Term Insurance Benefits

Term Insurance Benefits

Life is uncertain, and one can never predict what the future holds. Understanding the importance of term insurance is crucial to ensuring your family's financial security in your absence. You can achieve this by opting a term insurance plan.

 

Term Life Insurance plans are the most basic, cost effective and easy to buy life insurance plan which protects the financial future of your family at a nominal cost. The premiums paid for term plan are minimal compared to any insurance plan.

 

Key Benefits of a Term Life Insurance

Here are the essential benefits that a term life policy offers:

 

1. Maximum Protection at a Minimal Cost (High Sum Assured)

Low premium is a core feature of term insurance. Through a term Insurance Plan, you can have the highest death benefit or life cover in lieu of a nominal premium. Since term plans provide only life protection and contain no investment element, the premium remains significantly lower than other insurance plans.

2. Financial Advantage of Starting Early

The premium you pay for the term plan depends on your age and the policy term. If you buy term life cover early in your life, such as in your 20s or early 30s, the premium will be comparatively lower and is generally locked in for the entire policy duration.

3. Flexibility in Policy Term and Tenure

You can take a Term Plan for a specific duration (tenure), which can be as short as 5 or 10 years, or up to a very long duration. Shorter term plans can be availed in case you have taken specific financial liabilities like a home or personal loan. For example – You can take a term plan for 10 years for the amount equivalent to your home loan amount if the home loan term is 10 years. This ensures that if something happens to you during the loan period, your family is able to retain the home by repaying the balance loan amount. You can also apply for a long-term policy that can cover multiple or sequential loans, often providing coverage up to 85 or 99 years of age.

Increasing Life Cover Term Plans :

There are term plans which provide increasing life cover at set intervals with pre-defined percentage increase. This helps the policy holder increase the life cover in tandem with his or her rising income levels.

4. Option for Increasing Life Cover (Future-Proofing)

There are term plans which provide increasing life cover at set intervals with pre-defined percentage increase. This helps the policy holder increase the life cover in tandem with his or her rising income levels and growing family responsibilities.

5. Guaranteed Fixed Premium Rate

Once the insurance company accepts your policy against a certain premium, it will never revise or change the premium during the policy term. Therefore, you can be rest assured of paying a fixed amount annually without any increase in future. The taxes are payable on the premium as per prevailing tax laws.

6. Enhanced Coverage with Optional Riders

Some term plans allow you to add riders like, accidental death cover, critical illness rider, or specific disease riders, like cardiac cover etc. Riders are the additional term plan benefits that come against a nominal premium, significantly enhancing the scope of your financial protection.

7. Income Tax Benefits (Subject to Prevailing Laws)

In respect of premium paid, you can avail a deduction of up to Rs 150,000 per annum under Section 80C of the Income Tax Act 1961. Also, the death benefit paid to your nominee (in case of unfortunate death) is tax-free under Section 10 (10D) of the Income Tax Act 1961. It is important to note that the benefit under Section 80C is capped at 10% of the Sum Assured if the policy was issued on or after April 1, 2012.

8. Ease of Purchase and Comparison

Buying a term plan is the easiest thing. You can compare the premium of various term plans from different comparison websites and choose the plan suitable for you. You can visit the respective company website and buy the term plan in few easy steps and get insured. For a informed decision-making, it is crucial to review the insurer’s Claim Settlement Ratio (CSR) and Solvency Ratio before purchasing. Remember, term plans bought online are cheaper than regular term plans which are bought through company offices or agents.

Why Choose a Term Insurance?

Opting for term insurance is crucial for financial security, as it offers significant term plan benefits  and emphasizes the importance of term insurance . Here’s why it’s a smart choice:

• Affordability: Term insurance offers high coverage at low premiums, making it a cost-effective option for substantial financial protection.
• Simplicity: It lacks an investment component, simplifying its structure compared to other insurance types making it straightforward to manage.
• Flexibility: You can adjust coverage and add options like critical illness or accidental death riders, tailoring the plan to your needs.
• Tax Benefits: Premiums qualify for tax deductions under Section 80C , and beneficiaries receive the death benefit tax-free under Section 10(10D), enhancing the plan’s financial efficiency.
• Peace of Mind: Provides reassurance that your loved ones will be financially secure in your absence, safeguarding their future against uncertainties.

Term insurance is an essential part of responsible financial planning, ensuring reliable protection at an affordable cost.

