When it comes to planning the financial future of you and your loved ones, it is better that you don't delay taking a term insurance plan, and move forward in life in a hassle-free manner.
Term insurance is the ideal form of life insurance that you get for a specific term to receive uncomplicated protection for your family. But before you choose any random insurance company, evaluate your requirements and certain conditions, which may help you to choose the best suitable term insurance plan.
What is Term Insurance and What to Expect From It?
Just as the name refers, term insurance is a type of life insurance policy which covers you for a certain period of time or specific ‘term’ of years. If the policyholder dies during the term, then the beneficiary will be getting a death benefit amount on an active policy.
Benefits of a Term Insurance Plan
Imagine you are the only earning person in the family and suddenly, an unfortunate road accident has taken your life away while coming back home. What will your family do then? These lines may seem a bit shattering, but this is the reality of life where risks and uncertainties are standing in the next door. And you need to at least be prepared for them by taking care of the financial security of your family when you are gone. Term insurance policy not only covers you from such situations but helps your family in many different ways.
Secured Future of Your Family: As mentioned earlier, for those who are the single person earning in the family, term insurance can be a financial partner, which ensures that your family will be financially secured, and there would not be any trouble in your absence. This is your responsibility to make sure that they do not suffer to get daily necessities after you are gone.
Shield Against Liabilities: Today, almost every second person purchases a car and home on liabilities, which are paid in installments. In case of any unfortunate event, the burden of those liabilities comes directly on the family unless the person has opted for term insurance. It is an ideal choice to manage such financial burdens, and safeguard your loved ones.
Nuclear Family Benefits: Term insurance is specially designed for today's nuclear family system where the only support system of the family could be you, and the chances of getting into financial troubles are higher than a joint family.
Cost-Effective: Unlike other insurance plans, a term insurance plan is easily affordable for a person having an average income. A risk cover or term insurance plan saves money with a low premium and high sum assurance depending on the type of plan you choose.
Tax Benefits: A term insurance policy gives you Tax benefits u/s 80C & u/s 10(10D) of the Income Tax Act. Therefore, when you buy term insurance you know, you are actually saving money.
Types of Term Insurance Plans
1. Level Term Plans
Level term insurance is the most basic and commonly availed insurance in India in which the sum assured and the premium is constant throughout the tenure of the plan. Hence, whatever premiums you have chosen with the insurance company, will remain the same for the next 10 to 20 years depending on the term you have opted for. The younger you are while getting term insurance, the more cost-effective a level term plan will be provided to you.
Features of a Level Term Plan:
- The death benefits are constant during the policy tenure.
- It is an inexpensive form of life insurance.
- The policy does not last for the whole time, but the premium will be the same until the policy tenure.
2. TROP (Return of Premium) Plans
This type of term plan is assured that the insurer will return the premium you have been paying for the policy at the end of the term, only if you survive the policy period.
For example - If you avail the annual premiums of Rs. 5,000. In the event of an unfortunate demise during these 20 years, your beneficiary will receive the sum assured amount of Rs. 50 lakhs. However, if you survive the tenure, the insurance company will return the entire premium (i.e. 1 Lakh).
Top Reasons for Buying A TROP Insurance Plan:
1) A TROP plan offers maturity benefits with a 'premiums back' feature.
2) If a policyholder survives the tenure, he or she won't be losing the premiums paid over the years, which makes it ideal for people who want a plan that offer protection and saving option altogether.
3) The plan offers an assured return on the total premium paid, which excludes additional rider premium paid over the years. This means that if a policyholder takes an additional rider, then he will actually get back more than what he has invested in the term plan.
4) A TROP offers a 'paid up' option if you default on the amount of the premium. This makes the plan ideal for those who don't have a regular income but need the policy to take care of their financial support.
5) A term insurance policy gives you Tax benefits u/s 80C & u/s 10(10D) of the Income Tax Act. Therefore, when you buy term insurance you know, you are actually saving money.
