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We often come across the word 'Term Life Insurance.' But not many know how term insurance plans work. This article will dive you deep about how the term insurance plan works and why is it necessary to have one. If your family relies solely on your income, term life insurance should be an integral part while planning for your family's future. It is sad to think about life without it. No one wants to think about their death, but a slight discomfort now can save your loved ones from a world of financial stress.
A term insurance policy is a type of life insurance that is for a specified period. As the name suggests, the term insurance is the policy where the sum assured is payable to the nominee in the event of the death of the life insured. Term insurance is designed to safeguard the future financial requirements of the family, after the death of the life insured. Buying a term insurance policy is beneficial as it ensures that you can plan for the financial safety of your loved ones and fulfil their dreams even if you are not around.
Having a term insurance policy is essential for anyone who has dependent family members or pending loans to pay off. Term insurance offers a higher sum assured at lower premium rates, which in turn helps to ensure that the family of the policyholder continues to lead the same lifestyle, even when the policyholder is not around. In other words, the death benefits from a term insurance policy allow the loved ones of the deceased to continue with their regular life without feeling any financial strain while running the household. You should never feel that you have wasted money on your term insurance. Instead, what you are truly buying is peace of mind regardless of whether you end up availing the death benefit or not.
Term insurance is a less complicated form of life insurance. Term plans are very simple to understand. As the name suggests, term insurance offers a death benefit and no maturity benefit. Under term insurance, the life cover is provided for a specific period, so if the policyholder discontinues paying the premium, the policy lapses and then the risk cover comes to an end. Term insurance policies can be availed for different tenures. The premium amount is decided at the time of buying the policy. With regards to the sum assured payout on death, policyholders are usually given a choice of selecting different payout options – lump sum payment, staggered, or lump sum + staggered. Some insurance providers even offer to customise the term insurance policy as per the needs of the policyholder. The beneficiary can use the payout received in any manner he/she wishes – to settle debts, pay for school or college fees, etc.
Moreover, term insurance plans offer a high sum assured at affordable premiums. The premium of term life insurance is lesser than any other type of life insurance policy. Thus, the customer can opt for higher sum assured at a relatively lower premium. The premium you pay for your term life insurance remains unchanged for the rest of your policy duration.
Apart from lower cost and safety, buying a term insurance plan is advantageous as it offers income tax benefits under Section 80C. Besides, the sum assured that your beneficiary receives after your death it is also tax-free under Section 10 (10D) of the Income Tax Act, 1961.
Many modern term insurance plans are convertible. Policyholders can convert their term plans into endowment plans for the same premium amount with an associated decrease in sum assured. Keep a few key points in mind about term life insurance: • The calculations behind term life insurance rates are all about life expectancy. That is why term insurance costs more as you get older. • If you outlive your policy duration, the insurance coverage ends, and you must buy another policy or renew the existing one if you still want to carry life insurance. However, the annual premium for another policy term could be expensive as you are older, and the insurance company will also take into account your health conditions. This is why it is important to choose a suitable term for the plan early in life. • You can buy an additional term insurance policy at an extra premium if you find your existing term insurance policy coverage is insufficient to meet the future financial requirements of your family. Choosing the right term insurance plan
Figuring out the coverage of your term insurance requires a review of your current debts, financial needs, and your dependents’ needs. It is also important to consider ‘When will your dependents reach financial independence?’
It’s wise to review your life insurance needs carefully, not only at the time of buying a term insurance policy but also when you experience a significant life change. To stay on top your term insurance needs, you should:
Term life insurance is the minimum that you can plan for the financial security of your loved ones. A term insurance plan will provide a financial cushion to your family in case of your sudden death. It offers death benefit in the form of sum assured to your nominee to pay off the debts or can they can use it for their future financial requirement.