The first thing that you should know before beginning your insurance journey is the meaning of term insurance and its benefits.
Term life insurance is actually a life insurance policy that is designed to offer financial protection for a given period. The protection kicks in in the event of the insured’s sudden death as it is covered by the plan. In such a situation, the insurer disbursed a promised sum assured to the policy nominee.
This death benefit helps the nominee account for their living expenses and offers them a buffer to bounce back on their feet in the insured’s absence. However, before buying insurance, it is important to know more about term life insurance. To begin with, learn more about the features of an insurance policy.
What is Term Life Insurance Feature?
Now that you know about term insurance meaning, let us check the key features of term insurance plans include
- Substantial cover
Term insurance plans are considered one of the most affordable life insurance products. This feature will enable you to avail of substantial coverage at an affordable premium. Typically, you can avail a term insurance plan with a cover of Rs. 1 crore at a cheaper premium than an endowment plan of Rs. 1 crore.
- Rider benefits
A term insurance plan is a pure protection insurance product. This means under it you can avail only of death benefit and no maturity benefit unless promised by the insurer. However, the plan gives you the flexibility to customize the base plan by adding one or multiple rider benefits. These riders are essentially add-ons that increase coverage. Some of the most popular rider insurance includes accidental death, critical illness cover, premium waiver, disability cover, etc. You must note that adding riders to your base plan would increase its premium. This is why you must add only riders that suit your needs to control premium. You can use an online premium calculator tool to understand whether you can afford the increased claim or not.
- Flexibility in cover
Some insurance companies may offer you the flexibility to enhance your coverage. They may allow you to enhance your coverage by 50% when you get married and again by 25% when you become a parent. This will help you customize your cover as you achieve different milestones in your life or when your expenses increase. However, your premium would also increase. So, factor in your paying capacity at the beginning of different life stages to ensure that you can cover your premiums without straining your capacity.
- Tax benefits
You can also enjoy tax benefits on term life insurance policies. According to Section 10 (10D) of the Income Tax Act, the maturity amount you may receive from your life insurance policy would be tax-free. The same would be applicable to surrender value, death benefit, and bonuses, if any. This feature will ensure that you can access your corpus without any erosion.
- Flexible payout
Some insurers allow you to pick a flexible payment option. You can choose to pay a premium either monthly, annually, or quarterly based on your capacity and convenience. Similarly, you can select how you wish your nominee to receive the sum assured. You can either choose a lump sum option, monthly payouts, or payment in a staggered manner.
- Premium waiver
This feature is more like a waiver benefit, which will waive off future premiums in case of an exceptional event. Policyholders who become victims of an accident that leads to a permanent disability can become eligible for this. However, it would be applicable only if their previous premiums had been paid successfully. It should be noted that these features may vary across plans and their clauses could also differ. This is why you must read about them in detail and discuss them with policy providers to understand them. This will help you determine whether the policy would suit your needs or if you should explore other options.
Should You Buy a Term Life Insurance plan?
Term life insurance plans are affordable and offer access to substantial coverage. This makes it a suitable option for everyone, especially salaried employees. Having a plan like this can offer you financial protection against life’s uncertainties. If you have multiple dependents you can build a substantial cover with affordable premiums. This will not strain your finances and ensure that your dependents can lead an independent lifestyle.
Hence, term insurance is suitable for individuals in their 20s, 30s, 40s, and even 50s. However, it is important to seek coverage that meets your financial needs and allows you to customize the plan accordingly.
How Does Term Life Insurance Work?
Term insurance plans are primarily pure protection plans that extend financial security for a period in exchange for a predetermined premium amount. This premium amount depends on several factors such as the age of the policyholder, income, health conditions, lifestyle habits, occupation, and desired coverage. Insurers also ask applicants to get a medical evaluation done to support their medical information. Based on these details, they assess the risk profile of policy buyers. Typically, older adults with limited income and existing health issues are considered riskier. To offset the risks associated with them, insurance companies charge them a higher premium. You can use an online premium calculator to understand the correlation.
According to the policy document, the premium is paid regularly to keep the plan active. During this tenure, if the insured passes away due to a situation covered by the plan, the nominee of the policy will receive the sum assured. However, to access the money, they will be required to file a claim and submit supporting documents.
However, in case of pure protection plans, if the insured outlives the policy term they will not receive any maturity benefit. It is important to find out about this clause beforehand for better financial planning. Individuals may also choose to renew their plans to extend the protection benefits. They may also decide to turn their term plans into permanent life insurance plans.
These aspects of term life insurance make them popular among common people. Regardless of which insurance product you pick make sure it matches your needs and supports your goals.
