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Term Insurance 596 views January 26, 2019
A term life insurance is the purest form of life insurance one can have. Unlike most savings tools that grow your money with time or investment tools that leverage market trends to earn returns for you, buying term insurance means ensuring a fixed amount of predetermined death benefits for your loved ones, thus, relieving them of possible economic crisis due to sudden loss of income in the event of your death. You may view term insurance as an income replacement plan that gets activated on the death of the policyholder. However, like every financial instrument, a term insurance plan has its own set of pros and cons.
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What if someone told you that the amount of premium you pay for an Rs. 50 lakhs insurance payout costs much lesser than what you pay for enjoying a family dinner in a restaurant? As strange it may sound, term insurance plans are indeed cheaper than any other insurance plan or investment tool available in the market. This means that you can simply look at buying term insurance as an inexpensive way to keep your family protected.
It may be that month of the year when you are clamoring to make investments that promise the necessary tax benefits. While numerous tools ensure tax savings, term insurance promises financial security in addition to tax savings. Deduction from income include the premiums you pay for your term insurance plan under Section 80C of the Income Tax Act, 1961. The amount of death benefits you earn are exempt from tax under Section 10(10D) of the Income Tax Act, 1961, which means that your loved ones are relieved from the burden of tax on the death benefits received from the insurance company.
Look at the sum assured amount evaluated in endowment plans, unit-linked insurance plans (ULIPs) or insurance plans other than term insurance. Insurance companies calculate the amount of sum assured based on what your life is worthwhile accepting your term insurance proposal. In addition, they account for the rising inflation rate, your assets, and liabilities, daily expenses of your family, possible expenses in future like the amount spent on higher education, etc. This results in a higher amount of sum assured at inexpensive premium rates. Moreover, most investment plans fail to promise a higher sum assured and are dependent on market movements for returns, thus, underscoring term insurance as the only available plan that promises a much greater sum assured than the rest.
You do not need to have knowledge of rocket science to buy a term policy. Buying a term insurance plan is easy. Though most people have always preferred calling agents to their place to buy term insurance, the digital era has made it possible to buy term insurance online. With just a few clicks, you can now fill in your details on the proposal form and pay your premiums using debit or credit card. Post-processing of the insurance application by the insurance company, you may be required to undergo a medical test at the comfort of your home or a medical facility nearby. Once the underwriting process is completed, you will receive the policy bond at your doorstep.
Term insurance is a simple and uncomplicated subject. You apply for a term insurance plan stating your personal and income details. In return, the insurance company determines your eligibility for the amount of sum assured you are looking for based on certain parameters that include your age, gender, lifestyle habits, illnesses that you have been treated for and promises your nominee(s) death benefits in the event of your death within the policy period subject to payment of premiums regularly.
Term insurance does not promise any maturity benefits. If you outlive the policy, the number of premiums you have paid continue to remain with the insurer. Though outliving the term policy also means that you have had more time to spend with your loved ones, and thus, support them, most people equate non-receipt of maturity benefits as money lost on premiums. This is because many people view term insurance as any other investment tool, not realizing that the purpose of buying a term policy is to ensure protection for your loved ones. However, keeping this in mind, many insurance companies have now come with new-age term insurance plans that offer a return of premiums paid during the entire policy period.
It has been observed that many people discontinue paying their premiums midway as they misconstrue premium amounts as unnecessary expenses. Apart, many people like totally the returns earned corresponding to the premiums paid, and hence, do not favor the term insurance concept that involves death payouts only in the event of sudden demise during the policy period.
The concept of term insurance does not really involve any cons. The disadvantages that people view are mere misunderstandings resulting from ignorance about the insurance concept or disinterest concerning the need to protect their families. The pros, in comparison, outnumber the cons in term insurance plans, thus, underlining the need for more Indians to include them in their long-term investment portfolio.
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