Introduction:

Term insurance is a pure life insurance product that provides coverage for a certain period of time, usually years, wherein if the insured dies within the policy tenure, a death benefit is paid out to the beneficiaries of the policyholder. This death benefit is the sum assured as per the policy papers and no pay-out is made as survival benefit.

Predicting what the future entails is the riskiest undertaking. The world is in continuous flux and even though we avoid the topic of death, the truth is it can strike anyone anytime. Life insurance, therefore, becomes an important tool in the financial portfolio to protect against this uncertainty. Term Insurance offers a high life cover at a nominal premium such that the insured or the assured life pays a small amount as premium for a certain period called the tenure and, in case something unfortunate occurs, the insured’s family or nominee is given a large lump sum amount called the sum assured.

 

It is clear that term plans help ensure a good life for your family even in your absence, but recently term plans have become even popular. Let’s explore this trend:

 

• Affordable life insurance through term plans

As a pure insurance product, term insurance plans are affordably priced. They are also fairly simple in its presentation: a life cover for a certain sum termed as ‘sum assured’ is offered for a specified period called ‘policy term’. If the insured person dies during the term of the policy, the sum assured is paid to the nominee. The premium calculation is fairly straightforward and reasonable.

• Maximum life cover through term plans

By 2020, the Indian population will have the maximum number of young individuals joining the workforce. In the absence of a social security system, these individuals will require life insurance as a means of financial protection.

As a pure protection product,term insurance gives maximum cover. In comparison, if we look at other insurance products like endowment or money back policies that contain an investment component, it is clear that we stay under-insured. It has been reported that buying term plans can help combat the issue of gross under-insurance, which is endemic in India.

 

• Flexibility under term plans

When you choose a term insurance plan, you have the option to pay premiums on a monthly, semi-annual, or annual basis, and even plans that offer single pay premium option. For the person who is paying the premium, such flexibilities offer convenience plus the ability to pay premium amounts that are in keeping with their budget.

 

• Additional riders

Riders are additional benefits that can be added over and above the basic policy for an added layer of protection. Some popular riders available with term insurance plans include accidental death rider, disability rider, critical illness rider, income benefit rider, waiver of premium rider, etc. It helps increase the scope covered under the policy.

 

• Tax benefits

Tax deduction under Section 80C of the Income Tax Act, 1961 allows exemption up to Rs.1.5 lakh per anum for the premium amount you pay for the term insurance. Under Section 10(10D) of Income Tax Act, the sum assured amount plus bonus (if any) paid in case of death of the insured is entirely tax-free for the receiver.