Term insurance is an insurance policy that covers the owner for a stipulated term period and pays out, in most cases, upon death in that period. It is also known as pure insurance and is one of the two basic types of universal whole life insurance policies.
Although term plans don’t seem necessary, especially if people are young, healthy, and have fully funded retirement accounts, they are certainly vital. It is there to protect your family if something happens to you before you reach your retirement years. For example, if you’re diagnosed with a chronic or terminal illness and have a term policy, you may be eligible for a viatical settlement, which allows you to convert your policy into cash.
If you’re wondering whether term insurance plans are necessary for your dependents, then you need to read on. We’re hoping this post will shed some light on some lesser-known benefits of term insurance that make it imperative for you.
What is Term Insurance?
A term life insurance plan offers temporary protection to policyholders. This type of insurance is designed with benefits that expire after a certain amount of time. If the enrollee dies during their plan, then a lump sum is paid out directly to their designated beneficiary. While a term policy is not like other types of permanent life policies, it offers a lot higher coverage for a much lower price.
5 Crucial Benefits of Term Insurance Plans
Easy to Understand
There are many attractive features in a term life policy that make it the most popular choice among people looking to buy life insurance. The reason why Term Life Insurance has become more popular than permanent insurance is simply because of its flexibility and simplicity.
Most are surprised to know that it can be very inexpensive as compared to some other types of insurance. Terms life insurance seeks to provide dependents with a lump sum payment in case you were to die, and all you need to do is pay your premium on time.
The typical cost for a term life insurance plan is only 1% – and this is exceptionally reasonable when you consider how much we pay for car premiums (in some cases costing us as much as 4%! of the current value of our vehicle).
You can also get discounts on your policy when you achieve or maintain a healthy lifestyle. In addition, many term life plans allow you to lock in lower “inflation-adjusted” payments now but with higher amounts payable on death.
The total premium an investor pays into a standard insurance plan would be around 10% of the yearly premium if your annual policy is valued at Rs. 10000 with a sum insured amount of approximately 2lac, which means that your family’s expenses are covered for only 6 to 8 months.
Meanwhile, a term plan offers a much higher sum assured so that you can leave your family and dependents enough money that they don’t go through financial hardship in your absence. Typically, the coverage provided by term insurance is about 60 times higher as compared to traditional, ULIP, or endowment policies.
There are several reasons why you would purchase a term life insurance policy. For one, your family needs to have enough savings in the event of your passing, which is particularly true if you have dependents who rely on you entirely with zero work experience or savings of their own.
Term insurance also allows you to pass on any wealth that’s leftover after your death to them, which is especially important if what they expect from your estate would be greater than what can be recovered through life insurance benefits.
Another advantage of getting a term life insurance plan is that you will save money on taxes through the premiums paid every year. Let’s take a look at various term insurance tax benefits in detail:
● Section 80C: Under this section, you are permitted to claim a deduction of up to Rs 1.5 for certain investments and purchases that include the premium amount payable towards the term life insurance plan
● Section 80 D: This exemption is allowed on the premium paid towards critical illness, health insurance, or life policies. You can claim deductions up to Rs 25,000 for these premiums
● Section 10(10D): In the case of term life insurance, this benefit can be claimed while claiming the pay-out. The entire amount is completely tax-free
When you go to purchase a term insurance plan, you are effectively locking in the premium that you will be paying yearly. Furthermore, it is possible to pay less over time by purchasing your plan while still young at the front end of the policy period.
By doing this, one can save more over time and may find help in avoiding future financial issues due to unpredictable circumstances like a protracted illness or an untimely death. Let’s say that you are a male and only want to take out a term life plan for Rs 1 crore.
So, let’s examine how much more expensive buying said plan at 30 will be than at 45. If we presume that the guaranteed period of coverage is the same for both periods (ages 30 and 45), then the earlier age bracket will cost 10 times as much in paid premiums.
When investing an additional amount each year towards your future protection, you could cover more and protect yourself from worrying about financial security during times when certain events are making life difficult such as dealing with hospital bills or medical treatments while also insuring against natural disasters or illnesses that may go away with enough time.
Term insurance plans are necessary because they guard us against unforeseen dangers. We do not know for sure when our loved ones will die and thus, we have to be prepared for the worst. A person may also die earlier than expected, which is why you need to protect your loved ones even before any event occurs. Insurance is created to protect us against unknown situations and helps in arduous times.