Paul Sanchez
Term insurance is a type of life insurance that offers a large amount of life cover at low premiums. It is a good idea to buy term insurance if you want to secure the financial future of your loved ones in your absence. Term insurance plans are simple to understand, highly affordable, and offer much higher coverage compared to traditional plans. They also come with a host of tax benefits.
Term insurance helps you secure your family financially in case you are no longer around. It not only provides financial protection to your family in unfortunate events but also provides various other benefits, including tax benefits.
| Characteristics | Values |
|---|---|
| Simplicity | Easy to understand |
| Affordability | Low premiums |
| Flexibility | Choice in pay-out modes |
| Tax benefits | Tax-deductible premiums and tax-exempt payouts |
| Premium lock-in | Premiums locked for the duration of the plan |
| Return of Premium (ROP) | Receive premiums on outliving the plan |
| Critical illness coverage | Lump sum payout in case of critical illness |
| Accidental death benefit coverage | Optional feature to safeguard family from accidental death or disability |
| Terminal illness coverage | Added benefit to compensate for expenses of addressing terminal illness |
What You'll Learn
Simplicity and ease of understanding
Term insurance is a type of life insurance that is easy to understand. It is a pure life cover that focuses on offering your dependents a sum assured in case of your death. It is a simple product that is easy to understand and navigate.
Term insurance plans are structurally similar and simple to understand. This has led to a very competitive market in which term life policies are rapidly becoming a "commodity". Buyers suffer fewer information problems with term insurance, thus rendering the term market more price-competitive than for cash value policies.
Term insurance is a pure life cover and has no cash value. It is a simple product that offers a defined death benefit for your beneficiary should you pass away while it’s in force. It is a stripped-down form of insurance that is only good for a certain period of time, whether it’s five, 20, or 30 years. After that, the policy expires.
Term insurance is initially much less expensive compared to permanent life insurance, such as whole life and universal life. This is because it’s not designed to last through old age, which is when life insurance premiums are the most expensive.
The sheer simplicity of such an insurance product makes term plans an attractive option.
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Affordable premiums
Term insurance is a type of life insurance that provides financial cover against death for a specific duration. Term insurance plans are available at highly affordable premiums, allowing you to secure your loved ones in your absence. The premium for a term life insurance plan can be as low as 0.1% of the total sum insured. The earlier you buy term insurance, the lower the premium will be.
Term insurance plans offer high coverage for low premiums. For example, a term plan can offer a sum assured of Rs 1 crore for an annual premium of Rs 10,000 to Rs.17,000. This is significantly higher coverage compared to traditional, ULIP, or endowment policies, where the total sum insured is about 7 to 10 percent of the yearly premium.
Term insurance plans also offer locked-in premiums for the duration of the plan. This means that the premium you pay this year will be the same next year and every other year till the end of the plan. Starting a term plan early can help you lock in lower premiums at a younger age.
Term insurance plans are simple to understand. They are a pure life cover, without an investment component. You pay the premiums, and the insurer covers your life for a fixed duration.
Term insurance plans also offer tax benefits. The premium you pay for a term insurance plan is tax-deductible, and the payouts come with tax exemptions as per the existing tax laws. Under Section 80C of the Income Tax Act 1961, the premium you pay to buy a term insurance plan is exempt, up to a limit of Rs.1.5 Lakh in a year. The death benefit of term insurance plans is fully exempt under Section 10 (10D) of the Income Tax Act 1961.
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High coverage for a low premium
Term insurance is a type of life insurance that provides coverage for a specific period of time, also known as the "term". If the policyholder dies during the term, the policy will pay a death benefit to the beneficiary. Term insurance is one of the most popular types of insurance schemes in the market. A term insurance plan provides protection in the form of financial assistance to your family. It pays a certain sum to take care of your family’s financial needs in case of your unfortunate demise.
Term insurance is a pure life insurance product, which provides financial protection to the policyholder. In case of death of the insured during the policy period, the beneficiary receives a death benefit as defined under the chosen term insurance plan. For example, a 24-year-old healthy, non-smoking male can secure a cover of Rs. 1 crore for his dependents for the next 25 years. If he buys a term insurance policy, he will only pay approximately Rs. 730 per month, exclusive of taxes.
Term insurance plans offer significant life cover at a premium you can afford. Also, the earlier you buy a term plan, the lower premium you will need to pay for specific life cover
The premium for the best term insurance plan depends on various crucial factors including age, gender, premium payment term, policy term, sum assured, etc. chosen by you and policy term.
