Term insurance: what you need to know for smart financial planning

Do you wait for an accident to happen to secure your vehicle? No. You need to purchase motor insurance on the spot from the very beginning. Then why gamble with the lives of yourself and your dependent family members?

Financial security is the ultimate bedrock to secure your family’s future irrespective of the challenges. Considering the contemporary scenario, securing your family’s future is a matter of responsibility and necessity, rather than a luxury.

A term insurance policy is regarded as the foundation of a financial tool that ensures the protection of your dependent family members even in your absence.

What is term insurance?

Term insurance plans are pure life insurance plans, involving no component of savings or investment. Unlike other life insurance products, it does not offer any maturity benefit.

It is a mutual contract between the insurer and the insured, wherein the insurer pledges to offer death benefits to the designated beneficiary or nominee if anything happens to the policyholder-cum-insured during the plan tenure, as per the plan terms.

If you outlive the policy, you will not gain anything out of this plan.

The sum assured amount decides the death benefit amount and is paid out either in a lump sum or at regular intervals based on the rules and regulations of your chosen plan. This payout can be utilised to handle regular family expenses, fund children’s education, plan marriages, repay loans and debts, etc.

Importance of term insurance

Once you understand the importance of term insurance plans, it will be beneficial for you to make an informed decision to secure your family’s financial future:

1. Affordable: Considering other forms of life insurance products, term plans are regarded as the most affordable ones so far. You can easily enjoy a significant coverage amount without paying much, especially if you purchase early when your family responsibilities remain low, and you are young and healthy.
2. Income replacement: The loss of the principal breadwinner in the family, is not only an emotional shock, but a severe financial setback too. A reliable term plan acts as a handy tool for income replacement so that your family can retain their existing financial standards and lifestyle.
3. Debt protector: A term plan has been designed to take care of all your outstanding loans and debts so that your family does not get burdened with these in your absence.
4. Tax benefits: Term plans offer double tax benefits: Section 80C allows deductions for the premiums paid and Section 10(10D) for death benefits received by the nominee.
5. Customised coverage: Term plans often allow customised coverage based on your needs by adding suitable add-ons and riders like accidental death benefit, critical illness cover, death and disability cover, etc.

Types of term insurance

There are several types of term insurance plans:

1. Level term plans: This is the basic and the simplest term plan variant where the amount of sum assured is selected during plan issuance and continues throughout the plan term. The nominee or the beneficiary receives the death benefit amount if anything happens to the policyholder-cum-insured.
2. Increasing term insurance: Here, the policyholder enjoys the flexibility to enhance the specific sum assured amount on achieving certain specific milestones within the plan tenure. The rate of this enhancement of the sum assured is pre-decided. This helps to beat the inflation factor well, especially in the long run.
3. Decreasing term insurance: Here, the sum assured amount decreases with the increasing age of the insured. It has been framed under the principle that with increasing age, the liabilities gradually decrease, thereby diminishing the need for a high sum assured amount. This proves to be especially beneficial if you are planning to write off any outstanding debts or loans soon.
4. Return of Premium term insurance: This is a quite popular term plan, that pays back the entire amount of premiums paid so far if you survive the total policy tenure. However, this facility is exclusively applicable, if you have not made any claim throughout the term.
5. Convertible term plans: As the name suggests, this sort of term plan can be converted to a different variant in future based on your altered requirements. If you feel that your financial targets and priorities will alter with time, then you can go for this.

Factors to consider while choosing a term plan

Choosing the right term insurance plan offering sufficient sum assured benefit might prove to be challenging. However, if you consider these factors, your selection process will tend to be much smoother:

1. Coverage amount: This is usually decided based on your current annual income. Ideally, the sum assured amount should be at least 10 times your annual income. You can even opt for higher coverage if you have several outstanding mortgages, loans, and debts.
2. Tenure: Ideally, you must enjoy coverage till you retire. Based on this calculation and considering your current age, choose the plan tenure. The idea is that the plan payout will support your family’s financial needs without hampering your retirement funds.
3. Add-ons and riders: You can enhance the policy coverage with suitable riders and add-ons, like death and disability riders, accidental death benefit riders, premium waiver benefits, critical illness benefits, etc.
4. Premium: The premium payable amount must not strain your existing financial status. You can choose payment frequency according to your convenience, like monthly, quarterly, half-yearly, annually, etc.

Wrapping up

Considering your circumstances, you can make your selection to buy a befitting term plan. However, you must research several competent plans to understand the scenario well before zeroing in on your plan of choice. Consider reading the policy fine print and customer reviews to understand the overall proficiency of the insurance company concerned.

Disclaimer:

CBD:

Qrius does not provide medical advice.

The Narcotic Drugs and Psychotropic Substances Act, 1985 (NDPS Act) outlaws the recreational use of cannabis products in India. CBD oil, manufactured under a license issued by the Drugs and Cosmetics Act, 1940, can be legally used in India for medicinal purposes only with a prescription, subject to specific conditions. Kindly refer to the legalities here.

The information on this website is for informational purposes only and is not a substitute for professional medical advice, diagnosis, or treatment. Always seek the advice of your physician or another qualified health provider with any questions regarding a medical condition or treatment. Never disregard professional medical advice or delay seeking it because of something you have read on this website.

Gambling:

As per the Public Gambling Act of 1867, all Indian states, except Goa, Daman, and Sikkim, prohibit gambling. Land-based casinos are legalized in Goa and Daman under the Goa, Daman and Diu Public Gambling Act 1976. In Sikkim, land-based casinos, online gambling, and e-gaming (games of chance) are legalized under the Sikkim Online Gaming (Regulation) Rules 2009. Only some Indian states have legalized online/regular lotteries, subject to state laws. Refer to the legalities here. Horse racing and betting on horse racing, including online betting, is permitted only in licensed premises in select states. Refer to the 1996 Supreme Court judgment for more information.

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