As the new year approaches, we thought it was vital to discuss a financial product you should consider buying. Our lives are so unpredictable, and it’s essential to have some form of financial protection. You may be the sole breadwinner in your family and constantly worry about the financial impact if something unfortunate happens to you.
That’s where a Term Insurance policy comes in handy!
What is Term Insurance?
Term Insurance is a type of life insurance that provides financial protection for a fixed period of time. If the policyholder suddenly passes away during this period, their family members (or nominees) will receive a death benefit. Term insurance is a relatively low-cost way to ensure your family’s financial security if something were to happen to you.
A 20-something-year-old healthy individual can essentially secure a cover of up to ₹1 crore for his dependents for the next 25+ years if he pays a fixed, minimal amount (even less than ₹500) every month to a reputable insurance company.
However, unlike whole life insurance, term insurance does not provide maturity benefits. The insurance company will not pay a lump-sum amount when your term insurance policy matures.
Why Should You Get a Term Insurance?
- Term insurance offers much higher coverage for a smaller premium than traditional or market-linked life insurance policies. [A premium is a specific amount a policyholder has to pay periodically (monthly or yearly) to maintain their insurance coverage.]
- It offers financial security for your loved ones. In the unfortunate event of your death, your family may face a financial burden of funeral costs, unpaid debts, and other expenses. A term insurance policy can cover these expenses and ensure that your loved ones are not left in financial trouble.
- If you are the primary breadwinner in your family, it means your income contributes significantly to the family’s financial stability. If you become seriously ill or injured and are unable to work, term insurance can help your family maintain their standard of living.
- You can select optional riders (or extra policy provisions) to increase the standard term insurance benefits. For example, you can add a critical illness rider or plan if you’ve been diagnosed with a serious illness.
- You can also save money on taxes! The premium you pay for a term life insurance policy can be deducted (up to 1.5 lakh) under Section 80C of the Income Tax Act. A deduction of up to ₹25,000 is also available under Section 80D on premiums paid for term plans with a critical illness cover option. More importantly, the death benefit received under the term insurance policy is tax-exempt under Section 10(10D).
So How Does it Work?
- Firstly, you’ll have to examine factors like the net income of your family, the number of dependents, loan EMIs, and all lifestyle expenses. As a general thumb rule, an ideal term insurance cover should be 10-20 times more than your family’s net annual income!
- The policy term (or the period for which your term insurance policy remains active) can be from 5 years to 99 years. The sum assured can be from ₹20 lakhs to up to ₹5 crore. [Sum assured is the fixed amount paid to the nominee in the unfortunate event of the policyholder’s death.]
- When you buy a term insurance product, you’ll have to pay a small fee (or premium) every year. The premium for term insurance will be lower the earlier you purchase it. So if you need a cheap life insurance policy, start when you’re young and healthy.
- The insurance company pays out a large sum to the policyholder’s family in the event of their death.
- In case the policyholder outlives the term plan, nothing is paid out. So look for term insurance policies that allow you to extend your coverage or convert it to a permanent life insurance policy.
Term insurance is an important financial tool that can offer peace of mind to you and your loved ones. By choosing the right term insurance policy, you can provide your family with the financial support they need during difficult times. You can compare and buy term insurance policies from any popular insurance aggregator platform in India!