3. Increasing Term Insurance Plan
While buying term insurance, you want a sufficient sum assured depending on your requirements. This sum assured would be determined on the income-expenses schedule, liabilities, assets and all the financial goals you have in your life.
To meet the expectations of a policyholder, increasing term insurance comes in rescue with a feature that enables to increase the sum assured yearly during the policy tenure while maintaining the premium with the same value. Due to such an amazing feature, the premiums of this plan are a bit higher as compared to other term insurance.
Benefits of an Increasing Term Insurance:
- Works against Inflation: This plan helps you with increases sum assured which means you can handle those additional expenses inflation brings along so that you can meet the financial expenses in the best possible manner.
- Affordable: This may be a plan with higher premiums but is affordable for most of the people and not put an additional burden even though when the coverage increases.
- Tax Benefits: The premiums you pay for this plan are tax-free up to a limit of Rs.1.5 lakhs in one business year. The death benefit you get following the plan is also tax-free under the income tax act 1961.
- Additional riders and death benefits are enabled in the plan.
You can Also Check:- How to Terminate a Life Insurance Policy?
4. Decreasing Term Plans
Unlike an increasing term plan, the sum assured due decreases every year until the policy pays out or the coverage term comes to an end. Premiums payable in case of decreasing term insurance remain constant, but the sum assured drops every year by a fixed percentage. Premiums of decreasing term insurance plans are cheaper when compared with other types of term insurance.
Features of Decreasing Term Plan:
- One can pick the initial sum assured under the policy, which then decreases each year during the policy tenure.
- Policy tenure is also created by the policyholder.
- Premiums for this plan continue to be the same even though the risk cover decreases.
- At the maturity of this term plan, the sum assured decreases to zero.
- On demise throughout the term of the policy, the sum assured applicable is paid to the nominee.
- Premiums of decreasing term insurance plans are usually inexpensive.
5. Convertible Term Plans
Just as the name refers, a convertible plan allows the policyholder to convert the current plan into any other type of plan at a future date. For example, if you have chosen a term insurance plan for 25 years, but after 5 years you want to convert it into an endowment plan or a whole life insurance plan, you can easily do it and get dual benefits.
Features of Convertible Term Plans:
- Conversion Choices: You can convert the plan by either choosing an option attached with the policy document or there are inbuilt conversion options available as add on features.
- On-Demand Conversion: The Company does not automatically convert the existing plan instead, the policyholder has to request for it before the maturity of the term plan.
- When the policyholder applies the conversion claim, the plan, and the advantage structure change while the premiums remain unchanged.
- Benefits Payable: When the convertible policy is a term life insurance usually, only a death benefit is due. While the plan is changed to an endowment insurance plan, then it gets a maturity benefit along with the death benefit.
- Tax Benefits: The premiums paid are released from income tax under Section 80C while the advantages received, both death benefit and maturity benefit, are tax released under Section 10(10D). Though there is an upper limit of Rs.1.5 lakhs under Section 80C exemption, there are no highest limits of release under Section 10(10D).
6. Term Plans With Riders
These plans come with additional benefits options such as coverage for accidental death, critical illness and more, which you can get with a small premium paid with a normal term plan.
Benefits of Choosing Rider Term Plans:
- Critical illness Riders: With this, one gets a lump sum amount if diagnosed with a major illness such as stroke, kidney failure, cancer and more. There are policies that also reduce the premium while helping the policyholder.
- Accidental Death Riders: In case of an unfortunate accidental demise, the policyholder's nominee will get an increased sum assured or most of the companies pay twice of the policy's value.
- Waiver Riders: This ensures that the policy does not lapse when you are not able to follow up with the premium on account of a serious injury, illness or disability. Most of these rides come with a waiting period in which no benefits are due.
If you don't have a lot of time, you can also take online term insurance plans into consideration as almost every insurance company today is working towards making their policy easy via online assistance with user-friendly and easy to use tools. It is completely safe to purchase term plan online, as they come with a variety of advantages and quick procedures.