Term insurance

Term insurance

Term insurance is a type of life insurance policy that provides coverage for a certain period of time or a specified “term” of years. If the insured dies during the time period specified in the policy and the policy is active, or in force, a death benefit will be paid.

 Term insurance is a good, affordable way to create financial security for you and your family. It ensures financial stability for your loved ones, in case of an unfortunate event and also gives you an option to cover yourself from critical illnesses like heart diseases, cancer etc.

Financial planning in the country largely remains bereft of insurance cover. Indian families seldom consider the importance or necessity of having adequate insurance cover. Terms like life Insurance and term insurance are alien to a large part of the population. These are not subjective inferences but backed by credible data. According to an analysis of the available data by India Spend, at least 75% of the Indian population is not covered by any form of life insurance. Another important data point says that individuals with insurance, on an average, are assured of only 8% of what is required to financially secure a family.

Advantages of Term insurance

  1. Minimal Cost:  There are no savings or investment component in term insurance, which makes it significantly cheaper than other life insurance products.  
  2. Financial Security: Term insurance has made financial security affordable as you are assured of a substantial cover at minimal costs. With term insurance, you can live a secure life without worrying about the financial security of your family in your absence.
  3. Comprehensive Coverage:. You can modify term insurance plans with riders by paying an additional premium. Cover for critical illness and accidental death and disability can be added to a term insurance plan.
  4. Fixed Premium: The sum assured, or the premium is not indexed to the market, which makes it a very stable insurance product. Once an insurance company accepts your request, the premiums remain the same throughout the policy term.
  5. Increased Life Cover: The needs of a family increase with an improvement in lifestyle. It is pertinent to hike the insurance cover in consonance with the increase in financial needs. The sum assured automatically increases at a certain rate as per the age of the insured.
  6. Flexibility: The premiums can also be paid on a monthly or annual basis.
  7. Income Tax Benefits:Buying a term insurance plan comes with a host of income tax benefits. You can claim a tax deduction of up to Rs 1.5 lakhs per year under Section 80C of the Income Tax Act, 1961 for the premiums paid for term insurance. The sum assured paid to the nominee is tax-exempt under Section 10 (10D) of the income-tax law.

FAQ

General Question

In term insurance, additional extensions to the basic cover are generally referred as a rider. You can include the riders in your policy in order to enhance the coverage to cover certain situations like accidental death and disability and coverage for critical illness. These riders offer compensation over and above the basic sum insured.

Yes, term insurance covers death due to illness. It will be treated as health-related death and can be due to any hereditary condition or while undergoing any medical treatment. Death due to critical illness like cancer, stroke, kidney failure and heart attack is also covered by the policy.

It is recommended to buy the life cover with the sum insured of 10 to 15 times of your annual income. For instance, if your annual salary is 5 Lakhs, then you should buy the term cover with 50 to 75lakhs of sum insured. The idea behind this is that the dependent should maintain the same standard of life after the demise of the policyholder.

There are no maturity benefits in this policy. Term plan is basically a death benefit plan in which the beneficiary will get the sum insured only in case of insured's death. If the insured survives till maturity, nothing will be paid and policy ceases. However, there are special term insurance plans which offer a return on premium