Life is short, and you can never predict what the future holds. While you make all the efforts to provide a comfortable lifestyle for your loved ones, have you ever wondered what would they do in your absence?
To make sure that your family is financially secure even in your absence, you can opt for a term insurance plan. It not only helps prepare for uncertainties but is also the most cost-effective way to mitigate risks. However, before taking the best term insurance, it is important to understand the same in-depth. Read on to know more about term insurance plans.
What is Term Insurance?
A term insurance plan is the simplest and purest risk cover form of life insurance. It offers financial protection to your loved ones against a fixed premium paid for a certain period.
It is best to take one when you are young as the premiums are lower. Besides, anybody can buy a term plan, be it newly married couples, young individuals or parents.
Difference Between Term Insurance and Life Insurance
Both term plans and life insurance are beneficial to secure the financial future of your loved ones. Individuals can make the right choice by comparing the two plans.
Below are the major distinguishing factors of term insurance and life insurance.
A term insurance plan usually has a lower premium than whole life insurance. You must also know that in a term plan, the whole amount is allocated towards providing insurance coverage. This is not the case with a life insurance plan. A part of the premium is allocated towards coverage while the rest is invested.
The accumulated amount is returned at the sum assured value to the policyholder if the policyholder withdraws, surrenders or lives up to the maturity period.
Term insurance offers coverage for a specific period of 10, 20 or 30 years. Life insurance comes with flexible tenure and is usually applicable until the insured reaches 100 years of age.
A part of life insurance premiums is invested in certain financial instruments; thus, a cash value is built over time. It can be used by the policyholder to get a loan at a low-interest rate. On the contrary, term plans do not offer such benefits.
Reasons to Get Term Insurance
Provides Financial Security
In your 20s, 30s and 40s, you are an earning member of the family. While you may or may not be the only breadwinner, your earnings definitely keep the wheel running. For this reason, it is important to take the best term plan at a young age so that their lives are not hindered in your absence.
Because of the absence of investment element in term insurance, the premium for all types of term insurance is low. You may have to pay only about a per cent of your annual income to get a life cover. It is one of the best term insurance benefits, since it allows you to get long-term coverage at a nominal price.
It is easy to compare term insurance, primarily based on cost. The structure and operations of term plans are similar, allowing easy comparison of different plans with ease.
This uncomplicated basis of different policies and ease of understanding have resulted in competitive pricing.
There are several ways to get tax benefits, and buying a term insurance plan is one of them. When you are a significant earning member of the family, you must focus on saving taxes. Under section 80C of income tax, individuals can avail a deduction of up to 1.5 lakhs on term policies.
In addition, the death benefit paid to the nominee is also exempted under section 10D.
When you buy a term plan, you get additional benefits known as riders. These benefits come at a nominal fee and should be taken if required.
Some of the riders you can opt for along with a term insurance plan include cover for critical illness, partial or permanent disability and death due to accidents. As a policyholder, the best term insurance for you is the one that takes care of your specific financial needs.
Payment of Sum Assured
Upon the policyholder’s demise, the nominees can receive the sum assured as the payout. This payment can be received as a lump sum amount or an income that can be received monthly or yearly.
How Important is it to Choose the Best Term Insurance?
With several options available, choosing the best term insurance becomes a task. Therefore, it is essential to have an in-depth understanding of term insurance and its benefits.
Saying that, it is not essential to look for every benefit in the term plan, but you must sit back and understand your family’s requirements before taking the policy.
Also, the rule of thumb is to choose the cover that is 8-10 times your annual income. Compare different policies online, read the policy documents carefully and buy the one that suits your requirement the best.