Life is unpredictable. Without warning, accidents, emergencies, and even death can befall on a person. Such an unexpected and unfortunate event, however, can leave a person’s loved ones in the throes of financial difficulties. An insurance policy provides a cover of financial security for a person’s family in the case of any of the above events.
While people have availed of health and life insurance schemes since time immemorial, term insurance remains to be a comparatively recent and lesser-known type of the same that is slowly gaining popularity among investors. Let’s take a closer look at what a term insurance plan entails and what its features and advantages are.
Unlike regular insurance, which provides cover for contingencies for a person’s entire lifetime, a term plan simply provides full protection cover for premature death during the specific term stipulated in the policy. The person holding a term policy is required to pay a premium for the same. If he or she chooses to pay it in the beginning itself, then there will be no need to pay anything additionally during the policy’s term.
As the best term plan would prove, a term life insurance plan is more affordable than any other alternative. This is because term insurance is a pure life insurance – without the investment aspect (you do not get any monetary benefit at the end of the policy term). Further, insurers give their customers the option to pay their premium in the form of monthly installments of small amounts. A term life insurance policy also comes with the “Return of Premium” feature, which returns the premium to the policyholder in case a claim is not triggered during the policy term.
In the event of the policyholder’s death, term insurance can provide financial support in the form of a regular income for the family and enough funds to settle outstanding debts. Thus, this kind of insurance ensures that a person’s loved ones are looked after responsibly. Thus, term life insurance provides a replacement for the monthly salary of the lost loved one, provided the monthly payout option is chosen at inception.
Due to its relative affordability, this insurance is often thought to be a more pocket-friendly alternative to life insurance (and thus a favorite of young couples). There are certain crucial factors in which the two differ from each other.
LIFE INSURANCE | TERM INSURANCE |
It is an insurance-cum-investment product. | It is purely an insurance product. |
The rates for premiums are relatively higher. | The rates for premiums are relatively lower. |
One is qualified for maturity benefits. | One is not qualified for maturity benefits. |
A paid-up value is to be paid on discontinuation of the premium after some years. | There is no paid-up value to be paid by the insurer. |
A surrender value is to be paid on surrender of policy after some years. | There is no surrender value to be paid by the insurer if the policy is surrendered. |
A common complaint among insurance policyholders is that the promised benefits are always subject to terms and conditions. In a term insurance plan, however, the assured minimum sum is your beneficiary’s entitlement by all rights. This sum is usually adequate to take care of your loved ones’ needs in the event of your untimely death. To ensure that you get the maximum benefit, you need to know how to calculate the sum assured for your term plan.
Many term policies also carry a provision called Critical Illness coverage that has to be opted and paid for separately. This ensures that a policyholder gets a lump sum payout of the sum insured upon the diagnosis of any critical illness that is covered in the policy; for example, cancer, heart disease, renal failure, and many more.
As per Section 80C of the Income Tax Act 1961, a policyholder is eligible for tax benefits on the premiums paid for the assured minimum sum of a term insurance policy.
A term insurance policy bought when one is young can prove to be more affordable in terms of the premiums to be paid. This is factored by the underlying assumption that a young policyholder will be generally healthy and thus, in a lesser risk of death, which further reduces the chance of a claim for the same. Thus, one can avail a higher insurance cover at a low rate of premium.
By buying a term insurance policy when young, one can arrange for the protection of one’s family for a longer period. With such a wise and considerate decision, one can ensure mental peace and well-being, not only for oneself but also for one’s loved ones.
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