7 Reasons Why You Should Opt for Term Insurance

Consider the story of Arjun, a marketing manager and the sole breadwinner of his family. Early in his career, Arjun wisely opted for Term Insurance. When life took an unexpected turn and he was diagnosed with a critical illness, the decision he made years ago came to his family's rescue. Thanks to his policy's critical illness rider, a substantial lump-sum payment was made to his family, ensuring their financial stability during his treatment period.

Arjun’s experience underscores the crucial role that term insurance plays in offering a layer of financial protection and peace of mind—that no matter what surprises life may hold, your loved ones are taken care of financially.

What is Term Insurance?

A Term Insurance Plan is the simplest and most cost-effective form of life insurance. It provides financial protection to the policyholder for a set duration as opted by the insured, with the insurance company disbursing the death benefit to the beneficiary/beneficiaries in the unfortunate event of the insured individual's demise during the policy term.

Unlike all the other traditional life insurance policies, term insurance predominantly doesn't involve any cash value accumulation or investment components. Instead, it operates on a simple premise, if the insured passes away during the policy term, the beneficiary/beneficiaries receive a death benefit. If the policyholder survives the term, the coverage ceases, and there is no payout, depending on the selected term plan.

The Key Advantages of Term Insurance Policy

Offers financial coverage for life against unforeseen events - Being the sole earning member or a support system for your family, you can safeguard your loved ones from financial setbacks by gaining an early understanding of what a term plan entails, contributing to a financially secure and worry-free future for your family in case of your untimely death.

Affordable - Term plan premiums are relatively lower compared to other life insurance policies available in the market. As you age, the likelihood of developing health issues rises, resulting in higher premiums. Therefore, it is recommended to acquire a term plan early in life at lower premiums.

High coverage - While the plan lacks maturity benefits, you can choose a high coverage ranging anywhere from 20 to 25 times your annual income. Some term plans offer a return of premium option; if opted, you will receive all the premiums back if you outlive the policy term.

Security against your liabilities - As you advance in life, acquiring financial responsibilities like property loans and education expenses for future generations can pose a significant burden for your family when you are no longer present. A term insurance plan can provide assurance that these liabilities are managed, alleviating financial stress for your family.

Includes options to customise plans by adding riders – While the standard term insurance plan inherently provides a death benefit, individuals can enhance their coverage by adding riders like a critical illness rider. For instance, upon diagnosis of a critical illness, the insured receives the sum assured, in addition to the death benefit equal to the policy term amount. Other available riders include critical illness, loss of employment cover, disability cover, waiver of premium cover, etc. The policyholder should tailor the selection of riders to meet specific needs, enhancing the suitability and significance of the life cover that is opted for.

Customisable cover - Some insurance providers offer the flexibility to increase life insurance coverage during key life stages. For example, policyholders may have the option to raise life insurance coverage by 50% when getting married and by 25% upon becoming parents. This allows them to initiate coverage modestly and subsequently enhance it as responsibilities grow, along with the capacity to afford higher premiums.

Ensures tax benefits - As taxpayers, the tax benefits make a significant difference while choosing a Term Insurance plan. Term insurance plans offer tax benefits on premiums paid under Section 80C of the Income Tax Act, 1961, allowing deductions up to Rs. 1.5 lakh on the premium paid. Moreover, the critical illness cover provides additional tax benefits on premiums under Section 80D for medical insurance deductions. Additionally, purchasing term insurance can bring various tax advantages. According to Section 10(10D) of the Income Tax Act, the sum assured received after plan maturity, policy surrender, or in case of the insured's demise is tax-free. This also applies to bonuses received with this amount, which are exempt under Section 10(10D). However, for the exemption under Section 10(10D), the term insurance coverage should be 15 to 20 times your annual income. When assessing your coverage needs, factor in inflation to determine the appropriate amount.

Given the wide variation in premiums, it's crucial to compare quotes from multiple insurance providers before deciding on the perfect policy for you.

In a country like India, where the importance of securing one's family against unanticipated circumstances is deeply ingrained in societal values, term insurance has gained prominence as a reliable means of financial security. In conclusion, term insurance in India is not just a financial product; it is a shield that protects families from the uncertainties of life. With its affordability, flexibility, and significant benefits, opting for term insurance is a wise step towards ensuring a secure and stable future for your loved ones.