Term Plan – An Ultimate Guide for Selection
What Is Term Insurance and Its Importance?
1. Term plans are a cheap form of insurance that provides a defined amount of cash value in case something untoward happens to you. The money will go to the people you nominate as beneficiaries on your policy to protect from the financial impact of your absence. It is usually taken for a specified period, called the policy plan term, and the benefit under such a plan is payable only on the death of the insured person. Term insurance is a must-have and should be a part of everyone’s insurance portfolio.
2. The proceeds of this policy can be used to repay any debts you must have run up, pay for funeral costs, compensate for education costs for your kids and replace future income that your family would still need to lead a comfortable life. Thus, if you insurance while you’re still young and healthy, it can safeguard you and your family against any surprises life might throw your way.
3. Moreover, all term insurance premiums paid are tax-exempted under section 80C (up to Rs. 1.5 lakh including other instruments allowed under 80C)*
4. When trying to figure how much life cover you want, you need to consider the following factors:
• How much your debts rack up to
• How much income your family will need to live comfortably in your absence
• Your child’s future care and education costs
Keeping that in mind, most financial advisers suggest a sum-assured in the range of 10-12 times your current annual income without getting into complex calculations.
5. Another important point to be noted is that insurance would be lower when you’re young and will increase with your age. Needless to say, the premium tends to remain unchanged throughout the term of your policy. So, ensure you pick a plan as early in life as possible. The below-mentioned factors can help you in that regard.
How to Choose the Best One?
There has been a lot of innovation seen around term products lately. You can choose an option that best suits your needs:
• Lump sum
This occurs when the beneficiary receives the entire amount of the death benefit as a single, once-and-for-all payment instead of a series of payments.
• Income (Increasing)
This ensures that your life cover rises every year by a fixed percentage concurrently with your rising income levels.
• Return of Premium
All premiums will be paid at maturity assuming the death benefit has not been activated during initial policy term and all scheduled premiums have been paid.
Options to Enhance Protection:
• Accidental death cover
Provides essential cover for your family by offering a lump sum payment in the event of accidental death or serious injury to help with daily living expenses or expensive rehabilitation expenses.
• Critical illness and Disability cover
Pays a lump sum of money if you are diagnosed with a critical medical condition to ensure you and your family do not suffer financial hardships.
* Tax benefits are as per prevailing tax laws which are subject to change.