure. This type of plan is for people who wish to have a maturity benefit along with life coverage in a term insurance plan.
Things to Keep in Mind While Buying Term Insurance So that it is a Smart Choice
Someone very wisely said that the early bird gets the worm or benefits in this case. In the case of term insurance the early you start investing the better and cheaper it is. Some key things to keep in mind whilst going in for an investment in a term plan for yourself and your family.
- The earlier you purchase the better it is
- Remember to fill up your own form and write all necessary details accurately so that there is no ambiguity at the time of claim
- Buy a plan only till your you have financial dependents on you
- Try buying a regular premium plan as it is more beneficial
- Buy an appropriate plan keeping in mind your liabilities, monthly expenses and yearly income
- Don’t overthink, over-analyze, over the question. This causes delay
- Don’t forget to mention your nominee
- Declare if you are a smoker or drinker, even if it is occasional
- Never hide a family health history, if any
- Choose a strong and a good brand for purchasing your policy
- Last but not least – Do tell your family in detail about the policy you have invested in
Hence, term insurance plans are surely a good and smart decision and must be a part of everyone’s financial portfolio. This is especially true if you have any person financially dependent on you.