Term insurance is one of the most affordable types of life insurance. For example, you can get a 1 Crore term insurance cover for as low as Rs. 432 per month.
The younger you are, the lower the premium.
You can get a regular income stream along with a lump sum benefit under a term insurance policy to ensure day-to-day living expenses of dependents are met.
Term insurance plans come with add-ons/riders that you can select to get additional insurance benefits. For instance, Max Life Waiver of Premium Plus Rider offers the benefit of waiver of all future premiums based on conditions specified in the term insurance policy document.
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Tax benefits
Term insurance offers a range of tax benefits to policyholders. Here are some of the key tax advantages:
The premiums paid towards a term insurance plan can provide tax deductions of up to ₹1.5 lakh per year. This is a popular tax-saving tool that covers various investments and instruments, including term life insurance premiums. The conditions to avail of these benefits include ensuring that the yearly premiums do not exceed 10% of the sum assured, and for policies issued before March 31, 2012, the yearly premium should not exceed 20% of the sum assured.
The death benefit or sum assured received by the nominee is completely tax-exempt under Section 10(10D) of the Income Tax Act. This ensures that the family receives the full financial benefit without incurring tax liabilities. This exemption is applicable if the premium payable during the policy period does not exceed certain thresholds, such as 10% or 20% of the sum assured, depending on the policy's issue date.
While Section 80D primarily focuses on deductions for health insurance premiums, it also offers benefits for term insurance with health-related riders. If the policyholder has added critical illness, surgical care, or similar riders to their term plan, they can claim deductions of up to ₹25,000 per annum. This section allows deductions for premiums paid towards health insurance for self, spouse, children, and parents, with varying limits based on age.
Adding certain riders to a term insurance plan can provide additional tax advantages. For example, including a Critical Illness rider makes the policyholder eligible for tax deductions under Section 80D. Similarly, choosing the Return of Premium rider increases the premium, allowing for higher savings under Section 80C.
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Critical illness coverage
Critical illness insurance provides a financial safety net for individuals and their families in the event of a critical illness. It offers a lump-sum payout upon diagnosis, which can be used to cover medical expenses, daily living costs, and other financial needs. This type of coverage is especially important as the treatment costs for critical illnesses can be exorbitant and may quickly deplete savings. By having critical illness coverage, individuals can ensure they have the necessary funds to pay for treatment and maintain their quality of life.
The coverage typically includes a range of critical illnesses, such as cancer, heart attack, stroke, organ failure, and paralysis. Some policies may also cover additional conditions, such as multiple sclerosis, Alzheimer's disease, and traumatic head injuries. It is important to carefully review the list of covered illnesses, as policies can vary significantly.
Critical illness insurance is designed to supplement major medical health coverage and is not intended to be the sole source of health insurance. It fills the gaps that may exist in traditional health insurance plans, providing additional financial support during a critical illness. This type of insurance is particularly beneficial for individuals with high-deductible health plans, as it can help cover out-of-pocket costs and non-medical expenses related to the illness.
When considering critical illness insurance, it is important to weigh the premiums against the benefits offered. Policies with lower premiums tend to have lower benefit amounts and may cover a more limited range of illnesses. It is also essential to understand the specific circumstances under which the policy will pay out, as there may be restrictions based on the severity or stage of the illness. Additionally, some policies may have age restrictions or payout reductions for older individuals.
Critical illness insurance can be purchased individually or through an employer. It can also be added as a rider to a life insurance policy, providing the same benefits at a potentially lower cost. This type of coverage is particularly attractive due to its relatively low cost and the flexibility it offers in how the payout can be spent. It provides peace of mind and financial security during a critical illness, ensuring that individuals can focus on their health rather than financial worries.
In conclusion, critical illness coverage is an important aspect of term insurance, offering financial protection and support during a critical illness. By understanding the benefits, restrictions, and costs associated with critical illness insurance, individuals can make informed decisions about their coverage needs and ensure they have the necessary financial safeguards in place.
Frequently asked questions
Term insurance offers financial security for your family in case of your death, with high coverage amounts and low premiums. It also provides tax benefits and is simple to understand.
Term insurance is a life insurance product that provides death coverage to policyholders for a specific time period. If the policyholder dies during the policy term, the insurance amount is given as a lump sum to the nominee.
There are several types of term insurance plans available, including traditional, ULIP, and endowment policies. You can also choose between different term insurance plans such as return of premium, critical illness cover, and accidental death benefit coverage.
