The Ultimate Safety Net: Exploring Insurance Options Beyond Term Limits

Term insurance is a type of life insurance that offers financial protection to the policyholder's family in the event of their death. It is a pure life insurance product, meaning it only provides death benefits without any savings or investment components. Term insurance plans are typically more affordable than other types of life insurance, making them a popular choice for individuals seeking life protection and tax savings.

However, term insurance may not be sufficient for everyone. Here are some alternatives that may be considered better than term insurance in certain situations:

1. Whole Life Insurance: Whole life insurance provides coverage for the entire life of the policyholder, rather than a fixed term. It also includes a cash value account that grows tax-free and can be accessed during the policyholder's lifetime. While whole life insurance is more expensive than term insurance, it offers lifelong protection and can be used as a wealth-building tool.

2. Health Insurance: Health insurance covers medical expenses, which can be crucial in the event of unexpected illnesses or accidents. It ensures that individuals don't have to worry about arranging funds for treatment and can avail themselves of the best medical care.

3. Traditional Life Insurance: Traditional life insurance plans offer both death and maturity benefits, helping individuals fulfil their lifelong goals and providing financial security to their loved ones. These plans may be more suitable for those seeking investment opportunities along with life cover.

4. ULIP Plans: Unit-Linked Insurance Plans (ULIPs) combine life insurance and investment options. They provide flexible income payout options and allow individuals to avail themselves of a loan facility, make partial withdrawals, and pay additional premiums for enhanced benefits.

5. Child Insurance Plans: These plans secure the child's future financial needs and combine insurance and investment options. They are designed to provide financial support and help fulfil the child's educational and other milestones.

When deciding which type of insurance is better, it's essential to consider your specific needs, financial goals, and budget. Term insurance may be a good choice for those seeking affordable life protection, while other options may be more suitable for those wanting additional benefits or investment opportunities.

Whole life insurance

• Premiums: Whole life insurance premiums tend to be higher than term life insurance. However, they are typically fixed throughout the policy and do not increase over time. The earlier you start, the lower your premiums will be.
• Death Benefit: Whole life insurance provides a guaranteed death benefit to your beneficiaries, regardless of when you pass away. This benefit is certain and not dependent on the timeframe.
• Cash Value: Whole life insurance accumulates cash value over time. A portion of your premiums is set aside into a savings component that grows at a guaranteed rate, usually on a tax-deferred basis. You can borrow against or withdraw from this cash value during your lifetime. However, withdrawals and loans will reduce the death benefit.
• Flexibility: Whole life insurance offers some flexibility through optional riders or add-ons that can be purchased for an additional cost. These may include disability waivers, accidental death benefits, or the ability to access a portion of the death benefit if you become chronically ill.
• Suitability: Whole life insurance is suitable for those seeking lifelong coverage and the ability to build wealth. It can be a good choice if you want to maximize the cash value for your loved ones and provide them with financial security. However, it may not be the best option if you are primarily looking for affordable coverage, as the premiums are typically higher.

High flexibility

The insurance industry is experiencing a shift towards greater flexibility in response to changing customer demands and expectations. This trend is not solely due to the pandemic but also reflects long-term changes in how people live and work.

In the UK, for example, the average number of miles driven annually has decreased by 26% since 2002, resulting in a growing market for flexible insurance products such as pay-by-mile policies and temporary insurance. This shift towards flexible insurance is also evident in other areas, such as home insurance, where there is a demand for short-term cover during renovations or extended periods away from home.

The need for flexibility is particularly pronounced in the life insurance sector, where customers are increasingly seeking modular products that offer a greater degree of choice and customisation. This trend is driven by the desire for insurance policies that can adapt to changing life circumstances and financial needs.

In response, insurance providers are developing innovative products that offer greater flexibility in terms of premium payments, death benefits, and coverage length. One example is adjustable life insurance, which combines features of term life and whole life insurance, allowing policyholders to adjust their premiums, death benefits, and payment schedules.

Another example is the specially designed life insurance policies offered to high-income professionals, which provide tax-advantaged growth and flexibility in accessing funds. These policies enable individuals to build substantial cash value within their policies, which can be accessed tax-free through policy loans. This approach offers a solution to the dual tax burden faced by high-income earners, who are taxed at a higher rate on their current income and again on withdrawals from their retirement accounts.

The shift towards greater flexibility in insurance is likely to continue, driven by evolving customer expectations and the need to adapt to changing lifestyles and financial circumstances.

