Dual Benefit of Protection and Tax Saving – Term Insurance

No one ever anticipates needing a life insurance, but unexpected may happen. So, having a Life insurance is always a good idea when you have financial obligations – like a family dependent on you, a loan or other debts.

A term insurance is basically a life insurance that provides a specific amount of coverage for a specific period of time against a fixed periodic premium and if the insured dies during that period a death benefit (sum assured) is paid out to the nominee (beneficiary). There is no survival or maturity benefit once the policy term expires. (Note: few insurance companies offers term plans with ROP*)With term insurance, the insured is generally paying for the death benefit (the payment the beneficiaries will receive if the insured dies within the policy term) only. A term insurance plan is a pure insurance plan without any return on investment component attached to it. So you can have the highest life cover with a very low premium. Premium of a term insurance is lower than any other life insurance plan for the same life cover.

It is always better to start a term insurance plan early in life as the premium depends, among other factors, on age of the person to be insured and thus if one buys a term insurance plan early in his/her life, the premium will be comparatively lower and this premium once fixed remains same throughout the policy term(Note: other factors like duration of insurance – policy term, whether the person to be insured is a smoker /non smoker etc. are also considered whiling calculating the premium)

A term insurance plan offers a longer life cover compared to other life insurance plans. Some companies even offer cover till 99 years of age. These plans also comes with additional riders, that a person can have for additional benefits. Some of the commonly offered riders are accidental death cover, critical illness cover etc. Opting for  a rider is optional. Term insurance plan is also a contributor to ones tax saving. One can avail tax benefit of deduction of Rs. 1,50,000 per annum under Section 80C of the Income Tax Act 1961  for premiums paid for term insurance plan.

Term plans comes with varied premium paying options (as offered by the insurance company) to suit varied customers. Some of the options are – regular yearly payment till the policy term, monthly premium payment till the policy term, limited payment options for 5 yrs / 10 yrs and cover till the policy term etc.Lets understand few more things about term insurance plan:

While selecting a term insurance plan don’t just look for the low premium plans as, though it is an important factor, there might be several other factors that may not be suitable to your needs. You should consider factors like the insurance companies reputation, terms and conditions, how much cover you need and effect of inflation factor on premiums and cover etc. There is eligible criteria related to age, income etc. to have a term insurance plan. These varies with the insurance company.

You can have more than one term insurance plan from different insurance companies. Though it does not make much sense to have more than two term insurance plans as it  may complicate claim processes in terms of efforts needed. (Note: having two policies may save your protection plan for your family in case of rejection of claim from one of the two companies) 

Though you can buy a term plan offline as well as online, it is always better to buy it offline through an advisor for the advises and services that you will receive personally (which is difficult to experience for policies bought online).

With Return of premium term (ROP) insurance policy, the policy holder gets back the premiums paid by him/her during the policy period, at the end of the policy term, if he survives. Obviously ROP policies comes with a higher premium for the benefit that the insured gets the money back if he/she outlives the policy term.

You can always reach us for more on term insurance.

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