Understanding Term Plan Costs: Indicative Premium Estimates

To illustrate the impact of age on affordability, here are indicative premium estimates for a standard term plan of INR 1 crore cover. These estimates are based on a healthy, non-smoker individual and can vary based on underwriting:

Age Bracket	Estimated Annual Premium Range (INR) for 1 Crore Cover
In Your 20s (e.g., 25 years)	Lowest risk bracket. Approximately INR 4,000 to INR 7,000
In Your 30s (e.g., 35 years)	Moderate risk. Between INR 5,500 to INR 9,000
In Your 40s (e.g., 45 years)	Increased risk. Between INR 10,000 and INR 15,000
In Your 50s (e.g., 55 years)	Highest risk. From INR 18,000 to over INR 25,000

These estimates are indicative and are for general informational purposes only. They can vary based on health, lifestyle, policy term, and coverage amount. It is best to consult the company’s official premium calculators or customer service for precise figures.

How to Choose the Best Term Insurance with the Right Sum Assured?

Selecting the right term insurance  is crucial for maximizing term insurance benefits. Here's how to ensure you choose an adequate sum assured:

1. Evaluate Financial Needs: Consider your family's current expenses, outstanding debts, and future obligations, such as education and retirement.
2. Income Replacement: Aim for a sum ten to fifteen times your annual income, ensuring your family can maintain their lifestyle without financial stress.
3. Consider Inflation: Choose a sum that accounts for the rising cost of living to maintain its purchasing power over time.
4. Policy Terms: Understand the terms, premium obligations, and additional benefits of term insurance, such as riders, that enhance your coverage.
5. Compare Plans: Analyze different policies from reputable insurers for features, benefits, premiums, and customer satisfaction to find the best match.

Selecting an appropriate sum assured in your term plan is vital to providing sufficient financial protection for your loved ones.

Important Considerations and Disclosures (IRDAI Compliance)

Exclusions: What a Term Plan May Not Cover (Balanced View)

While term plans offer comprehensive death cover, there are specific exclusions that policyholders must be aware of to avoid future claim issues. These exclusions typically include, but are not limited to:

• Death due to Suicide: If death occurs within the first 12 months of the policy commencement.
• Death while participating in criminal activities.
• Death due to self-inflicted injuries.
• Death due to drug or alcohol abuse.

Reviewing the policy's exclusions section is essential for a complete understanding of the cover.

Importance of Claim Settlement and Financial Strength (Trust Signal)

For a pure protection product like term insurance, the ability of the insurer to pay the claim is paramount. You should look at two key metrics:

• Claim Settlement Ratio (CSR): This ratio indicates the percentage of claims an insurer settles in a financial year compared to the total claims received. A consistently high CSR (above 98%) suggests a higher probability of your nominee’s claim being paid.
• Solvency Ratio: This is the measure of an insurer’s ability to meet its long-term debt obligations. As per IRDAI mandates, insurers must maintain a minimum Solvency Ratio of 1.5.

Also Read: What is Term Life Insurance Plan – Here’s all you need to know!

Conclusion

Due to increasing awareness about life insurance, term plans appeal to most of us because of the inherent benefits of life cover at the lowest possible premium, Income Tax Benefits and ultimately for the peace of mind with regards to safety of our near and dear ones. The premium you pay is a small price compared to the attached benefits of term life insurance.

Importance of Term Insurance Related FAQs

Why term insurance is important?

The importance of term insurance lies in its ability to ensure your family's stability in your absence without breaking your budget and it offers high coverage at low costs, providing financial security for your dependents.

Is it good to invest in term insurance? 

Investing in term insurance is wise as it secures your family's financial future at minimal costs, especially if you are the primary earner.

What tax benefits does term insurance offer? 

Term insurance premiums are deductible under Section 80C of the Income Tax Act, and the death benefit is tax-free under Section 10(10D), offering substantial tax savings.

Is there a Maturity Benefit in Term Insurance?

Typically, term insurance does not offer a maturity benefit unless you opt for a term insurance with return of premium plan, which refunds premiums at the policy's end if the insured survives the term.

What is the grace period for paying term insurance premiums

The grace period is a short duration (usually 15 or 30 days, depending on premium payment frequency) provided by the insurer after the premium due date, during which the policy remains active.

What is the difference between a pure term plan and Term with Return of Premium (TROP)

A Pure Term Plan offers only the death benefit; no money is returned if the insured survives the term. A TROP Plan offers a return of all premiums paid (excluding taxes and rider premiums) if the insured survives the policy term. TROP plans have significantly higher premiums than pure term plans.

YMYL Content Disclaimer (IRDAI Guidelines)

Insurance is a subject matter of solicitation. The information provided in this blog post is of a general nature and for informational purposes only. It is not intended to address the specific circumstances of any particular individual or entity and does not constitute professional or financial advice.

For more details on risk factors, terms and conditions, and specific exclusions, please read the sales brochure and policy document carefully before concluding a sale.

The tax benefits mentioned are subject to change as per the prevailing tax laws.