Investment opportunities

Term insurance is a type of life insurance that provides coverage for a specified number of years. It is a pure protection plan, meaning that it only pays out if the insured individual dies during the term of the policy. While term insurance can be a good option for those who want affordable coverage, it does not offer any investment opportunities or maturity benefits.

On the other hand, life insurance provides both death benefits and maturity benefits, making it a better option for those who want to grow their wealth over time. Life insurance policies also offer a cash value component that grows tax-free and can be borrowed against or withdrawn. However, life insurance premiums are typically higher than term insurance premiums.

Types of Life Insurance Plans

There are several types of life insurance plans available, each with its own benefits and features:

• Whole Life Insurance Plan: Provides coverage for the entire duration of the policyholder's life, along with death benefits and maturity benefits.
• Child Insurance Plans: A combination of insurance and investment that secures the child's future financial needs.
• Unit-Linked Insurance Plans (ULIPs): A combination of life insurance and investment that provides flexibility to invest in different money-market linked assets.

Benefits of Life Insurance Plans

Life insurance plans offer several advantages over term insurance, including:

• Financial Benefits: Life insurance provides financial protection for your family in case of your untimely death, similar to term insurance.
• Dual Benefits: Life insurance offers the dual benefit of life coverage and wealth creation in the same policy.
• Wealth Creation: Life insurance allows you to create wealth by investing in plans with varying market risk funds.
• Switch Between Funds: Life insurance plans allow you to switch funds to achieve greater market returns.
• Loan Facility: You can avail of loans in case of financial emergencies, with a certain interest rate applied.

Factors to Consider

When choosing a life insurance plan, it is important to consider your monetary goals, both long-term and short-term. You should also evaluate your present-day expenses and financial dependents to determine the amount of coverage you need. Additionally, it is crucial to understand the risk and return associated with different investment plans, as plans with higher potential returns also carry a higher level of risk.

Maturity benefits

• Entry age- The entry age of the TROP plan generally ranges from 18 years to 65 years.
• Premium paying options- The policy offers single pay, limited pay and regular pay options for premium payment.
• Policy maturity- The maturity age differs from plan to plan.
• Premium payment mode- The plan offers monthly or yearly premium payment modes.
• Coverage- Term plan offers both maturity and death benefits. You can also choose a nominee.
• Policy term- The minimum policy term is 5 years, and the maximum term can be between 30 and 35 years.
• Premium rates- The plan quotes are based on the sum assured amount and the age of the policyholder.
• Survival benefit- Upon maturity of the term plan, i.e. if the policyholder survives the policy duration, the insurer refunds the entire premium amount.
• Death benefit- In the unfortunate event of the policyholder's death, the nominee receives the sum assured along with any accrued bonus.
• Tax benefit- Policyholders are eligible for tax benefits on premiums paid under Section 80C of the Income Tax Act.
• Additional features- The term insurance with maturity benefit policy offers the flexibility to enhance coverage through riders/add-ons, such as Critical Illness and Accidental Death or Disability riders.

Tax benefits

Term insurance plans offer tax benefits to the policyholder under sections 80C, 80D, and 10(10D) of the Income Tax Act, 1961.

Section 80C Benefits

Under section 80C, the policyholder can claim deductions of up to INR 1,50,000 per year on the premiums paid towards the term insurance policy. It is important to note that the premium amount should be less than 10% of the sum assured when claiming this deduction.

Section 80D Benefits

Section 80D deals with health insurance policies, but term insurance plans with critical illness riders can also provide benefits under this section. If the policyholder has a critical illness rider on their term plan, they may be eligible for deductions of up to INR 25,000 or INR 50,000 for senior citizens.

Section 10(10D) Benefits

Under section 10(10D), the death proceeds received by the beneficiaries from the term insurance plan are exempt from tax without any cap on the claim amount. This means that the beneficiaries will receive the full death benefit payout without having to pay any taxes on it.

Life insurance plans also offer tax benefits under sections 80C, 80D, and 10(10D) of the Income Tax Act, 1961.

Section 80C Benefits

Similar to term insurance, life insurance policyholders can claim deductions of up to INR 1,50,000 per year on the premiums paid. The premium amount should be less than 10% of the sum assured when claiming this deduction.

Section 80D Benefits

Life insurance plans that include health coverage or critical illness riders can provide additional deductions under section 80D. The deductions may vary depending on the age of the insured and the number of policies held.

Section 10(10D) Benefits

The maturity or death proceeds received from a life insurance plan are generally exempt from tax under section 10(10D). However, there may be certain conditions that need to be met for the policyholder or beneficiaries to avail of this tax benefit.

Frequently asked questions