Term insurance covers the risk of an untimely death of the assured during the Policy term. A term plan offers a life cover to the assured at the lowest Premium.
Why is Term Plan Necessary?
Life is very unpredictable and the sudden demise of the breadwinner puts the entire family in the dark. The family looses the financial and emotional support.
To address these uncertain and unexpected problems, term insurance plays a vital role in life. Moreover, term plan is the right way to make an investment into financial safety and is the simplest and most affordable type of life insurance. It helps the family to come out from the financial loss resulted after the death of the breadwinner.
The Death Benefits are paid to the beneficiary or the Nominee only upon the assured’s death. Therefore, in simple words, there is no maturity benefit in term insurance plans.
Benefits of Term Insurance
Offers financial security to family in the absence of the Life assured.
It offsets all the debts and protects the assets
It enables the family to maintain the same level of living
It helps to continue the education of the children of the Life assured.
Higher Sum assured at a lowest Premium
Tax benefits on the Premiums and payouts under Section 80C and 10(10D) of the Income Tax Act, 1961.
The earlier the age of entry, lesser the Premium.
Maximum age of entry is upto 75 years and coverage can be given upto 85 years of age
The Premium remains unchanged throughout the term of the policy.
A person can buy more than one policy however, the Insurer will take into account the age and income to decide the maximum Sum assured.
There is an option to widen the coverage by opting for Riders which include double accident benefit, critical illness and Permanent total disability benefit by paying additional Premium.
Some companies are offering return of Premium in case the Life assured out lives the term period. The Premiums for such plans are higher as compared to the regular term insurance plan.
The policy holder does not get Surrender Value in this policy when he discontinues the payment of Premiums.
This policy can be covered under the section 6 of Married Women Property (MWP) Act.
MODES OF PAYMENT
The Premiums under this plan can be paid in a single one-time payment or regular payments which are monthly, quarterly, half yearly or yearly in nature.
There is also a provision for limited payment option which permits an individual to pay the Premiums for a limited period of time, for ex. 5, 10 or 15 years but offers full insurance cover for the entire Policy term.
HOW TO CHOOSE THE BEST TERM INSURANCE PLAN
The wide range of term insurance policies offered by insurance companies in India make it a challenge for an individual to make a decision on the policy that will be the best suited for him/her. Not just selecting a reliable insurance company, individuals also have to make up their mind on the specific needs for which the policy is aimed, from the wide array of endowment policies being offered by the same Insurer so that he/she can make a well-informed decision.
The purpose of opting for term insurance is to have financial security for the family and also to meet the specific needs of the family viz, children education and marriage of the children.
The best endowment insurance is one that offers the highest Sum assured at the lowest possible Premium. This means that it is the best to start early because the younger you are, the lower will be the Premium that you can avail for a high Sum assured. You should keep a few essential parameters in mind to decide on your Sum assured, which will be analysed by the calculator to determine your Premium amount. One can see the claim settlement ratio of the company as well.
WHO SHOULD BUY
Premium for term insurance goes up as the age advances hence it is advisable for proposer to take the policy at an early age. Those who are less than 35 years should go for a higher Sum assured that he/she can afford as the Premium is low and they are eligible for higher Sum assured. People who have availed housing loans, car loans and other loans should have adequate Sum assured to square off all loans in case of sudden or untimely death of the Life assured.
Suicide within one year from the date of inception of the policy is not covered.
If the Life assured has deliberately not disclosed the pre existing diseases at the time of taking the policy and death happens within 36 months, the claim can be repudiated.
Most common Riders in Term Insurance are:
Accidental Death Benefit Rider
Accidental Total and Permanent Disability Rider
Critical Illness Rider
Waiver of Premium
Accelerated Death Benefit Rider
Hospital Cash Rider
HOW MUCH COVER YOU NEED
The minimum insurance one should have is 10 times of the annual income.
It is advisable to go for limited payment term insurance, as the liability would be over in say 5/10/15 years but the cover can be up to 85 years.
This policy not only offers protection but also offers Tax benefits under sec 80C, for the Premiums paid.
The Death Benefit paid in case of death of the policy holder is exempted under sec 10(10D) of Income tax act 1961