Simplifying Life Insurance in India
What Are the Benefits of Term Insurance Plans?
Term Insurance plans are basic life insurance policies with limited validity. The predefined period during which such a policy provides coverage is called 'term'. In case of the policyholder’s unfortunate demise, a term policy pays the assured death benefit to the policy’s beneficiary.
One of the most significant benefits of term insurance plans is their low premium, making them a popular choice among policyholders. A buyer needs to learn about the advantages and disadvantages of term insurance to make an informed choice.
What are the Different Types of Term Insurance Plans?
1. Level Term Insurance
A level term plan is a fixed agreement between the insurance company and the policyholder for a specific tenure. These plans usually have tenures of 10 years, 20 years or higher.
The main feature of this plan is you have to pay a fixed premium amount for the entire period without any change over the years. Similarly, you will receive a pre-decided return as well. Therefore, it is one of the most availed policies.
2. Decreasing Term Insurance
This type of term insurance plan has a fixed premium, like level term insurance. However, the sum assured amount keeps decreasing yearly until the coverage period ends. At the end of the term, the guaranteed amount counts down to zero.3. Convertible Term Insurance
One of the convenient options of term insurance is convertible plans. These policies have a clause that allows you to convert them into other policies within the cover period. Convertible Term plans are suitable for policyholders who prefer keeping their future options open.4. Return of Premium (TROP) Term Insurance Plan
As its name indicates, TROP is a plan where the insured person gets back the premiums he/she paid over the years after the coverage period expires. It is essential to understand that the plan will only return the total premiums paid, not the pre-decided cover amount.
However, it is relevant only if the policyholder survives the term. In the case of his/her untimely demise, the next of kin will receive only the coverage amount and not the premium total.
5. Increasing Term Insurance
In contrast to decreasing term plans, the coverage amount in increasing term plans increases annually until the expiry date. The premium for an insured person remains fixed throughout this term.
This type of term plan is made to compete against the effects of inflation and other hazards of a long-term policy. However, most increasing plans have a maximum cap, and the gradual growth of their coverage stops increasing, although the plan remains active.
What are the Benefits of Buying Term Insurance Plans?
With the advent of digitisation, you can now easily buy term insurance online. There are a number of reasons why online term insurance plans might be more beneficial than traditional insurance policies.
Transparency: Once you go through an insurer’s website, you can learn about all the features and benefits the term plans offer. This helps you make a better decision for your family's financial security.
Quick comparison: The biggest benefit of purchasing term plans online is that you can compare different types of plans and choose one that suits your needs. Comparison is extremely important as you will be able to check the benefits, features and premiums payable for different plans at once.
Cost-effective: If you decide to purchase a term plan online, you can compare several term insurances and choose the one that offers the most useful features at the lowest price. Therefore, you save a lot of money.
Lower premium: If you purchase policy online, you get it at lower rates than traditional plans. This is because buying online term insurance eliminates the need for an insurance advisor. Therefore, the insurance firm saves the cost of commission, and you get the advantage in the form of a reduction in premium.
Reduced time: You can purchase a term plan online in much less time than traditional term plans. You do not have to visit the office branch multiple times. With just a click of a button, you can compare different term plans and pay for them seamlessly. This has become easier with mobile-friendly websites and applications.
No intermediaries involved: When you are buying a term plan online, all you need to do is fill up the required information, submit the documents and carry out all the formalities. You do not need to complete the purchase via an agent. This gives you a clear understanding of what you are signing for. Further, you also get a proper understanding of the terms and conditions of the insurance policy.
User-friendly: Online term insurance plans come with various options for modifications. You can add some features and track the change in the premium amount in real time. Further, you can personalise your plan and calculate the premium amount in an online term insurance calculator. You can check all the combinations available and choose the one which is in your budget and suits your requirements.
Safe and secure: The insurer websites offer safe payment gateways so that you can complete the payment process without any hassles of security.
What are the Benefits of Term Insurance Policies?
