By Debarshi Nayak
With the recent closing of the financial year and income tax filings in March, you must have heard the word ‘Term life insurance’ a lot as a tax saving instrument. However, if you have heard or thought about term insurance plan beyond the world of tax, you are already way ahead in terms of securing the future of your family, both emotionally and financially. But what exactly is term life insurance? And how different is it from general life insurance? If your family relies on your income, life insurance is an important part of planning for your family’s future.
What is term life insurance?
A term life insurance is a life insurance plan with an expiry date. In simpler terms, it is a plan which promises to pay a lump-sum amount of money if the person insured passes away within a certain period of time. This period is usually a duration of 5 years, 10 years or 15 years. However, as the plan only covers the risk of death and there is no cash accumulation, the yearly renewal cost is often quite low.
A term life insurance policy is like renting Life Insurance for a limited amount of time. It’s definitely more affordable than general life Insurance but the cover will end on a specific date.
The premium of a term life insurance is usually quite low and does not change over the course of the policy cover. However, the variables that decide the premium include factors like health, age, and lifestyle of the person insured. To put things into perspective, an older person who smokes regularly will have a much higher premium than normal.
How is Term Life Different from Permanent Life Insurance?
Most people have to face the eternal dilemma of which kind of life insurance to get. As with most things, though, the decision should be tailored to your personal situation. People who want cheaper, low-commitment packages, and are not interested in cash benefits should be looking at a term life insurance.
On the other hand, people who are comfortable with paying a higher premium for insurance coverage, do not want an expiration date on their insurance policy, and want to build cash value should definitely be looking at permanent life insurance plans. In certain cases, a term life insurance policy can be converted into a whole life policy, but with some restrictions. People over the age of 65 usually cannot opt for a term life insurance or convert their term life insurance into a permanent life insurance owing to the cut-off age for convertibility.
Benefits of Term Life Insurance
Term life insurance has certain advantages and also some limitations when compared to other types of life insurance.
Tax Benefit
It is often discussed that if you buy endowment type of insurance, as the premium is more you get more benefit u/s 80C of the Income Tax Act while investing. However, it needs to be pointed out that while premium paid for term insurance is much less it is also eligible for tax benefit u/s 80C.
Low Premiums
The premium for term insurance is much lower than that of a permanent health insurance policy. For example, currently, it is possible for a 30-year old person to buy a term life insurance policy for 20 years for Rs 10 lakh sum assured for about Rs 3000 annual premium. For a permanent life insurance policy without profits, with exactly the same death benefit, the premium will be a little above Rs 30,000 annually. Wondering how much premium you’d be paying for your life insurance plan? Here’s a term insurance calculator for you.
Simplicity
Much unlike a term life insurance policy, it is not always easy for a layperson to successfully divide the premium he pays into risk cover and the amount actually being invested on his behalf as savings. Planning financial goals around a cash value insurance plan can get really complicated.
Flexibility
Opting out of a term life policy is definitely easier than getting out of cash-return life insurance policies. In term policies, if you stop paying the annual premium, the policy ends and the risk insurance ceases to exist. Nothing is payable to you as there is no savings element in the policy.
Term life insurance is one of the cheapest ways to get a guaranteed life insurance benefit for a defined amount of time. This product is ideal for covering yourself for a single crisis, for a specific amount of time. These could include taking a mortgage or business loan, meeting the obligations of a divorce claim, or bridging the gap until life insurance is no longer necessary. So, what are you waiting for?
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[su_lightbox src=”https://www.aegonlife.com/insurance-investment-knowledge/calculators/term-premium-calculator”]About Aegon Life: Aegon Life Insurance Company Limited launched its pan-India operations in July 2008 with a vision to be the most recommended new age life insurance Company. The fulfillment of this vision is based on having a complete product suite, superior technology, providing customized advice and enhancing the overall customer experience. This joint venture adopts a local approach with the power of global expertise to facilitate a direct to customer approach, leveraging digital platforms to bring transparent solutions to customers and to prioritize their needs. Aegon is one of the world ’s leading financial services organizations, providing life insurance, pensions and asset management and Bennett, Coleman & Company, India’s leading media conglomerate, have come together to launch Aegon Life Insurance.[/su_lightbox]
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