It was a sad morning in the Vinayak Vihar Housing. Residents were found paying a visit to Sharma Ji’s house. Rahul, Sharma Ji’s only son, who was in his early 40s, was working in the IT sector had an unforeseen sad demise from a sudden heart attack. He was working on an onshore project for which he was posted in Boston for a month where this unexpected demise took place the earlier night. He was left behind by his wife, a son of 10 years and his father, Sharma Ji. The family was engrossed in grief. What do you think must be worrying Sharma Ji at the back of his mind who is a retired employee of a private company? The answer is quite obvious – How will he take care of the future financial needs of his family, what about the small child who is so young to understand anything. Had Rahul been a bit more planned and responsible family man he would have got himself covered under a term insurance coverage which would have taken care of the immediate financial needs of his family.
What is a Term Insurance Plan?
The Term insurance plan is a less expensive type of life insurance policy that gives coverage for a specified period of time through a guaranteed death benefit paid in case of death of insured during the specified time period.
Premiums are calculated by the insurance company on the basis of an individual’s health, age and life expectancy.
Payout of coverage depends on the following two situations:-
- If the policyholder dies before the expiry of the specified time period of insurance- Payout will be the face value of the policy.
- If the policyholder dies after the expiry of the specified time period of insurance- There will be no payout. In this case, even the policy-holder can opt to renew his policy but in that case, the premium will be calculated based on the individual’s health, age and life expectancy at that point in time.
Why term plan is important for everyone?
The top 10 Reasons to buy Term Insurance Plans:
- Affordable premium – Term insurance policies help to get a good payout at an affordable premium which can be as less as even one per cent of the annual income of the insured. For example, a policy of 1 crore coverage can be obtained at a premium of just Rs.490 per month. Moreover, the premium amounts include taxes.
- Financial security provider- Term Insurance policies can protect a family in case of the untimely death of the insured by taking care of the financial needs of a family.
- The Flexibility of plan – Term plans have an added advantage of being highly flexible as they can be selected customized and changed according to the individual’s requirement.
- Simplicity – Term insurance plans are much easier to understand. They give a clearer vision to the policyholder by dividing the premium paid as risk cover cost and the payout for the term chosen as the savings.
- Low claim rejection- Possibility of rejection of policy on account of non-disclosure of facts once the policy is operative for two years is nil.
- Avoidable Brokerage charges- As the purchaser of the policy has the option to buy his term plan online, so the unnecessary brokerage charges, which would otherwise have been incurred in case of offline purchase, can be avoided.
- Additional rider benefits- Policyholders can enjoy the option of adding riders to their term plan if required for critical illness coverage, accidental death coverage with a very minimal fee.
- Additional support in case of disability – Some term life insurance plans waive off the future premiums payable in case of any permanent disability from an accident.
- Terminal illness benefit – Additional coverage benefit is provided for an unforeseen disease that is diagnosed to be at end-stage and a person is expected to die within a period of 12 months.
- Coverage in case of death outside India – Term insurance plans cover the death that occurred outside India if the death is reported to the insurance company well in time. Exclusion, in this case, are deaths occurred on travel to unsafe countries.
Who should buy a term insurance plan?
Term insurance plans are suitable for:
- People with a low budget and low income because this kind of insurance plan provides large coverage at a low cost.
- People who are just into new careers or businesses who can use their balance income in developing their career or business.
- People interested in using their balance income, after buying term insurance, in making other investments like mutual funds.
- People who are the owner of a large loan, for example, housing loan, car loan.
- Key persons of a business to avoid the risk of business loss due to the unforeseen death of a key man.
- Domestic helpers should buy this plan as they can provide their financial support at a low cost.
- Employers can buy them for getting a life cover of their employees, especially for labour class employees. The coverage can work as a welfare measure for the employees and the premium paid by the employers can be shown as a business expense.
Once you know why term plan is important, you need to consider the premiums as well. Premiums paid for the term insurance plans can enjoy the tax benefits under Section 80C, premiums paid for additional critical illness cover enjoy tax benefits under Section 80D. Also, the money received by the insurer’s family in case of unforeseen events can enjoy the tax benefit under Section 10(10D).
Term insurance plan is a life insurance coverage at a minimum cost. Policyholders can save brokerage charges by using the option of online purchase of policies instead of going through the hassle of buying offline policies with additional brokerage charges. Moreover, there is an additional benefit of tax savings as discussed in the previous point.
After considering all the above discussions, it can be concluded that if people want to avoid the financial difficulties faced by the family of a person suffering an untimely death, they must include a term insurance plan in their investment plan to make it good.