Sunday, May 19

What Are the Basics of Term Insurance?

In the purview of rising lifestyle diseases, and the COVID-19 pandemic, there has been a significant growth in the awareness of the importance of a robust life insurance cover amongst Indians. Today, many people are willing to purchase a term plan to protect their family’s financial future.

If you are looking to buy a term plan yourself, it would help to understand the basics. So, read on, as we discuss a few critical aspects of the term insurance plan.

Features and benefits of term insurance

  •         Affordable premium – Term insurance has the lowest premium among other types of life insurance.
  •         Tax benefit – A term insurance policy is an excellent tax-saving instrument. The premium you pay for the policy is eligible for tax deduction up to Rs. 1.5 lakhs under Section 80C of the IT Act. Also, when the insurance company pays the death benefit to the family, it is totally tax-free.
  •         Rider options – You can purchase riders or add-ons to extend the scope of your regular term plan and get coverage against specific risks that your plan does not cover. Some of the popular term plan riders include accidental death benefit rider, waiver of premium rider, critical illness rider, permanent disability rider.
  •         Multiple payout option – Traditionally, in the event of the policyholder’s demise during the policy period, the insurance companies paid the death benefit in lump sum. Today, however, insurers give you the flexibility to choose the payout mode. You can opt for a deferred pay out where the insurer pays the sum assured in smaller instalment over a period.

Types of term insurance

Over the years, as the life insurance market has evolved, the insurance companies in India introduced a range of new term insurance products to suit the different needs of the people. Some of the common types of term insurance plans are –

  •         Term plan with return of premium – In the plan, the insurance company pays back the premium you pay over the years on policy maturity.
  •         Increasing term plan – This is similar to a standard term plan with an added benefit, i.e., the sum assured increase by specific percentage (usually 5-10%) every year. This is one of the best ways to beat inflation.
  •         Decreasing term plan – As the name suggests, in a decreasing term plan, the life cover decreases every year by a specific percentage. It is an ideal choice of term cover for people who are nearing retirement.

Term insurance exclusions

While term insurance is the best way to secure your family’s financial future against uncertainties, it has certain limitations. It has certain permanent exclusions, which means if the policyholder’s demise occurs due to below reasons, the insurer may not pay the death benefits to your family.

  •         Death due to suicide or self-inflicted injuries.
  •         Death due to war, natural calamities like draught, famine, cyclone, earthquake or acts of terrorism.
  •         Death due to participation in high-risk, and adventurous activities like river rafting, skiing, paragliding, bungee jumping, skydiving, etc.
  •         Death due to alcohol abuse or consumption of intoxicating substances like drugs, etc.

The exclusions may vary lender to lender. Make sure that you check the policy papers to know about the range of exclusions.

Final Word

Now that you are aware of the different aspects of term insurance, make sure that you compare the different plans from different insurance companies online and choose the one that best suits your needs. It is the most definitive way to ensure that your family does not face any financial hassles in your absence.