What is Term Life Insurance
Term life insurance offers invaluable peace of mind by ensuring financial security for your loved ones in the event of your untimely passing. This straightforward and affordable insurance option provides coverage for a specified period, offering a lump sum payout to your designated beneficiaries if you pass away during the policy term. Here’s why term life insurance is a smart choice for protecting your family’s future
What is Term Insurance?
Coverage for a Specific Period
Term life insurance provides coverage for a predetermined duration, typically ranging from 5 to 30 years. During this time, your beneficiaries are eligible to receive the full death benefit if you were to pass away, helping them cope with the financial implications of your absence.
Financial Protection for Your Family
As the primary breadwinner, your sudden absence could leave your family vulnerable to financial hardship. Term life insurance ensures that your loved ones are financially supported, enabling them to cover daily expenses, repay outstanding debts, and maintain their quality of life.
Flexible Payout Options
Depending on your preferences and the needs of your beneficiaries, term life insurance policies offer flexibility in payout options. Your beneficiaries can choose to receive the death benefit as a lump sum or in regular installments, providing them with the financial resources necessary to meet their immediate and long-term needs.
Affordable Premiums
One of the key advantages of term life insurance is its affordability. Compared to other types of life insurance, such as whole life or universal life insurance, term life policies typically have lower premiums, making them accessible to individuals and families with varying budgets.
Versatile Use of Funds
The proceeds from a term life insurance policy can be used for a variety of purposes, including covering funeral expenses, settling outstanding debts like mortgages or loans, funding your children’s education, or contributing towards their weddings. This flexibility ensures that your family’s specific financial needs are addressed during a challenging time.
Term Insurance Premium
A premium is the money that you pay to an insurance company to get the insurance or the coverage. It is an important deciding factor while selecting an insurance plan. The premium paid for a term insurance is considered cheap, given the kind of comprehensive coverage provided by a term plan.
Before buying a term insurance, compare the premium of various plans. This can be done by using a premium calculator, an online tool to calculate the premium. However, the calculator does not give the exact premium amount, but an estimate of the amount. The premium calculation of a term plan depends on various factors. These are
Age of insured
A younger person pays lower premium. This amount increases with age
Sum assured
Higher sum assured means higher premium and lower sum assured translates to a lower premium
Term of policy
If the policy is for a longer duration, the premium gets higher and vice versa
Smoking habit
A person who smokes pays higher premium compared to a person who does not smoke
Gender
Premium for a male is higher compared to premium for a female
Health condition
Any pre-existing medical condition increases risks in life, resulting in higher premium Types of Term Insurance
Important Aspects
Before finalising the type of term insurance plan, understand certain aspects to take an informed decision.
Company reliability
Before purchasing any product, one should find out the reputation of the company in the market, performance of the funds of the company and claim settlement ratio (CSR). The FICO score of any insurance company is important as it gives an insight into the performance of the funds of the company The company should also have a high CSR so that claims are settled on time.
Premium
The premium amount varies for every plan. A thorough comparison helps purchase the most affordable plan. However, one should not compromise with the coverage in order to get a plan with a lower premium.
Convenience
With the advancement in technology, one can get all the information online and even compare the products also online. The insurance companies and online insurance aggregators have made the whole process convenient and easy for the applicants.
Solvency ratio
Any company is judged by its solvency ratio, which states the true financial position of the company. It tells us whether at any point of the time the company is able to pay back all its dues or not. In insurance sector, the reliability of the company lies on the financial goodwill of the company.
Enhanced coverage through Riders
These are additional benefits that one enjoys on payment of little extra amount. These are important, as they help provide comprehensive coverage.
Advantages of Term Insurance
A term insurance plan is one of the cheapest plans. It aims to financially secure the family, in case of the sudden demise of the main earning person of the family. Some of the other advantages of the plan are:
Tax benefits:
Sections 80C and 10(10D) of the Income Tax Act 1961 give tax benefits to the insured for the premium paid and the death returns received, respectively. If the insured applies for an accidental rider, he will get extra benefits under Section 80D of the I-T Act.
Term of the policy:
The policy term can range from 5 years to the whole life, depending on his/her requirements. An applicant who wants to make a single premium payment can choose a term plan for a duration of 5 years to 15 years.
Choice of plan:
An applicant can take either a single or joint insurance plan. Single life insurance means that a claim for the benefit can be made only on the death of the insured life. Joint application means that the life of both the persons taking the insurance plan is insured and on the death of either of the persons, a claim can be made by the other. Husband and wife, business partners usually take joint term life insurance. Here the policy expires on the first claim or at the end of the term plan.
Survival benefit:
For term plans, a claim is given only on the sudden demise of the insured within the term of the insurance. However, many insurance companies are now offering survival benefits at the maturity of the insurance plan. This is also known as term return of premium plan when the company returns the premium amount to the survivor at the end of the maturity period of the plan. This plan is best for people who want to secure their life and save for future if they survive the term.
Death Benefit:
On the death of the insured, the nominee gets the claim amount, either in lump sum or in installments, as mentioned in the contract.
Rider benefit:
Term plans also offer riders or additional benefits which can be availed by the insured by paying some extra amount. Some available riders are:
Critical illness rider: On the diagnosis of any vital Illnesses mentioned in the policy, the insured gets a lump sum amount for treatment
Accidental death benefit rider: Nominee gets an additional amount along with the death benefit in case of accidental death of insured
Permanent and total disability rider: If the insured is not in a condition to earn due to permanent or total disability, nominee and family gets financial support to carry on with life
Hospital cash rider: Insured gets daily cash benefit in case of hospitalization
Waiver of premium rider: If the insured is disabled or seriously ill, premium payment is waived off with the policy continuing as before
Extra benefit:
Some term insurance plans provide extra benefits to the nominee in case of the death of the insured. These benefits include the funeral cost and immediate annuity for the family.