Variety
There is a wide range of options for these policies that make them convenient for most people.Rider Benefits
With some additional costs, you can add several riders to your plan to get more significant benefits out of it. Riders, like critical illness, permanent disability riders, etc., cover very relevant risks in the modern world and ensure financial safety for one’s family. Hence, term plans are considered essential.Flexibility
With convertible plans, you can change to other plans when necessary. In addition, it will give you the opportunity to improve your savings strategies better.Tax Benefits
Policyholders can get tax benefits for paying premiums of term insurance policies. With deductions under Section 80C, you can reduce your taxable income by ₹1.5 lakh and save taxes.Premium Refund
The option to get back the invested premiums is another noteworthy benefit of term insurance plans. It is applicable in case of Term insurance Return of Premium (TROP) plans. This allows you to get a significant sum refunded and simultaneously utilise the coverage of life insurance.Fixed Return Assurance
Most types of term plans offer pre-declared coverage, which is not affected by inflation or other parameters that affect a country's economy.Minimum Premium
Term insurance plans are popular for offering lower premiums than whole-life plans. It allows you to get long-term coverage at minimum premium rates.How Much Term Insurance Cover is Required for You?
The required amount of term insurance coverage differs for everyone based on their needs and assets. A standard coverage amount is not a good fit for everyone, so it is productive to get an idea about the right amount of insurance coverage that you need.
To evaluate your ideal coverage, it is first important to understand your income standards. It is suggested that under the age of 45 years, the coverage for your term insurance should be 20 times your annual income.
Above the age of 45 years, your term insurance coverage should be at least 10 times your annual income. However, it is important to consider all expenses and other requirements of the insured person, as premiums are directly proportional to the sum assured.
For example, if Mr A is 30 years old and earns ₹5,00,000 annually, his life insurance cover should be at least ₹60,00,000. Ideally, it would be approximately ₹1,00,00,000. Keeping in mind expenses and future costs, the cover amount should be at least ₹60,00,000.
How to Choose the Right Term Insurance?
Asset Evaluation
To buy the right term plan, it is important to evaluate your assets and opt for an affordable policy based on your asset valuation. This evaluation will help to back up your premiums in a financial emergency.Age-to-Policy Ratio
You should select a term plan based on your current age. For people under the age of 45 years, their plan should be at least 20 times their annual income. However, for people above that age group, the plan should be 15 times their yearly income. This is not a hard rule, although experts suggest it to optimise the choices while picking a policy.Choice of Riders
It is crucial to customise and add only necessary riders to your plan. Riders benefit a policyholder; however, adding excessive riders to a plan may adversely affect the policy.Income Analysis
For all savings and diversification of capital, it is important to analyse your income source. It means identifying how much you can put aside for your financial security investments. This will shorten your options for term plans and help you choose the right plan.Frequency of Premium
While purchasing a term insurance plan, another thing to consider is the frequency of your premium dates. Estimating this beforehand will help you plan your monthly expenses efficiently.Mode of Purchase
Buying a term plan online or offline makes a huge difference for a policyholder. With access to the internet and technology, it is very convenient to buy a term plan online. However, many people still prefer the option of offline policy purchase. It is important to identify which option is better suitable for you.Why Choosing the Right Plan is Important?
It is essential to choose the right plan for you. As each person has a different lifestyle, net worth and financial needs, their insurance needs are also different. You should choose a plan that best fits your needs and benefits your family in case of an emergency.
Furthermore, a term plan should not be a burden on the policyholder. The insured person should be able to pay their premiums comfortably at their predetermined frequency. Hence, it is important to choose a plan you can afford. Selecting the correct rider for your plan is also crucial in choosing a suitable plan, as these add-ons are extra benefits based on your needs.
Term insurance plans are basic insurance policies with a long-term expiry and are a preferred option for most people. If you are opting for a term plan, it is crucial to choose the right one for your needs. You will want to check all the benefits of a term insurance plan before choosing a particular policy.
FAQs about Term Insurance Benefits
What is the grace period for term insurance?
What is a free look period in term insurance?
Do term insurances offer tax benefits?
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Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
