Term Plans 101: Understanding The Technicalities To Make An Informed Choice For Your Family

Thursday, 23 May 2024, 7:52 am
Press Release: Hugh Grant

Highlighting the Integral Components of Term Plans to Make an Informed Choice

Discover the essentials of term plans in our guide. From premiums to coverage, empower yourself with knowledge for safeguarding your family's future and making informed decisions.

The impact of a fast-paced and uncertain life has repeatedly emphasised the importance of life insurance policies. Preparing for the life uncertainties that may come upon us is the smartest move. This is why people are increasingly looking for the best life insurance plans to safeguard the future of their families. 

Life insurance policies primarily aim to provide life coverage for policyholders and financial security for their families. However, you can now access different types of plans like term plans, endowment policies, whole life covers, pension cover, money-back plans, etc. These plans have been introduced to meet the demands of individuals with different needs. 

In this article, you’ll learn everything about the purest form of life insurance - Term Life Insurance.

What is a Term Plan?

A term plan provides coverage for a specified period known as the term. Unlike other life insurance policies, a term plan focuses solely on providing a death benefit to the beneficiaries if the policyholder passes away during the term. Term plans are popular for their affordability and simplicity, making them a popular choice for people looking to secure financial protection for their loved ones. 

Key Features of a Term Insurance Policy

1. Larger life cover: These affordable plans offer extensive coverage at affordable premiums. 
2. Riders: As a policyholder, you may add specific riders to your term plan to enhance its coverage. For instance, if you add a critical illness rider, you will receive the assured sum when diagnosed with a severe illness. Similarly, other riders include disability cover, waiver of premium cover, loss of employment cover, etc. You must choose a rider based on your specific needs to make the cover more beneficial. 
3. Enhanced cover: Many insurers offer the flexibility to customise coverage throughout the policyholder's crucial life stages. This will enable them to start the policy with a modest cover while increasing it gradually as responsibilities increase and the capacity to pay a higher premium. 
4. Tax benefits: Term insurance can offer numerous tax advantages. According to Section 10 (10D) of the Income Tax Act, the sum assured received by the policyholder upon plan maturity, surrender, or demise is tax-exempt.
5. Multiple payout options: Payment frequency options such as monthly, quarterly, or annually cater to your preferences.
6. Premium waiver: Premium waiver, as implied by its name, is a benefit that exempts policyholders from paying future premiums in certain exceptional circumstances.

Advantages of Term Insurance

Here are the benefits of purchasing Term insurance:

• Term insurance plans offer affordability compared to other life insurance policies. 
• Opting for term insurance allows you to select a substantial sum assured, ensuring significant financial support for your family.
• Flexible policy terms enable alignment with your financial objectives and obligations.
• Premiums paid towards Term insurance policies qualify for tax deductions under Section 80C of the Income Tax Act, resulting in extra savings.

Types of Term Insurance Plans

Let's explore the different types of term insurance available in India:

Level Term Insurance

Level term insurance stands as the prevailing form of term insurance. It provides a constant sum assured and uniform premiums throughout the policy's duration.

Decreasing Term Insurance 

Its design aims to synchronise with particular financial obligations like mortgages or other outstanding debts.

Convertible Term Insurance

This scheme allows policyholders to convert their term insurance policy into an alternative life insurance plan, like endowment or whole life insurance, within a defined timeframe.

Renewable Term Insurance

It grants the policyholder the choice to prolong the policy term beyond the policy's original maturity.

Group Term Insurance

Employers or organisations offer this to furnish life insurance coverage to their employees or members.

Point to Consider While Purchasing Term Life Insurance?

Reviewing these inquiries is crucial for making an informed decision:

• Required Cover/Sum Assured: This denotes the death benefit paid to beneficiaries after the insured's demise. Determine the sum assured meticulously, considering dependents' financial needs, family lifestyle, outstanding debts, and more. 
• Cover Duration/Policy Term: This signifies the period during which the insured is covered by the term insurance policy. Select the tenure based on expected earning years, dependents' age, duration of financial obligations, etc.
• Claim Settlement Ratio: Among the most vital indicators of an insurer's reliability, the CSR represents the percentage of claims settled by the insurer against total claims received, as per IRDAI methods. Opt for insurers with reasonably high ratios.
• Riders: These are additional benefits accompanying a Term Insurance plan, available upon payment of an extra premium. Common coverages include accidental death benefits, critical illness cover, cancer cover, etc.

Conclusion 

Everyone aims to safeguard the well-being of their loved ones, and a Term Life Insurance plan is an ideal means to achieve that. To procure the optimal term insurance policy, understanding its benefits, features, and inclusions and matching individual financial needs is imperative. Thus, before buying a term insurance plan, evaluate different policies thoroughly.

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