A term plan is one of the most essential life insurance products, offering financial protection to a policyholder’s family in the event of their untimely demise. It provides high coverage at relatively lower premiums, making it an affordable choice for individuals seeking comprehensive financial security. However, before purchasing a term plan, it is crucial to evaluate its various features and benefits to ensure that it aligns with your long-term financial goals and responsibilities.
Many individuals buy term insurance without fully understanding its terms, coverage, and additional benefits. This article highlights the key features and benefits of a term plan that every policyholder should consider before making a purchase.
Understanding term insurance
A term plan is a type of life insurance policy that provides financial protection for a specified period or ‘term.’ If the insured individual passes away during this period, the sum assured is paid to the nominee. However, unlike traditional life insurance policies, a term plan does not offer any maturity benefits if the policyholder survives the term.
Despite the lack of maturity benefits, a term plan is widely preferred due to its affordability and high coverage. It serves as a financial safeguard for the insured’s family, helping them cover daily expenses, outstanding loans, children’s education, and other financial obligations.
Key features to consider before buying a term plan
Before investing in a term plan, policyholders must carefully examine the following features:
1. Coverage amount (Sum Assured)
The sum assured should be adequate to meet your family’s financial needs in your absence. Consider factors such as outstanding loans, future expenses (e.g., children’s education, marriage), and day-to-day living costs while deciding the coverage amount.
2. Policy term
Selecting the right policy term is essential to ensure that your family remains financially secure during crucial years. Ideally, the policy term should cover your working years up to retirement to provide the necessary financial safety net.
3. Premium affordability
While term insurance offers lower premiums compared to other life insurance plans, the premium should still be affordable based on your financial situation. Many insurers provide the flexibility to choose from single, regular, or limited premium payment options.
4. Claim settlement ratio
The claim settlement ratio (CSR) of an insurance company reflects its reliability in processing claims. Always choose an insurer with a high CSR to ensure that your family will not face difficulties while claiming the sum assured.
5. Riders and add-ons
To enhance your term plan, insurers offer various riders such as:
- Critical illness rider: Provides coverage against life-threatening diseases such as cancer and heart disease.
- Accidental death benefit rider: Offers an additional payout if the policyholder passes away due to an accident.
- Waiver of premium rider: Waives off future premiums in case of permanent disability or critical illness, ensuring continued coverage.
- Income benefit rider: Provides a regular monthly income to the family in addition to the lump sum payout.
6. Premium payment options
Most insurers offer multiple premium payment options, including:
- Regular pay: Premiums are paid throughout the policy term (monthly, quarterly, annually).
- Limited pay: Premiums are paid for a shorter period while the coverage remains intact for a longer duration.
- Single pay: A one-time premium payment that covers the entire policy duration.
7. Tax benefits
Premiums paid towards a term plan qualify for tax deductions under Section 80C of the Income Tax Act, up to Rs. 1.5 lakh annually. Additionally, the death benefit received by nominees is tax-free under Section 10(10D).
8. Flexibility to convert to a whole life policy
Some insurers allow policyholders to convert their term insurance into a whole life policy without undergoing a fresh medical examination. This is a beneficial feature for individuals who may require lifelong coverage.
9. Return of premium option
Certain insurers offer a ‘return of premium’ option, where the total premiums paid are refunded if the policyholder survives the term. However, these plans have higher premiums compared to standard term plans.
10. Exclusions and limitations
Understanding the exclusions of a term plan is crucial to avoid claim rejections. Common exclusions include:
- Death due to self-inflicted injuries or suicide within the first year of the policy.
- Death due to participation in hazardous activities.
- Death caused by drug or alcohol abuse.
Benefits of term insurance
1. Financial protection for your family
A term plan ensures that your loved ones are financially secure in your absence. The sum assured helps them cover daily expenses, loan repayments, and other financial commitments.
2. High coverage at affordable premiums
One of the key benefits of term life insurance is that it offers substantial coverage at a low cost. This makes it accessible to individuals across different income groups.
3. Customisable coverage with riders
With the option to add riders, a term plan can be tailored to offer enhanced protection against unforeseen circumstances such as critical illness or accidental death.
4. Peace of mind
Knowing that your family is financially protected provides peace of mind. In the event of an unfortunate incident, they will have the financial means to maintain their standard of living.
5. Tax benefits
As mentioned earlier, term insurance offers significant tax benefits under Sections 80C and 10(10D) of the Income Tax Act, making it a tax-efficient investment option.
6. Simplicity and transparency
Unlike traditional life insurance policies, term insurance is straightforward and easy to understand. There are no hidden charges, making it a transparent financial product.
Conclusion
Choosing the right term plan is a crucial financial decision that requires thorough evaluation of its features and benefits. Understanding aspects such as the coverage amount, policy term, riders, and claim settlement ratio will help in selecting a plan that best suits your needs.
The benefits of term life insurance make it a highly recommended product for individuals looking to secure their family’s future. With the right term insurance policy in place, you can ensure financial stability and peace of mind for your loved ones.
Before purchasing a term plan, compare different policies, read the terms and conditions carefully, and consult a financial advisor if needed. Investing in the right term insurance today can make a significant difference in safeguarding your family’s future tomorrow.
